A great way to position for success in the stock market is to look for companies that not only have great long-term prospects but, importantly, have catalysts in the near term that can send their share prices higher.
Here are two promising stocks that are set up for great returns over the next few years.
1. Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing (TSM -0.26%) enjoys a lucrative position as one of the leading chip foundries. Last year, it earned nearly $27 billion in net profit on $69 billion of revenue. Its high profit margin reflects a substantial competitive moat based on its commitment to quality chip production, which has attracted the business of Nvidia, Advanced Micro Devices, and other semiconductor companies.
TSMC makes a variety of chips used for everything from smartphones to data centers. Demand for artificial intelligence (AI) chips in the data center is the hot item right now, while other markets using TSMC's chips are experiencing weak end-market demand. In the first quarter, the company's revenue was down 5% over the fourth quarter.
Still, the stock is sitting close to new highs. The shift to AI-optimized servers in the data center market is a key growth catalyst for TSMC, while another catalyst could emerge later this year as the PC and smartphone markets continue their recovery.
Specifically, TSMC is benefiting from the strong demand for Nvidia's graphics processing units (GPUs) used for AI training. The Wall Street consensus has the company's earnings per share growing at an annualized rate of 22% over the next several years, which also assumes the eventual recovery across all of TSMC's end markets.
TSMC offers above-average growth prospects at an average valuation. The shares currently trade at a reasonable forward price-to-earnings (P/E) ratio of 24, so investors should earn market-beating returns even from these highs. By the time TSMC is clicking on all cylinders again, the stock will likely trade at a higher P/E multiple.
2. Uber Technologies
Uber Technologies (UBER -0.72%) has emerged as a force in the global transportation market. Its platform includes over 7 million drivers and couriers. The company is seeing double-digit growth in all the right metrics -- trips, monthly active customers, and revenue -- but the stock may offer substantial upside as it starts to grow profits, too.
Uber is seeing strong demand in its mobility business, including ridesharing. The number of trips grew 21% year over year in the first quarter. Management is expanding access to Uber by adding more restaurants to the platform, in addition to expanding into areas like grocery deliveries, all while holding the line on costs.
The stock's recent dip gives investors a great entry point to start a position or buy more shares. In the first quarter, Uber turned a year-ago operating loss into an operating profit. It's starting a strong trend of profitable growth, which is a catalyst for the stock.
The Wall Street consensus projects Uber's earnings growing at an annualized rate of 45%. If Uber hits the $4.30 EPS estimate in 2026, and the shares are still trading at the current forward P/E of 32, investors should realize a similar return as the company's earnings growth.
