The stock market has proven to be a great way for ordinary people to build wealth over time. When get-rich-quick schemes work, it’s usually for the party on the other side of the bet. But investing in great companies at reasonable prices can be a great way to get rich over time.
For some who don’t have the time or inclination to get involved, it can be as simple as investing through index funds. But identifying good values and great companies can help boost returns even further. Below are five stock investments that could offer a diversified opportunity to beat the S&P 500 index in the coming years and decades.
Some people want others to manage their money and invest in Warren Buffett’s Berkshire Hathaway (BRK.A 0.43%) (BRK. B 0.05%) is almost like having a fund manager. But it comes with additional benefits. Berkshire has brilliant leadership with Buffett and Vice Chairman Charlie Munger mentoring their eventual successors for years. It also offers a mix of equity ownership and cash-generating operations.
It owns manufacturing and retail businesses, an energy and utilities company, BNSF railroad and insurance. It also holds significant investments in a broad mix of companies including several banks, Apple, Coke, American Express, as well as car manufacturers. Buffett and Munger were also fond of buying Berkshire stock. The company spent more than $51 billion buying back about 9% of its own stock in 2020 and 2021. Its businesses continue to thrive, with operating profits up more than 19% year over year for the first six months of 2022. These share buybacks have continued to increase in 2022, albeit at a slower pace. In the first half of the year, Berkshire spent $4.2 billion more on buybacks.
Two consumer favourites
Walt Disney (DIS 0.66%) and target (TGT -0.52%) have struggled lately, but these names have proven they can successfully navigate their businesses through many different environments. Disney is pouring money into its streaming services as it builds that segment of the business. While its streaming business isn’t profitable just yet, the company can fund that growth from its other segments. In its report for the third quarter of fiscal 2022 for the period ended July 2, 2022, Disney said its theme parks are thriving. In the nine months to that date, the parks, experiences and products segment has nearly doubled revenue year-over-year. Importantly, revenue from its parking segment was also 9% higher in 2019 compared to the same nine-month period before the pandemic.
Target inventory has recently taken a hit after leading to an inventory glut as it attempts to overcome supply chain constraints. But the company addressed the situation head-on with investors and showed confidence in its plan while also increasing its dividend by 20%. Target’s dividend is one reason why an investment is worth considering, despite the risks. Having increased its dividend for 51 straight years, the company is on the elite list of Dividend Kings.
While past performance isn’t a predictor of future results, Berkshire, Disney, and Target have long treated shareholders well. All three stocks have significantly outperformed the S&P 500 in total returns, including dividends, since 2000.
Unlock future trends
The electric vehicle (EV) sector seems to be just getting started and it would make sense to get involved. Tesla (TSLA 3.59%) was the pioneer and is the apparent leader. Nor is the company just sitting around waiting for others to catch up. CEO Elon Musk has the lofty goal of selling 20 million electric vehicles a year. The company is expanding its third and fourth manufacturing facilities, and Musk’s goal is to have up to 12.
Tesla is expanding its product offering with its semi truck and cybertruck, which are scheduled to go on sale this year and next, respectively. It also has a growing energy business, supplying megapacks for energy storage as well as solar energy products. Tesla almost ran out of money ramping up its Model 3 mass-production vehicle. But it reported net income of $5.5 billion in 2021, surpassing that figure only in the first six months of 2022.
Some investors might want to speculate on another EV name as the sector itself is just taking off. Like Tesla, based in China no (NOK -0.14%) Bankruptcy narrowly avoided a few years ago. Though it’s still losing money, it had about $8 billion in cash on its balance sheet as of June 30, 2022. Nio has struggled with supply chain issues as well as a drop in demand as China continues to lock down cities as COVID-19 cases emerge.
But these near-term difficulties aren’t a reason to avoid the stock as part of a diversified portfolio. It continues to launch new vehicles and has started to expand its exports to Europe.
While Nio remains a very risky investment, being part of this group of five stocks mitigates the risk. A bad score can be overcome by balancing these names. And the stock market has proven that this is a way investors can get rich over time if they diversify appropriately.
American Express is an advertising partner of The Ascent, a Motley Fool company. Howard Smith has positions in Apple, Berkshire Hathaway (B shares), Nio Inc., Target and Walt Disney. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway (B shares), Nio Inc., Target, Tesla, and Walt Disney. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long January 2024 $145 calls on Walt Disney, long January 2024 $47.50 calls on Coca-Cola, long March 2023 $120 calls on Apple , short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), short January 2024 $155 calls on Walt Disney and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.