High-quality companies with sustainable earnings growth can be wealth-building powerhouses that elevate a portfolio over time. Most people who retire with high net worth have likely earned great returns on their stock investments.
Importantly, investors should not bet too heavily on one horse; a diversified portfolio is critical to managing your risks. That said, there are some stocks you can buy and hold for the next decade that could make a notable difference in growing your savings.
Here are two such names. Consider investing $10,000 in each of these stocks, and they could help you retire a millionaire.
Amazon will continue to benefit from e-commerce and cloud tailwinds
What a company Amazon (NASDAQ: AMZN) is. The company began selling books online in the mid-1990s and today is the dominant e-commerce retailer, with a market share of approximately 38% in the United States. Perhaps even more impressive is that Amazon followed up this whopper of an opening act with Amazon Web Services, which has become the world’s largest cloud infrastructure platform with a 31% global market share.
The company has been a very successful long-term investment. A $10,000 investment in Amazon stock in the early days would now be worth more than $18 million. Of course, Amazon is now worth almost $2 trillion, so there simply isn’t room in the global economy for it to grow in size and value that much again. However, the company still has enough profit to justify a $10,000 investment today. Amazon’s bread-and-butter segments, e-commerce and cloud computing, have plenty of room to grow. E-commerce still only accounts for 16% of retail sales in America. Meanwhile, the rise in artificial intelligence investment worldwide should mean big things for Amazon and other cloud platforms.
A giant company like Amazon also needs to trade at the right valuation to have the potential to generate outsized returns. Let’s check that box. If you value Amazon based on its operating cash flow — in other words, the money it generates from its normal business operations before investing in itself to pursue future growth — shares are about as cheap as they have been in the past decade. (as the graph above shows). This winner is poised to keep winning, so don’t hesitate to include it in your long-term investment plans.
Netflix has proven itself in the growing streaming industry
It is not easy to break new ground or create new industries. Companies that try to do this are often plagued by many doubters Netflix (NASDAQ:NFLX) has certainly had its share of that over the years. However, the streaming pioneer is now the global king of streaming, with more than 270 million paid subscriptions at the end of the first quarter. Memberships grew 16% year-over-year in the first quarter, showing that there is still plenty of room to grow as people worldwide steadily switch from cable TV to streaming.
And when a company gets as big as Netflix, there are plenty of tricks it can use to squeeze profit growth out of the company. In addition to simply growing its subscriber base, Netflix can raise prices, tackle password sharing (which has been hugely successful), and expand into new content and media formats. The company has been steadily moving into live sports content and testing video games now that technology has advanced to the point where games can be streamed via the cloud.
Netflix shares have easily outperformed the broader market over the past decade. But the company appears poised for more years of strong earnings growth. The shares trade at 35 times earnings today, but analysts believe earnings will grow more than 28% annually over the next three to five years. That should make the stock attractive to investors.
Should You Invest $1,000 in Amazon Now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Netflix. The Motley Fool has a disclosure policy.
Do you want $1 million in retirement? Investing $10,000 in each of these two stocks for the long term can help you get started. originally published by The Motley Fool
