Putting your money to work on Wall Street isn’t always a joyride. Last year, the ageless Dow Jones Industrial Average, widely followed S&P 500, and growth-driven Nasdaq Composite all fell into respective bear markets and produced their worst returns since the Great Recession.
But things look drastically different when you pan out. Despite the S&P 500 enduring 39 separate double-digit percentage corrections since the beginning of 1950, every single one of these declines, save for the current bear market, was eventually recouped (and then some) by a bull market rally. For investors with time on their side, every sizable drop in the major indexes represents a surefire buying opportunity.
However, you don’t have to invest in high-volatility stocks to reap these long-term rewards. Safe stocks do exist that can deliver meaningful returns for patient investors.
What follows are three unstoppable stocks that have the tools and intangibles needed to safely turn a $325,000 initial investment into $1 million, including dividends paid (where applicable), by 2033.
Pinterest
The first unstoppable stock that has more than enough potential to safely deliver a 208% return on an initial investment of $325,000 is social media stock Pinterest (PINS).
The clear-cut headwind for Pinterest at the moment is weakening ad spending. Anytime the U.S. or global economy show signs of weakening, advertisers are quick to pare back their spending. Since Pinterest generates the lion’s share of its revenue from ad spending, the growing likelihood of a U.S. recession doesn’t bode well for the company’s near-term operating performance.
But the important thing for investors to do is pan out. Even though recessions are an inevitable part of the economic cycle, the one dozen U.S. recessions that have occurred after World War II have lasted only two to 18 months. By comparison, economic expansions last disproportionately longer than recessions. Buying well-run businesses that are reliant on ad revenue during stock market corrections has historically been a smart move.
On a more company-specific basis, Pinterest has impressed with its ability to monetize its user base. Despite its monthly active user (MAU) count fluctuating pretty significantly during the various stages of the pandemic, Pinterest’s average revenue per user has continued to climb. What this tells investors is that advertisers are willing to pay a premium to get their message(s) in front of the company’s 450 million MAUs. Therefore, Pinterest should, more often than not, possess strong ad-pricing power.
Additionally, Pinterest finds itself relatively immune to the data-tracking changes imposed by app developers. Whereas most social media companies rely on data-tracking tools, likes, and other indicators to help advertisers target users, Pinterest’s entire operating model is based on its MAUs willingly sharing what things, places, and services interest them. Even if users opt out of data tracking when downloading the Pinterest app, a user’s pinned board provides the relevant info merchants need for targeted messaging.
Pinterest has laid the foundation to eventually become a significant e-commerce player, which should be more than enough of a catalyst to triple its share price over the next decade.
Paramount Global
A second unstoppable stock that has the necessary catalysts to turn a $325,000 initial investment in 2023 into a cool $1 million by 2033, including dividends paid, is media stock Paramount Global (PARA). Paramount is currently doling out a 4.26% yield.
The reason Paramount’s stock finds itself under pressure is also weaker ad spending. Despite having a multitude of sales channels, the company’s legacy TV media segment still leans heavily on advertising revenue. Inclusive of ads tied to its direct-to-consumer (DTC) segment and its film division, advertising accounted for $10.91 billion of the company’s $30.15 billion in total revenue in 2022. If the U.S. economy falls into a recession, more than a third of Paramount’s revenue would be at risk of declining.
But as noted with Pinterest, advertisers benefit from substantially longer periods of economic expansion relative to contraction. A media juggernaut like Paramount, which owns CBS-branded assets and a host of popular cable networks, shouldn’t have any trouble commanding strong ad-pricing power more often than not.
However, it’s not Paramount’s legacy media assets that will propel investors to a 208% total return over the next 10 years. That honor is expected to go to the company’s rapidly growing DTC segment.
Between Sept. 30, 2021 and Dec. 31, 2022, Paramount Global added 30 million subscribers to reach 77 million. What’s even more impressive about this subscriber growth is it includes the loss of 3.9 million DTC subs when the company pulled its services from Russia during the second quarter of last year. Even though DTC is a money-losing segment at the moment, Paramount should be able to use its pricing power (coupled with organic subscriber growth) and cost-cutting levers to work its way to a hearty profit sooner than later.
What’s more, Paramount owns Pluto TV, the nation’s No. 1 free, ad-supported streaming service. The 79 million MAUs Pluto TV is attracting isn’t going unnoticed by advertisers. If a U.S. recession does materialize, Pluto TV could be the prime beneficiary in the streaming space.
Berkshire Hathaway
A third unstoppable stock that can safely turn a $325,000 initial investment into $1 million by 2033 is conglomerate Berkshire Hathaway (BRK.A) (BRK.B). This is the company run by famous billionaire CEO Warren Buffett.
The Oracle of Omaha has been running circles around Wall Street since taking the reins at Berkshire Hathaway in the mid-1960s. On an annualized basis, Buffett has led his company’s Class A shares (BRK.A) to a return of 19.8% over 58 years. That’s double the 9.9% total return for the benchmark S&P 500 over the same time frame.
On an aggregate basis, Berkshire Hathaway’s 3,787,464% return is 153 times greater than the 24,708% total return, including dividends, for the S&P 500. While past performance is no guarantee of future results, 58 years of history pretty conclusively shows that Buffett can outpace the broad-market indexes.
One reason Warren Buffett and his investment team have been so successful is their affinity for cyclical stocks. Even though owning cyclical stocks leaves Berkshire Hathaway exposed to weakness during recessions, the Oracle of Omaha is well aware that periods of expansion last substantially longer. Instead of foolishly trying to time when downturns will occur, Buffett has positioned his company’s owned assets and investment portfolio to excel during these long-winded expansions.
Another catalyst for Berkshire Hathaway is dividend stocks. Berkshire’s roughly $344 billion investment portfolio is packed with income stocks. Companies that pay a regular dividend tend to be profitable, time-tested, and have transparent long-term outlooks. It also doesn’t hurt that dividend-paying companies have handily outpaced nonpaying stocks over the long run in the return department.
The icing on the cake is Berkshire Hathaway’s capital-return program. Although Berkshire doesn’t pay a dividend, Warren Buffett and executive vice chairman Charlie Munger have given the green light to $66 billion worth of share repurchases since July 17, 2018. Buying back stock is increasing the ownership stakes of existing shareholders, as well as lowering the company’s outstanding share count, which can help boost earnings per share.
Riding Warren Buffett’s coattails has been a moneymaking recipe for more than a half-century. Even if new leadership takes over, there’s little reason to believe Berkshire won’t continue to outperform over the next 10 years.
— Sean Williams
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Source: The Motley Fool