There are many ways for American workers to build wealth. They can mix money under the mattress, buy bank certificates of deposit (CDs) or bonds, or buy a house and cross their fingers that it appreciates faster than the rate of inflation. in force. But over the long term, no investment vehicle has produced a higher annualized return than stocks.
If you invest in big companies and let your investment thesis unfold over many years, if not decades, stocks have the power to make the American worker richer.
Of course, there is no single definition of being rich. For some people, that might mean buying their dream car or owning a boat. For others, ârichâ could mean the added value of spending more time with family or not having to worry about paying their monthly bills.
As American workers retire, the following five winning stocks have the potential to make them rich.
Sometimes the best long-term investments are boring. This is the case with Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), the conglomerate run by billionaire Warren Buffett since 1965. In more than five decades at the helm of Buffett, he has created more than $ 500 billion in value for Berkshire Hathaway shareholders and has overseen an average annual return of 20% . Overall, we’re talking about a return closer to 3,400,000% for Class A (BRK.A) shares, taking into account the gains since the start of the year.
One of the reasons Berkshire is such a successful business is because of its cyclical ties. The majority of the company’s nearly $ 323 billion investment portfolio is related to technology, financials, and consumer staples. These are sectors that work very well when the US and global economy is in full swing. While recessions are inevitably part of the business cycle, Buffett is keenly aware that periods of expansion last much longer than periods of contraction. In other words, the Oracle of Omaha is simply playing luck.
The other key to Berkshire’s superior returns is its connection to dividend-paying stocks. Although Berkshire does not pay a dividend, many of the companies it invests in do. All told, my calculation on the back of the envelope shows that Berkshire brought in around $ 5.1 billion in dividend income this year. Based on its initial cost, this equates to a return of around 5%, which is incredibly good, and indicates the likelihood of the business being very successful for many years to come.
Companies with clearly identifiable and lasting competitive advantages are also a smart place to make money work. Developer of robotic surgical assistance systems Intuitive surgery (NASDAQ: ISRG) is a perfect example of a company with a strong presence that can make American workers richer.
By the end of the first half of 2021, Intuitive Surgical had installed 6,335 of its da Vinci surgical systems worldwide (although most are in the United States). You could add up all of the company’s competitors, and you still wouldn’t come close to the number of surgical systems installed by Intuitive. Between the high cost of these systems ($ 0.5 to $ 2.5 million), the training provided to surgeons, and the relationships built over the past 20 years, Intuitive Surgical effectively locks its clients away for a long time to come.
Most importantly, Intuitive Surgical is designed to improve its operating margins over time. That’s a fancy way of saying that profit growth can exceed sales growth for years, if not decades, to come.
Initially, the sale of its da Vinci systems accounted for the bulk of the company’s revenue. But these are complex systems to build, which means the margins weren’t that big. Over time, most of Intuitive’s sales now come from the instruments sold with each procedure and from the maintenance of its systems. These are higher margin categories and the company’s ticket to growing bottom lines.
If you want unbridled innovation, look no further than fintech stock Square (NYSE: SQ). Despite its enormous journey since the trough of the pandemic in March 2020, it has all the tools necessary to eventually become a $ 1 trillion company.
Square’s core segment continues to be its ecosystem of sellers. This is what provides point of sale devices, analytics, loans, and other tools to help traders grow their business successfully. In the seven years leading up to the pandemic, the gross volume of payments (GPV) grew from $ 6.5 billion to $ 106.2 billion. This year, GPV should easily make $ 140 billion.
Something interesting to note about the seller ecosystem is that it is no longer just for small traders. In the quarter ended June, 65% of all GPVs came from vendors with at least $ 125,000 in annualized GPV. This is an increase of 10 percentage points from the comparable period of 2019. Since this is a segment focused on trader fees, bigger traders mean more gross profit.
However, all eyes are on the digital peer-to-peer payment platform Cash App, which has more than quintupled its monthly number of active users in three years. Cash App expands Square’s revenue-generating ability and generated gross profit of $ 55 per user in the second quarter, compared to an acquisition cost per user of just around $ 5. These insane margins should propel Square’s valuation much higher.
Another winning action with the potential to make retired American workers rich is the emergence of social media. Pinterest (NYSE: PINS).
While the focus was on Pinterest’s Monthly Active User Retracement (MAU) in the second quarter, this short-term incident overlooks some very fundamental and positive trends. For example, user growth declined in the second quarter of 2021, but remains well within historical norms, when viewed over a three-year period.
What’s much more important is that Pinterest’s average revenue per user (ARPU) continues to soar. Despite the sequential quarterly retracement of the MAU in the second quarter, the global ARPU rose 89% year-over-year, with the international ARPU up 163% even more impressive. What this tells us is that merchants are willing to pay to reach Pinterest’s MAU base of 454 million people. That’s a lot of potentially motivated people, and traders know it.
Ultimately, Pinterest is still in the early days of monetizing what could become a leading ecommerce platform. While most social media forces advertisers to guess the interests of users somewhat, Pinterest MAUs readily share places, services, and things that interest them. All Pinterest has to do is keep users engaged for its middleman ecommerce platform to work its magic.
A fifth and final winning title that can help American workers retire wealthy and on their own terms is the cloud-based customer relationship management (CRM) software provider. Salesforce.com (NYSE: CRM).
Simply put, consumer-oriented businesses use CRM software to improve customer relationships and improve sales. In addition to accessing and recording real-time customer information, CRM software is used to manage online marketing campaigns, manage service issues, and run predictive analytics on a company’s existing customer base. .
If you’re wondering where Salesforce fits in the CRM space, this is the clear alpha. In the first half of 2020, IDC found that almost $ 0.20 of every $ 1 spent globally on CRM was spent through Salesforce. The company’s four biggest competitors don’t even represent Salesforce’s market share in the CRM space. Translation: The company’s position as an industry leader is very secure.
Salesforce CEO Marc Benioff has also done an exemplary job of expansion by acquisition. Purchases from MuleSoft, Tableau and, more recently, Slack Technologies have helped expand its customer-centric ecosystem and attract more small and medium businesses. With Benioff calling for $ 50 billion in annual sales by FY 2026 (Salesforce reported $ 21.3 billion in sales in FY 2021), it’s a good bet to outperform for investors. .
This article represents the opinion of the author, who may disagree with the âofficialâ recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.