There are many opportunities for American workers to build wealth. You can mix money under the mattress, buy certificates of deposit (CD) or bonds, or buy a house and keep your fingers crossed that it is appreciating faster than the prevailing rate of inflation. In the long run, however, no investment vehicle has delivered a higher annualized return than stocks.
When you invest in great companies and let your investment thesis play out over many years, if not decades, stocks have the power to make the American worker rich.
Understandably, there is no clear definition of being rich. For some people, that can mean buying their dream car or owning a boat. For others, being “rich” could mean the added value of spending more time with family or not having to worry about paying their monthly bills.
When working Americans retire, the following five high-income stocks have the potential to make them rich.
Sometimes the best long-term investments are boring. That is the case Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), the conglomerate run by billionaire Warren Buffett since 1965. In Buffett’s more than five decades at the helm, he has created over $ 500 billion in value for Berkshire Hathaway shareholders and achieved an average annual return of 20%. Overall, we are talking about a return of closer to 3,400,000% for the class A shares (BRK.A), taking into account the profits since the beginning of the year.
One of the reasons Berkshire is such a successful company is because of its cyclical ties. Much of the company’s nearly $ 323 billion investment portfolio is tied up in technology, financial, and consumer staples. These are sectors that do really well when the US and world economies are in full swing. Although recessions are an inevitable part of the economic cycle, Buffett recognizes that periods of expansion last significantly longer than periods of contraction. In other words, the oracle of Omaha is simply playing the odds.
The other key to Berkshire’s superior returns is dividend-stock pegs. While Berkshire doesn’t pay dividends, it does pay some of the companies it has invested in. All in all, my calculation at the end of the envelope showed that Berkshire had roughly $ 5.1 billion in dividend income that year. Based on the initial cost, this gives a return of around 5%, which is insanely good and suggests the likelihood that the company will be successful for many years to come.
Companies with clearly identifiable and sustainable competitive advantages are also a smart place to invest money. Developer of surgically assisted robotic systems Intuitive surgery (NASDAQ: ISRG) is a perfect example of a company with a dominant presence that can make American workers rich.
As the first half of 2021 ended, Intuitive Surgical had 6,335 of its da Vinci surgical systems installed worldwide (but most are in the United States). You could add up all of the company’s competitors and you still can’t get to the number of surgical systems Intuitive has installed. Between the high cost of these systems ($ 0.5 million to $ 2.5 million), the training of surgeons, and the relationship they have built over the past 20 years, Intuitive Surgical has effectively retained its customers for a long time.
More importantly, Intuitive Surgical is designed to improve its operating margins over time. This is a fancy way of saying that earnings growth may outperform sales growth in the years to come, if not decades.
Initially, the sale of da Vinci systems made up the majority of the company’s sales. But these are complicated systems to build, which meant the margins weren’t that big. Over time, most of Intuitive’s sales came from instruments sold with each procedure and maintenance of its systems. These are higher margin categories and the company’s ticket to growing profits.
If you want unbridled innovation, Fintech stocks are the place for you square (NYSE: SQ). Despite its huge onslaught since the March 2020 pandemic low, it has all the tools it needs to eventually become a $ 1 trillion company.
The fundamental segment of Square continues to be the seller ecosystem. This provides point of sale devices, analytics, loans, and other tools to help merchants grow their businesses successfully. In the seven years leading up to the pandemic, the gross payment volume (GPV) catapulted from $ 6.5 billion to $ 106.2 billion. This year, GPV should easily replace $ 140 billion.
What is interesting about the seller ecosystem is that it no longer only applies to small traders. For the June end of the quarter, 65% of total GPV came from sellers with annualized GPV of at least $ 125,000. That is 10 percentage points more than in the same period of 2019. Since this is a segment that is subject to a fee for dealers, larger dealers mean a higher 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 capabilities, bringing in gross profit of $ 55 per user for the second quarter, compared to an acquisition cost per user of only about $ 5. Those insane margins should make Square’s valuation a lot higher.
Another hit stock with the potential to make American workers rich through retirement is emerging social media Pinterest (NYSE: PINS).
While a lot of emphasis was placed on Pinterest’s monthly active user retracement (MAU) in the second quarter, this short-term spike overlooks some very important and positive trends. For example, user growth declined in the second quarter of 2021, but remained well within historical norms over a three-year period.
More importantly, Pinterest’s Average Revenue Per User (ARPU) continues to rise. Despite the sequential quarterly MAU retracement in the second quarter, global ARPU rose 89% year over year, with international ARPU rising an even more impressive 163%. This tells us traders 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 that.
Ultimately, Pinterest is still in the early stages of monetizing what could become a top e-commerce platform. While most social media requires advertisers to guess a little bit of user interests, Pinterest’s MAUs willingly share the places, services, and things that interest them. All Pinterest has to do is motivate users to let its e-commerce platform work its magic as a middleman.
A fifth and final high earnings stock that can help working Americans retire rich on their own terms is a cloud-based customer relationship management (CRM) software provider. Salesforce.com (NYSE: CRM).
Put simply, consumer-centric companies use CRM software to improve customer relationships and increase sales. In addition to real-time access and logging of customer information, CRM software is used to manage online marketing campaigns, handle service issues, and perform predictive analysis of a company’s existing customer base.
If you’re wondering where Salesforce fits in the CRM space, it’s the clear alpha. In the first half of 2020, IDC found that virtually $ 0.20 of every dollar spent on CRM worldwide was made through Salesforce. The company’s four biggest competitors don’t even match Salesforce’s market share in CRM. Translation: The company’s position as an industry leader is very secure.
Salesforce CEO Marc Benioff has also done an exemplary job of expanding through acquisitions. The acquisitions of MuleSoft, Tableau, and more recently Slack Technologies have helped expand its customer-centric ecosystem and appeal to a wider range of small and medium-sized businesses. Since Benioff has annual sales of $ 50 billion by fiscal 2026.
This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.