What comes to mind when you picture yourself in retirement? For most people, making that vision a reality is going to take a lot of money. Social Security isn't going to be enough. Many will need well over $1 million in retirement to achieve their goals. But how can you stockpile that amount of money?
Over the long run, the best way to grow your money is by investing in stocks. But which stocks are good ones to buy? I'd put Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), Iron Mountain (NYSE:IRM), and Vertex Pharmaceuticals (NASDAQ:VRTX) high on the list. Here's why investing in these stocks now could make you a millionaire retiree.
I like Alphabet for several reasons, but the two most important are the company's moat and its multiple pathways for growth (what investors refer to as optionality). Alphabet's Google search engine and YouTube video-sharing website command dominating market shares that seems unlikely to diminish anytime soon. And it's from advertising revenue, in large part from Google and YouTube, that Alphabet makes most of its money. The bottom line is that the company enjoys a strong moat.
Alphabet should be able to continue to grow revenue and earnings from its core businesses. However, the company also has plenty of other avenues for growth. For example, Alphabet has expanded its hardware business by acquiring part of smartphone-maker HTC last year. The company has also moved aggressively into the cloud computing market, with CEO Sundar Pichai stating in February that Alphabet "is the fastest-growing major public cloud provider in the world."
My hunch is that the biggest growth story for Alphabet, though, will be in artificial intelligence (AI). The company's AI expertise should help it gain market share in the cloud computing arena. Alphabet's Waymo unit is a top leader in self-driving car technology. Alphabet is already using AI in impressive ways in healthcare applications. And, perhaps most importantly, the company is using AI to improve its search engine advertising algorithms, which should make its biggest business even more profitable.
With a name like Iron Mountain, you'd hope the company has a solid moat. And it does. Iron Mountain is the world's largest provider of records storage and information management services, with over 1,400 facilities containing 87.5 million square feet of storage space. The company has over 225,000 customers, including 95% of the Fortune 1000.
Customers tend to stay with Iron Mountain, partially because the company is arguably the best in the business, but also because it's such a hassle to transfer stored items to another facility. In recent years, the average annual volume reduction due to customers leaving Iron Mountain was just 2%.
Iron Mountain is a great stock for investors looking toward retirement for a couple of key reasons. One is the company's fantastic dividend yield of 7.43%. As a real estate investment trust (REIT), Iron Mountain must return at least 90% of taxable income to shareholders as dividends. In addition, Iron Mountain has great growth prospects in the records storage business and by expanding into data center operations.
Vertex Pharmaceuticals currently enjoys what amounts to a monopoly in cystic fibrosis (CF). The biotech's three approved CF drugs, Kalydeco, Orkambi, and Symdeko, have no competition right now. It's not surprising that Vertex achieved profitability last year and saw its stock price more than double.
But what about the future? As great as Vertex's current CF drugs are, they still only help a fraction of CF patients. The biotech, however, is developing triple-drug combination therapies that should expand treatment to around 90% of CF patients. While competition could be on the way, Vertex's first-mover advantage is significant.
In addition, Vertex isn't limiting itself to CF. The biotech is targeting treatment of 10 indications, including sickle cell disease, pain, and alpha-1 antitrypsin (AAT) deficiency that each represents a multi-billion dollar-opportunity. Vertex doesn't have to be successful in all of these areas. Just developing effective therapies in one or two should mean a bright future for this rising star.
The fine print
So, can you simply buy Alphabet, Iron Mountain, and Vertex stocks, hold on for a while, then become a millionaire retiree? I think it's quite possible, but there are also risks. As solid as each of these companies looks now, there's always a chance that their businesses could be threatened by a disruptive rival.
On the other hand, becoming a millionaire retiree isn't as impossible as it might seem. Even if you started at age 50, maxing out investments in a 401(k) plan could give you $1 million by age 70. All it would take to achieve this would be an average annual return of 7%. I think Alphabet, Iron Mountain, and Vertex Pharmaceuticals give you a pretty good shot at making this level of return or better.