Wall Street and investors have been sent a stark reminder in 2022 that stocks can go down just as easily as they can go up. Since reaching their respective all-time highs, the 126-year-old Dow Jones Industrial Averagewidely followed S&P 500and driven by growth Nasdaq Composite they have fallen by 17%, 22% and 33% respectively. This puts the S&P 500 and the Nasdaq Composite firmly in the grip of a bear market.
Although big drops in the market in general can be scary and tug on investors’ emotions, history shows corrections and bear markets. can be fantastic buying opportunities for patient investors. After all, every notable drop in the major US stock indices was eventually erased by a bull market.
The important question isn’t “Should I invest during a stock market crash?”, it’s “Which stocks should I buy?” Perhaps the best answer is boring business.
Although the word “boring” can have negative connotations, boring companies are a thing of beauty on Wall Street. A boring company is usually very profitable on a recurring and time-tested basis. In other words, boring stocks are just the kind of companies we’d expect to appreciate in value over time.
What follows are three boring but beautiful stocks to buy that can make you richer by 2030.
When most people think of Microsoft, they probably remember their Windows operating system or are familiar with the company’s various Office programs, such as Word or Excel. Although these legacy segments are not growing at the same rate as two decades ago, they are still dairy cows. In fact, GlobalStats data shows that Windows controls a commanding 75.5% share of global desktop operating systems, as of May 2022.
The beauty of these well-known legacy segments is that they provide capital that Microsoft can redeploy into higher growth initiatives. In particular, the company has achieved strong sustained growth, thanks to its investments in cloud computing.
Microsoft Azure is #2 in the world for cloud infrastructure spend, with year-over-year sales growth consistently hovering around 50%, excluding currency movements. Microsoft cloud ties they are what will give you the ability to sustain double-digit sales growth potentially throughout the decade.
Want another reason to trust Microsoft for the long haul? The rating agency Standard & Poor’s (S&P), a subsidiary of global S&Phas gave Microsoft its highest credit rating (AAA). That’s one notch higher than the S&P credit rating for the US federal government (AA). The implication is that S&P has more confidence in Microsoft paying and servicing its debts than in the US government doing the same.
Microsoft is also swimming in capital. It ended March with $104.7 billion in cash, cash equivalents and short-term investments, and generated $87.1 billion in operating cash flow over the prior 12-month period. This incredible financial flexibility allows Microsoft to pay dividends, buy back shares, and make acquisitions to expand the reach of its many verticals.
The beauty of NextEra is that it provides a basic need service. No matter how well or poorly the stock market performs, homeowners and renters are not going to suddenly stop using electricity.
Electricity demand tends to be highly predictable, giving companies like NextEra the ability to shell out capital for new infrastructure projects and their dividend without negatively impacting profitability. Wall Street loves predictability, and that’s what you get with the vast majority of utility stocks.
However, NextEra is not just another name in the electrical utility industry, it is the largest electrical utility company and for good reason. No other utility provider is generating more capacity from solar or wind power than NextEra. With the company pledging up to $55 billion in total between 2020 and 2022 in new infrastructure projects (ie predominantly renewable energy projects), it is likely to remain the green energy leader in the US well into the future. foreseeable.
Although renewable energy projects can be expensive, the expense has been worth it. Green energy solutions have significantly reduced NextEra’s electricity generation costs and propelled the company to a single-digit compound annual growth rate for more than a decade. Comparatively, electric utility stocks tend to grow at a low single-digit rate.
Yet another reason to be confident in owning NextEra Energy stock for the long term is the company’s regulated utility operations. By “regulated,” I mean your traditional operations that are not powered by renewable energy. Although the company can’t broadcast rate increases any time it wants (it needs approval from state utility commissions first), being regulated means it’s not exposed to potentially volatile wholesale electricity prices.
Including its dividend, NextEra has generated a positive total return for its shareholders in 19 of the last 20 years.
Although Berkshire Hathaway isn’t as well-known a name as Microsoft, the company’s billionaire CEO certainly is: Warren Buffett. Since he took the reins as CEO in 1965, the Oracle of Omaha, as Buffett is known, has driven his company’s Class A shares (BRK.A) to an annualized return of 20.1%.
Put another way, shareholders have doubled their money every 3.6 years for the last 57 years. If this annualized return were to hold, investors could more than quadruple their initial investments by the end of 2030.
as long as there is There is no shortage of reasons for Buffett’s long-term success., a few stand out above the rest. For example, Berkshire Hathaway’s nearly $315 billion investment portfolio is heavily biased towards cyclical stocks.
Cyclical companies perform well when the US and global economies are expanding and struggle when recessions hit. The thing is, recessions typically last a couple of quarters, while economic expansions can last for many years. Warren Buffett is playing a numbers game that has Berkshire Hathaway perfectly positioned to take advantage of the natural expansion of the US economy.
Another reason Berkshire Hathaway thrives is its exposure to dividend stocks. Including preferred stock dividends, Buffett’s company is on track to raise over $6 billion in passive income for the next 12 months. Dividend stocks are not only profitable and time-tested, they have a track record of significantly outperforming stocks that don’t pay dividends over long periods. Once again, Warren Buffett is playing a simple numbers game that sets Berkshire Hathaway up for success.
The icing on the cake with this investment is that Warren Buffett and his right-hand man, Charlie Munger, love to buy back shares of their own company. Since mid-2018, this dynamic duo has authorized the repurchase of $61.1 billion value of Berkshire Hathaway’s Class A and Class B shares. Buying back shares of profitable, growing companies can boost earnings per share and make a company’s stock look fundamentally more attractive.