One downside of the 2024 market rally is that investors can expect moderate returns. The S&P500 rose by 20% through early November this year, which is about double the annual long-term figure. Many growth stocks are valued near record highs.
This unusually strong performance could pave the way for softer results in the near term, especially for the companies that have attracted the most attention from Wall Street in recent months.
Start your morning smarter! Wake up with Breakfast news in your inbox every market day. Register for free »
That’s why it pays to focus on the long term and fill your portfolio with stocks that offer sustainable competitive advantages. You reduce the risk of paying too much for a company that is about to announce disappointing results.
With that in mind, let’s take a look at two companies that could define your portfolio returns for decades to come.
Costco Wholesale (NASDAQ: COST) is an attractive way to take advantage of the best parts of retail while limiting exposure to its biggest downsides. The warehouse retailer maintains a defensive business position thanks to its $250 billion in annual sales and its merchandising of both consumer goods and durables (such as electronics and cruise vacations).
But you don’t have to give up the opportunity for strong revenue growth in exchange for that stability. Costco’s most recent results showed a healthy 9% sales spike at comparable stores, along with a 23% increase in the e-commerce segment.
Costco’s earnings power is more stable than that of its peers, as most of Costco’s revenue comes from membership fees and not from merchandise sales. The recurring nature of these fees makes profits predictable in a way that the competition likes Goal And Walmart cannot match. And the fact that more than 90% of members renew their subscriptions means there’s plenty of room for the chain to increase rates every few years.
Indeed, you will have to pay a premium to own this high-performing company. Shares are valued today at 1.5 times sales, compared to a price-to-sales ratio of 1 for Walmart and 0.70 for Target.
Still, Costco shareholders have room to benefit from the chain’s continued market share gains in both the online and offline retail spaces over the next two decades. Add in those sporadic but significant special dividends, and there’s every reason to expect more market-beating returns here.
If you’ve been put off by the rising valuations of tech stock giants like Apple And Microsoftconsider adding Garmin to your wallet.
