Building a nest egg requires patience and time. It's also important to invest in stocks with solid long-term growth prospects, since growth stocks have historically delivered market-beating performance as a class.
But growth stocks don't have to be high-risk upstarts trying to change the world -- they can also be well-established market leaders in the right industry at the right time. Growth can also be a product of a company that's set to deliver big-time dividend growth for years to come; dividend growth stocks have also proven to be market-beating investments many times.
Looking for growth in your nest egg? Three of our investing contributors have Vestas Wind Systems (VWDRY 0.38%), Magellan Midstream Partners, L.P. (MMP +0.00%), and Ulta Beauty Inc (ULTA 0.74%) at the top of their lists. Keep reading to learn why.
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The renewable you shouldn't forget about
Jason Hall (Vestas Wind Systems): Over the past decade, solar has built up huge momentum, with costs falling and efficiencies improving enough to make solar very close to on parity with fossil fuels. But it's not the only renewable that's on track to take more and more share of global energy production in coming decades.
Wind energy production costs have also fallen, and in no small part because of Vestas Wind Systems. A pure-play wind turbine manufacturer and service provider, Vestas is a market-share leader that has also been a fantastic investment over the past five years, delivering a remarkable 1,400% in total returns over that period.
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But the best is yet to come. According to the U.S. Department of Energy, wind energy capacity is expected to increase nearly 7-fold by 2050, to more than 400 GW just in the United States alone. As a global leader, Vestas is positioned to deliver big growth around the world. Furthermore, the projections could be low, particularly as energy storage costs fall sharply, setting up wind and solar both to take share from so-called "baseload" facilities like coal and natural gas.
Priced at 17 times earnings at recent prices, Vestas may not be dirt cheap, but it's a reasonable price for a market leader with decades of growth potential. Especially considering how much the market could be underestimating the power of renewables coupled with cheap energy storage to disrupt the energy status quo.
Grow your nest egg and your income
Reuben Gregg Brewer (Magellan Midstream Partners, L.P.): When most investors think about growth they probably have capital appreciation in mind. But distribution growth is every bit as exciting, in my opinion. And Magellan Midstream Partners is a great example of what you should be looking for.
To start, the midstream oil and natural gas partnership offers an impressive 5% yield today -- well more than twice what you'd get from an S&P 500 index fund. But what's really interesting is that the distribution has grown at an annualized rate of 11% over the past decade. That's led to a nearly 170% increase in the distribution! Put in dollars and cents, the quarterly distribution increased from $0.315 a share in the second quarter of 2007 to $0.89 in the second quarter of 2017. Now that's growth, and there's no need to touch your capital if you want to live on it.
Backing that history up is a collection of largely fee-based assets at a partnership that's known for being conservative. For example, it tends to be at low end of peers when it comes to leverage. That helps to keep interest costs down and allows more cash to flow through to unitholders. Low levels of debt and a relatively modest yield for a partnership, meanwhile, help to keep capital costs low (and capital easily available) as Magellan invests for the future.
If you can look past stock price appreciation to see that growth sometimes comes in a different flavor, than Magellan might be a "growth" opportunity that's just right for you.
Make an appointment with strong growth
Demitri Kalogeropoulos (Ulta Beauty): Wall Street has soured on Ulta Beauty's stock recently, with shares dipping to around $200 from the high of $300 they set in early June. That slump has little to do with its latest operating results, though. The salon and beauty products retailer posted an impressive 12% spike in comparable-store sales to hit the high end of management's guidance. CEO Mary Dillon and her team, meanwhile, boosted their growth outlook and now see comps rising by between 10% and 11% for the full year .
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Sure, that comps figure will likely rely a bit more heavily on e-commerce sales as customer traffic growth slows. Investors saw that dynamic at work in the second quarter when traffic gains fell to a 6% pace from 9% in the prior quarter.
Yet a 72% spike in digital sales more than made up for that slowdown. And unlike many other retailers, Ulta Beauty isn't sacrificing profitability to win market share online. Its bottom line profit margin is inching higher, instead, reaching 8.9% of sales last quarter compared to 8.4% a year ago.
Those encouraging figures suggest the company has plenty of room to expand toward management's aggressive target of as many as 1,700 stores over the long term, for a 70% increase over its current base.
