Owning chunks of the world's most powerful firms and letting them multiply for decades may be an easy way to build wealth in the stock market. But you can't simply choose any stock; most won't hold up in the long run.
If something is broken, don't repair it all of the time. Compounding has been practiced by certain businesses for decades, and they are still going strong today. If you want to invest your hard-earned money in stocks that will allow you to sleep well at night while also increasing your fortune, look no further.
Berkshire Hathaway
Investment in Berkshire Hathaway (NYSE: BRK.B), a holding corporation, means putting your money in the hands of investing titans like Charlie Munger and Warren Buffett, who still steer the ship. Geico, Duracell, and Fruit of the Loom are among the private firms in which the corporation has invested, as well as investments in public companies such as Apple, Coca-Cola, and American Express.
Berkshire Hathaway's book value (which is the entire worth of the company's assets less its commitments such as debt) has continuously increased for decades, and the price of its shares has followed suit. From 1964 through 2018, the stock returned more than 20% annual returns to investors, generating enormous wealth for them. Warren Buffett will be ready for Berkshire's next Apple-like opportunity with more than $144 billion in cash and short-term investments on the balance sheet.
Sherwin-Williams
Sherwin-Williams (NYSE: SHW), a paint and coatings company, sells more than one-fourth of all paint cans in North America. Its goods are sold in retail shops and its name-brand store network under a variety of brand names. You're purchasing Sherwin-Williams products again and over again, whether you're a homeowner rebuilding or putting an annual coat of stain on a deck, or a contractor working on commercial projects.
Sherwin-Williams generates almost $0.17 in free cash flow for every dollar of sales, much of which is returned to shareholders in the form of dividends. The corporation is also a Dividend Aristocrat, with 43 straight annual dividend increases and a stock that has returned more than 85,000 percent in its lifespan. Over the last decade, the company has increased sales by an average of 9% each year, indicating that there is still room for growth in this tried and true compounder.
Home Depot
Homeowners are likely aware with Home Depot (NYSE: HD), where they've likely spent weekends purchasing appliances, equipment, or garden plants for a variety of home improvements. In the face of competition from e-commerce giants like Amazon, the company's brand strength, vast retail base, and product range have helped it thrive.
Over the last decade, revenue has climbed by an average of 7%.
The stock has been a long-term winner, generating millions of dollars for investors who put tiny amounts of money into it at the time of its IPO and kept it for decades. However, Home Depot's success story may not yet be complete. The company's latest 12-month sales was $147 billion, while Bank of America puts the overall worth of the home renovation industry at $767 billion, with opportunity to rise to more than $1 trillion in the future. Home Depot should be able to expand its market share and profit from rising home renovation expenditure in the future.
Abbott Laboratories
The desire to keep people healthy and treat the world's various ailments is continuous in the healthcare business. Abbott Laboratories (NYSE: ABT) is a multinational healthcare company that offers consumer goods, medical equipment, and generic pharmaceuticals. After spinning off most of its pharmaceutical business as AbbVie in 2013, the corporation retooled itself during the last decade.
Abbott positioned itself to concentrate on medical devices for cardiovascular applications, diabetes, and diagnostics after acquiring St. Jude Medical for $25 billion and Alere for $5.8 billion in 2016. The company's revenue has been steady over the last decade, but has increased at an annual pace of 11% on average during the last five years, indicating that Abbott's growth strategies are succeeding.
Abbott also has a long history of paying out dividends; it's an Annual King, with a 1.6 percent dividend yield for investors seeking for a return on their money.
Microsoft
Microsoft (NASDAQ: MSFT) is a technology giant that is involved in practically every aspect of the industry, including PC operating systems, corporate software, gaming hardware, and software, as well as being one of the three main public cloud platforms. It has also developed into one of the world's greatest corporations throughout the years, with a market capitalization of $2.1 trillion as of today.
Despite its size, Microsoft continues to prosper, with annual revenue growth averaging 14.5 percent over the last five years. Microsoft's cloud platform, Azure, might help the corporation flourish in the future. In Microsoft's most recent quarter, which concluded on December 31, it increased by 46%.
According to Research & Markets, a secular transition from on-premise servers to public cloud platforms is underway, and the worldwide cloud business may be worth $1 trillion by 2027.
We like these ten stocks more than Berkshire Hathaway (A shares)
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Mastercard
In the payment processing sector, Mastercard and Visa have a duopoly. These two businesses are vital to world trade, and reports of their extinction have been grossly overstated. In fact, in 2021, Mastercard alone handled $7.7 trillion in gross dollar volume transactions. Except for the United States and China, this is greater than the GDP of every nation in the earth.
The danger of buy now, pay later (BNPL) to credit card corporations has received a lot of attention. While BNPL is here to stay, its threat to the credit card behemoths is exaggerated. In the United States, Australia, and the United Kingdom, Mastercard is launching its own BNPL platform called Mastercard Installments. Mastercard has vast resources, therefore it's not unreasonable to imagine it can become a major BNPL participant.
BNPL also has a number of drawbacks. BNPL is often only available for minor transactions of a few hundred dollars or less. Furthermore, although the transactions may be interest-free, late penalties sometimes surpass the standard interest rate. The Consumer Financial Protection Bureau is considering new laws that may limit the business. Although BNPL is popular among customers, it is unlikely to unseat Mastercard and Visa.
In 2021, Mastercard's revenues increased by 23% to about $19 billion. In 2021, the firm generated $9.5 billion in cash from operations and paid out $7.6 billion in dividends and stock buybacks to shareholders. Through 2024, the business expects to expand profits per share by 20% or more year while maintaining a fantastic operating margin of over 50%. With the company presently selling at 14% below its 52-week high, it might be a good moment to invest.
Apple
There has never been a poor moment to acquire and hold Apple shares for a long-term investor. And it's probable that this time will be no different. In the first quarter of fiscal 2022, Apple had its all-time highest sales quarter, and the trend is expected to continue. Although each income stream saw considerable improvements in fiscal 2021, the iPhone remains the company's bread and butter.
Apple's iPhone sales topped $192 billion in fiscal 2021, and the corporation still has a few revenue-generating tricks in its sleeve. Consumers will be able to purchase gear in return for monthly payments, according to the business. This strategy is a great win-win situation. It will assist customers who cannot afford to pay for a new gadget up front, as well as the corporation, by generating ongoing income.
Apple makes a lot of money and gives a lot of it back to its stockholders. It spent nearly $85 billion on share repurchases and $14.5 billion on dividend payments in fiscal 2021 alone. This pattern continued in Q1 2022, with another $27 billion in profits.
Apple's stock is now selling at a discount of less than 8% to its all-time high, but this should not deter investors. According to Bank of America, fund managers now control over 75% of Apple shares, which is a new high. Long-term investors would be advised to join the professionals in betting on fresh all-time highs.
ASML Holding
If you feel that the world's need for smaller, denser, and more powerful chips will continue to grow, you should invest in ASML, a Dutch semiconductor equipment manufacturer.
Photolithography systems are used to etch circuit designs into silicon wafers, and ASML is the world's leading manufacturer of these equipment. It's also the only company in the industry that makes extreme ultraviolet (EUV) lithography equipment, which cost over $150 million each, need numerous aircraft to transport, and are essential for the fabrication of the world's tiniest chips. Over the last three decades, ASML has developed its EUV technology, making it almost hard for lesser photolithography equipment manufacturers to get into the market.
ASML's current-generation EUV machines are used by Taiwan Semiconductor Manufacturing, Samsung, and Intel, and they will continue to employ its next-generation "high-NA" EUV equipment to make even smaller chips. As a result of these strong ties, ASML has become a key player in the worldwide semiconductor industry.
ASML, like Apple, gives back a large portion of its profits to shareholders in the form of stock buybacks and dividends. Over the last ten years, it has decreased the number of outstanding shares by 28% while its stock price has increased by more than 880 percent. It delivered a market-beating total return of nearly 1,000 percent once dividends were taken into account.
ASML is facing some short-term supply difficulties, and its stock, at 36 times forecast earnings, may seem to be a touch overpriced. However, its monopoly on a crucial chipmaking technology, rock-solid growth rates, and shareholder-friendly procedures all justify the higher price tag.
Meta Platforms
In February, Meta's shares plummeted after the social media company forecasted revenue growth of just 3% -11 percent year over year in the first quarter. Apple's iOS privacy upgrade, which interrupted its targeted adverts, and competition from ByteDance's TikTok were also blamed for the slowdown.
Investors were particularly disturbed by its commitment to burning more cash with its Reality Labs metaverse company, which had an operating loss of $10.2 billion in 2021.
The sell-off did, however, drop Meta's forward price-to-earnings ratio to 18, making it the cheapest FAANG company by a long by. Even after accounting for its near-term downturn, analysts anticipate Meta's sales to expand 12% this year and another 17% in 2023, indicating that it is far from dead.
Despite this, Meta's family of applications (Facebook, Messenger, Instagram, and WhatsApp) had 3.59 billion monthly users by the end of 2021, accounting for about half of the world's population. That's an increase of 9% over a year earlier. It also has a near-duopoly in digital advertising with Alphabet's Google in many areas, so most advertisers will likely stick with it.
Meta is experiencing some short-term growth pains as it focuses more on video content, which is more difficult to sell, and its money-losing metaverse expansion. However, Meta is expected to develop new methods to monetize its enormous audience and earn higher returns for its investors in the long run.
Walt Disney
Walt Disney (DIS, $130.84) is one of the few companies that has shown its capacity to change quickly.
The epidemic had the potential to be Disney's ruin. For months, its theme parks were shuttered or had restricted capacity. Its film industry was doomed from the start. The cancellation or limitation of most professional sports for months threw ESPN's sports programming business into disarray.
Despite this, Argus Research analyst Joseph Bonner, who rates DIS shares as Buy, believes that "the ancient adage that 'luck favors the prepared' may be applied to Disney's November 2019 debut of the Disney+ video service." Suddenly, tens of millions of bored, housebound individuals had the desire (and the leisure) to binge-watch Disney, Marvel, and Star Wars stuff.
Disney+ was an immediate smash, exceeding all forecasts and propelling Disney's stock considerably up in 2020. However, in 2021, DIS shares fell down to earth and are now down approximately 31% from their 52-week highs.
But there's a catch: nothing has changed. Disney+ is still proving to be the most formidable Netflix (NFLX) opponent, with an unequaled library of material amassed over the years. Disney's movie industry is resurgent, as indicated by the slew of upcoming Marvel superhero films. Did you truly expect the theme parks will be shut down for a long time?
"As the firm rebounds from the epidemic, we estimate EPS to double in FY22, with more typical but still impressive 17 percent growth in FY23," Bonner writes.
The communication stock is now trading at a little discount to where it was just before the epidemic started. Disney's empire, on the other hand, has only increased since then. DIS is primed to be one of the finest companies to purchase for 2022, thanks to this and a recent share-price slowdown.
Uber Technologies
The ride-sharing platform Uber Technologies (UBER, $31.99) connects passengers with drivers in 63 countries and 750 cities. Customers, restaurants, and drivers are all brought together by Uber Eats. A freight division of the corporation is also growing.
In the third quarter of 2021, Uber achieved a significant milestone by making a profit (before interest, taxes, depreciation, and amortization expenditures).
The pioneer of "mobility as a service" is a top internet stock selection at BofA Global Research, particularly when cities reopen after the epidemic.
Despite the fact that profits per share are expected to be negative in 2022, BofA analysts have given the stock a Buy recommendation, noting the company's stronger financial situation, growing supply of drivers, and market share improvements. They also predict that in the following 12 months, the stock will trade at $55, a 72 percent increase from present levels. That would almost certainly be sufficient to rank it among the top stocks for 2022.
LHC Group
A few months ago, Kiplinger's Personal Finance contributor James A. Glassman suggested AB Small Cap Growth (QUASX), a fund that has delivered an incredible 29.8% annualized return over the last five years.
He's now seeing QUASX as one of the top stocks to purchase in 2022.
LHC Group (LHCG, $167.35), established in Louisiana, is a supplier of post-acute care, including home health and hospice services, with over 700 sites. AB Small Cap Growth has been adding to its holdings in LHC Group (LHCG, $167.35).
Healthcare is a growing sector as the population ages. After setbacks from storms and healthcare personnel being forced to quarantine due to COVID-19, the stock began the year well-priced.
In the end, LHC Group was a good gamble... but one that investors won't be able to profit from any longer. UnitedHealth Group (UNH) announced in late March that it will purchase the firm for $5.4 billion in a transaction that is slated to finish later this year. As a consequence, until its shares are removed off the market, LHCG stock should basically be locked into a 20 percent-plus 2022 return.
Chevron
We could wish for a more environmentally friendly future. However, plain old-fashioned oil and gas are still the lifeblood of the global economy.
Many of the growth and tech stocks that fueled the previous decade's bull market seem to be overvalued. As a result, investors looking for the best companies to purchase in 2022 may want to consider more classic value bets.
Chevron (CVX, $169.01) is an energy behemoth that meets the description.
CVX is now trading at 14 times projected profits for 2022, with a 3.4 percent dividend yield. That's a bargain in a market that's the most expensive it's been since the late 1990s boom... and for a company that's already up 46 percent in 2022.
Stocks in the energy sector are unloved and under-owned. Only a decade ago, the oil industry accounted for 13% of the S&P 500. They now account for around 2% of the population. Some of this is due to green requirements to diversify away from oil and gas, but the majority is simply due to energy equities' awful oversupplied market since late 2014.
But here's the thing: Here's the thing: No market can remain oversupplied indefinitely. And, over the last several years, the harsh climate has pushed many marginal operators out of business and many marginal projects offline. As a consequence, the market is now in better shape. Energy prices rose sharply in 2021, as supply and demand were in balance (and have continued the momentum into 2022).
If this pattern continues, only time will tell. Additional COVID versions might emerge, reducing oil need. However, other research firms predict greater oil prices in the next year, including the Wells Fargo Investment Institute, which predicts a 19% to 39% increase to between $120 and $140 per barrel.
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