A big part of the American dream is to retire with enough real wealth that you don't have to worry about Social Security going broke or losing your pension because your employer underfunded it and then went belly up. The good news is, you can take active steps to create your own wealth. History has proven that investing in stocks and holding them for the long term is one of the simplest and most accessible ways for the average person to retire wealthy.
The two keys to doing it successfully? Buying the best companies and then sitting on your hands while those companies grow their earnings over time. That means having the fortitude to ride out market downturns without selling and avoiding the temptation to sell great companies just because the stock price has gone up.
Image source: Getty Images.
While I can't hold your hand every time you're tempted to sell out based on the market's movements, I can offer some suggestions for great stocks that can help you retire a little bit wealthier: American Express (AXP 0.57%), Caretrust REIT (CTRE 0.22%), and SolarEdge Technologies (SEDG +6.37%). These are three very different businesses, but they all have strong competitive advantages, excellent management, and big catalysts that should generate many years of strong growth to come.
Keep reading for a closer look at these three companies and how they each would fit into your retirement portfolio.
Excellent value, powerful brand, global growth
American Express has been around for more than 160 years. It's one of the best examples of a business that has evolved successfully when opportunities have arisen and has also managed to avoid losing relevance. If not for that, AmEx could have gone the way of the horse-drawn wagon more than a century ago.
Today, the company is a leader in financial services including lending, banking, and credit cards for businesses and individuals, with one of the most recognizable brands in the world. Moreover, the company's focus on affluent customers has it in an enviable position in the decades to come. The global middle class is growing rapidly; over the next decade, it is expected to add about 1 billion new members.
It's a good bet that many millions of those newly minted middle-class consumers will carry an American Express card in either their real-world or their digital wallet.
Concerned about the company's ability to ride out recessions? At its core, AmEx is a bank, after all. Yes, there's always risk for lending institutions during a recession. American Express has consistently proven to be well run and well capitalized across economic cycles. Even during the global financial crisis, the worst economic recession in the past century, American Express proved strong enough to weather the storm. It even maintained its dividend while most of the other large U.S. banks had to slash their payouts.
AXP Dividend data by YCharts.
American Express wasn't just able to hold firm on its dividend, either. It was one of the first to return to dividend growth, and it has raised its payout more than any of its mega-bank peers since:
AXP Dividend data by YCharts.
Lastly, American Express trades for 14.7 times trailing earnings at recent prices. That might not be bargain-basement cheap, but it's still excellent value. Combine that solid value with its very good long-term prospects and its history as one of the best-run banks in the U.S., and it's an ideal stock to make up part of your retirement portfolio.
Build retirement wealth on America's retirement mega-trend
Between 2011 and 2029, the U.S. senior population is expected to double, from about 40 million to nearly 80 million. Factor in increased life expectancies, and the number of Americans over the age of 80 is also expected to double over that same period and continue to increase into the 2030s.
This presents an excellent opportunity for Caretrust REIT, a real estate investment trust, or REIT, that focuses on senior housing and healthcare properties. There are around 10,000 skilled nursing facilities in the U.S. today, a number that's going to have to increase over the next decade in order to support our growing senior population.
Caretrust isn't just focused on new facilities; much of its growth since going public has come from acquiring properties from small private owners. Many of those are also care providers that continue to provide services for the residents in their facilities but simply wanted to exit the property ownership business.
Large REITs like Caretrust only own about 11% of the senior housing in the U.S., so there's substantial opportunity for Caretrust to continue growing its business with acquisitions, in addition to the aforementioned need to expand the number of properties in coming decades.
CTRE Total Return Price data by YCharts.
Why choose Caretrust instead of one of its bigger, more established competitors? Because now is the rare opportunity to invest in the early stages of what is looking like a terrific long-term growth story. CEO Greg Stapley (a co-founder of Ensign Group, where Caretrust was formed) and his management team are doing an excellent job allocating capital and growing the business in a responsible, returns-focused way.
After a slow 2018 that saw Caretrust spend less than $112 million to acquire new properties -- less than half as much as it had invested in any prior year since going public -- the company returned to high growth in 2019. Through early October, it has already invested more than $340 million, bringing its total property count to around 230.
But it's still one of the smallest healthcare REITs, and it's the smallest that's focused on senior housing. With Stapley and team running the show, that's likely to change over the next couple of decades. Investors who buy now are likely to be rewarded with substantial profits over that period and a steadily growing stream of high-yield dividends.
A bright future
It's already been a great year for SolarEdge investors. Shareholders of the company, which makes key components used to connect solar panels to the grid, have enjoyed nearly 140% in gains already in 2019. Since the start of 2017, shares are up an incredible 577%, as it has taken enormous market share in the inverter business in the U.S. over the past couple of years, driving its earnings up sharply.
Some people would see this huge run-up as a reason to sell and cash in those big profits -- particularly after noted short-seller Citron Research recently said the company is about to be disrupted by a new competitor.
But I see it another way: The solar industry is still very early in its growth phase, and SolarEdge's future prospects look fantastic. That's particularly true for investors who can buy today and hold for a decade or more.
Yes, the company's duopoly with Enphase in the U.S. -- the two combined hold almost 90% of residential inverter market share -- is likely to be disrupted to some extent. There's simply too much money to be made, and someone, whether its Generac -- which Citron called out -- or another competitor entirely, will aggressively enter the U.S. market over the next year. SolarEdge seems like a dead lock to lose some share in the U.S. over the next few years.
There are three reasons that doesn't scare me. First, residential solar is growing at an enormous rate, both in the U.S. and globally. Even if SolarEdge cedes U.S. market share, the sheer rate of global growth presents a huge opportunity for the company to continue generating growth, and its growing scale -- not just pricing power as a market share leader -- should help it continue generating strong cash flows.
Second, and maybe more importantly over the long term, is how management has been positioning the company for the future. Over the past year, the company has made several key acquisitions that give it entry into battery backup, energy storage, and electric vehicle markets. These businesses have substantial overlap with its existing core while also expanding the potential markets it can participate in. Not only will this lead to more diverse sources of revenue and income, but the diversity gives management optionality for where to invest for the best returns in the future.
Third, Even after the loss of its CEO to cancer very recently, SolarEdge has multiple other co-founders in key roles, and most other management and board members have been in place for more than a decade. This continuity in leadership and company culture is an excellent sign that the company can continue delivering great results even as competition heats up.
