If you've hit your 40s and began to think you've waited to long to invest and retire comfortably, don't worry. With 20 years or more still ahead of you, you can still achieve your investment goals, but you will have fewer opportunities to correct mistakes.
This relatively short time frame means that picking stocks that you won't regret becomes more important. For this reason, investors in their 40s should consider Apple (NASDAQ:AAPL), Netflix (NASDAQ:NFLX), and Alibaba (NYSE:BABA). Two are plays on big growth trends -- technology and entertainment -- while the third is a bet on one of the world's biggest economies with massive consumer growth potential.
Because the iPhone accounts for almost two-thirds of Apple's revenue and operating profit, analysts pay close attention to the device's performance. There were many skeptics who doubted a $1,000 iPhone could sell, but as CEO Tim Cook noted during Apple's first-quarter earnings conference call, consumers were buying more premium iPhone X's every week during the quarter than they were of any other Apple version. Few companies can pull off such results more than a decade after introducing a product.
That's the beauty of Apple. Its brand still carries a unique cachet in the marketplace years after the death of the company's visionary founder Steve Jobs. Many thought Apple would falter after his passing, but the company still applies the same high standards to all that it does.
The Apple Watch is an example. While Fitbit defined the early market for wearables with its fitness trackers, Apple recognized that consumers would respond to a more fully functional device. Competition has become much more intense in the smartwatch field since the introduction of the Apple Watch, with Fitbit and others responding with their own upgraded devices. Nevertheless, Apple continues to dominate the space.
Analysts estimate that Apple shipped some 3.5 million Apple Watches in the second quarter. Though its market share has fallen from 43% to 34% due to market dilution from competing devices, Apple's international expansion should help offset the maturation of the U.S. market.
Apple is a company synonymous with innovation -- one that has the potential to perform as well 20 years into the future as it has over the past two decades.
Movie streaming leader Netflix has also learned to adapt to a changing marketplace. After disrupting the movie rental industry by introducing the rental-by-mail business model, it saw early on that streaming video would eventually eclipse DVDs and chose to disrupt its own model by splitting its business between physical disks and streaming video.
Netflix timed the cord-cutting trend almost perfectly and has amassed over 125 million subscribers worldwide as a result. Even though the company posted disappointing second-quarter 2018 subscriber growth both in the US and abroad, the movie streaming service is still on a dramatic growth trajectory that will make the beating its stock took on the news look like a speed bump.
Similar to Apple's competitive pressures, there's much more competition for viewers' eyeballs these days. Amazon.com's Prime Video service has made incursions onto Netflix's turf, as have cable and satellite TV operators who understand how the on-demand capabilities of streaming undercut their own viability.
Netflix recognizes these challenges. In its second-quarter earnings press release, the company noted that Amazon, Apple, Disney, HBO, and YouTube are all transforming their services to take on its lucrative revenue streams. Netflix's response to new competition has been simple, with the company vowing, "Our strategy is to simply keep improving, as we've been doing every year in the past."
How is Netflix improving itself? It's investing heavily in original content. Original content is key to winning the entertainment battle because it gives viewers a reason to choose one streaming service over another. Netflix has committed to spending billions of dollars to acquire the best content resources, and its recent performance at the Emmy's proves it's doing just that. This year, for the first time, Netflix surpassed HBO in Emmy nominations. Reaching this critical milestone, Netflix is now an entertainment leader and will continue to be for years to come. With huge customer growth and growing critical appeal, investors can rest easy holding Netflix in their portfolio over the coming decades.
Investors should choose Chinese e-commerce giant Alibaba over Amazon simply because of the size of its addressable market. With China's 1.4 billion people, Alibaba has the opportunity to exponentially grow its business as the buying power of China's population rises. The company's customers have already proven they will respond to its offerings, and that customer base will likely grow the more Alibaba expands.
Amazon is often picked as a top stock not only because is it an e-commerce juggernaut but also because it has an immensely profitable could services business and has its finger in virtually every digital entertainment pie. Well, so does Alibaba.
Alibaba sells more in e-commerce than Amazon. Amazon's biggest sales event of the year is Prime Day, where analysts estimate consumers spent $4.2 billion over a one-and-a-half day period earlier this year.For comparison, Alibaba customers purchased $25 billion dollars last year during Alibaba's Single's day, its largest sales event of the year. These numbers suggest that Alibaba's Singles Day would have surpassed Prime Day sales after about four hours. In fact, Singles Day is a bigger event than Black Friday and Cyber Monday combined!
While e-commerce represents 86% of Alibaba's total sales, its cloud computing division is also growing rapidly, nearly doubling revenues every year for the past several years. In addition, the company owns a digital media and entertainment business that is slightly larger than cloud services, but it is not growing nearly as fast. To top it off, Alibaba owns a one-third stake in Ant Financial, a financial technology firm that operates Alipay and other financial services.
Alibaba's total revenue soared 61% last year, and because it expects both core operations and new business to continue growing, the company believes it will see revenue growth north of 60% again this year.
Alibaba has some corporate governance risk because company founder and CEO Jack Ma controls almost all of Alibaba's voting shares. As a result, it is possible that decisions may not be made in the interests of outside shareholders. And betting on Alibaba's ability to grow sales and profits over the next few decades is certainly not a sure thing. But if successful, Alibaba promises to reward investors who account for the risks and invest accordingly.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Apple, Fitbit, Netflix, and Walt Disney. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.