Investing in a group of quality growth stocks and sticking with them for decades can lead to life-changing wealth. An investment of just $100 per month at an annualized return of 12% over 50 years can grow to $3.9 million.
Three stocks that can help you achieve those returns are Alphabet (GOOG 2.15%) (GOOGL 2.37%), Microsoft (MSFT 3.20%), and Tesla (TSLA 1.66%). Here's why these stocks should remain compounding machines for the next 50 years.
1. Alphabet: Entrenched tech leader
Alphabet's Google is still benefiting from the shift of ad spending moving online. Its range of products and platforms, including Android, Chrome, YouTube, Google Maps, and Gmail, each have over one billion users. That's attractive to advertisers, and it's why Google is the No. 3 most valuable brand in the world, according to Brand Finance.
However, over the next 50 years, Alphabet will likely generate significant amounts of revenue from other businesses. The one analysts are watching heading into 2020 is Google Cloud. Google's "other revenue" that includes Google Cloud, Google Play, Google Home, and other hardware products has been Alphabet's fastest-growing segment in the last few years, and it may reach 20% of the company's total revenue in 2020.
There are not many companies as forward-thinking as Alphabet that have the resources to invest billions in new growth avenues. The company considers its investments in moonshot opportunities, or "other bets," as vital to its future success. These other bets include potential world-changers, such as self-driving cars with Waymo, or growth opportunities in life sciences with Verily.
Don't let Alphabet's $992 billion market cap make you think the stock has already run its course. The company has more than doubled its revenue and earnings over the last five years, and given its forward-thinking corporate culture, Alphabet should continue to grow for many years.
2. Microsoft: Riding the cloud
Moving one spot below Google on Brand Finance's most valuable brand list is Microsoft, at No. 4. The software giant has been making essential tools for people to get stuff done for decades. Microsoft says Windows 10 is active on 900 million devices. Under CEO Satya Nadella, the company has spread its reach well beyond the PC to mobile devices and the cloud.
Microsoft has the brand recognition, network effect advantage, and resources to continue winning in the markets it serves. Its Office software is still in high demand after all these years. Even though Apple has more than 1.4 billion of its devices active, the familiarity people have with Apple's software hasn't dethroned Microsoft's Word and Excel. Office commercial products, including 365 subscriptions, have been growing fast, up 25% year over year in the most recent quarter.
Also, businesses are continuing to use cloud-based tools to handle IT services. The infrastructure-as-a-service cloud market is expected to grow three times faster than traditional IT services through 2022, according to Gartner. Microsoft Azure has tremendous momentum in this space, with revenue surging 59% year over year in the last quarter.
Microsoft has proven it can adapt its basic software services to the cloud and develop new cloud-based platforms for businesses, such as Dynamics 365 and Azure. The ability to adapt to changing environments in technology gives me confidence that the company will still be around in 50 years. It offers good growth prospects, high margins, and a growing stream of dividends. Owning the stock seems like a no-brainer for the 21st century.
3. Tesla: Making alternative energy cool
Tesla is not short of investor attention. The stock has experienced a meteoric rise since its initial public offering in 2010, but the sky truly is the limit for Elon Musk's company.
Some on Wall Street are debating whether it's time to sell the stock after the share price more than doubled off of its lows last year. But I think long-term investors should stay the course, and if you don't already own shares, you should consider starting a small position.
Tesla is at the center of a secular trend sweeping the world, as alternative forms of energy are increasingly in demand for everything from how homes are built to what fuels our cars. Tesla is known for its Model S, Model X, and Model 3 electric vehicles, but it defines its mission as helping the world accelerate to sustainable energy through various energy products, including solar electricity. The company has installed thousands of solar products for consumers since 2006, and last year, it released Version 3 of the Tesla Solar Roof.
You can't underestimate a visionary leader like Musk, who has demonstrated a great talent for seeing an opportunity and starting a business to capture it. As Tesla approaches a $100 billion market cap, the company still has a tiny share of the nearly 100 million vehicles shipped in the industry every year. There were about 367,500 Tesla vehicles delivered in 2019, for an increase of 50% year over year. That growth is thanks to the Model 3, which went into production in 2017 and comes at a much more affordable price for the masses.
However, Musk believes the upcoming Model Y will outsell the Model S, Model X, and Model 3 combined. As Tesla releases more models, builds Gigafactories around the world, increases scale, and brings prices down for these cars, it's inevitable the company will hit the one-million delivery mark at some point.
There is enormous upside for the Tesla brand over the next 50 years.
One last thing
All three stocks are already large caps, but each could keep heading higher from here. Consider that Coca-Cola started in 1886, but the stock is still increasing in value for shareholders. Walt Disney was started in 1923, but the stock is up 355% over the last 10 years.
Great growth stocks continue to find ways to deliver returns for shareholders, and I believe Alphabet, Microsoft, and Tesla will be no different.
Editor's note: This article has been updated to correct the spelling of Satya Nadella's name and note that Windows 10 is active on 900 million devices and there are more than 1.4 billion active Apple devices.