Sometimes investing can feel a bit like riding a roller-coaster, which has been the case over the past two months.
The proliferation of the coronavirus disease 2019 (COVID-19) initially sent the benchmark S&P 500 to its fastest bear market in history (17 trading sessions), as well as the quickest descent to a 30% loss from recent highs on record (22 trading session). More recently, we've witnessed a whipsaw rally in the broad-based S&P 500 that's approaching 30%. But even after this substantive bounce, the S&P 500 is still lower by 12% for the year, through this past weekend.
Long-term investors are getting a unique opportunity to put their money to work
While this is probably not how investors envisioned beginning the new decade, it's actually one heck of an opportunity for those with cash to spare.
You see, the S&P 500 has undergone 38 corrections of at least 10% (not rounded) since the beginning of 1950. Each and every one of these moves lower in the broad-market index was eventually erased by a bull-market rally. Though it sometimes takes years for the stock market to reach new highs, the organic growth potential of time-tested businesses always puts corrections and bear markets firmly in the rearview mirror. In other words, every single bear market is a smart time to be a buyer.
The thing is, you don't have to be wealthy to invest in the stock market. Having a lot of dry powder at the ready certainly doesn't hurt, but even $2,000 in spare cash that's invested for the long-term can yield impressive returns. After all, the stock market historically returns 7% on an annual basis, inclusive of dividend reinvestment. This means the typical investor can expect their money to double, on average, once every decade.
If you've got $2,000 in disposable cash that you won't need to pay bills or for emergencies, then consider buying these top stocks and holding on for at least the next 10 years.
There's no denying that Wells Fargo (WFC 2.12%) has had its fair share of issues of late. The company admitted to opening 3.5 million fake accounts tied to an aggressive cross-selling scheme at its branches, and is now contending with historically low lending rates that'll assuredly weigh on its net interest income. But if you were to buy Wells Fargo now, at a mere 68% of its book value, you should be a happy camper by 2030.
One thing Wells Fargo has always done particularly well is court affluent clientele. Well-to-do customers are less likely to be adversely affected by economic shocks like we're experiencing now, which means less chance of a substantive increase in charge-offs or loan delinquencies. This focus on well-to-do clients is a big reason behind Wells Fargo's historically superior return on assets.
Banking customers have also shown that they rarely hold their grudges for long. During the Great Recession, Bank of America was easily the nation's most-hated bank given the number of mortgage-related lawsuits it dealt with and the $5 debit-card usage fee it attempted to pass along in late 2011. Yet, over the past couples of years, BofA has been one of the top-performing banks. Wells Fargo simply needs time to put its wrongdoing in the rearview mirror. Once that happens, a $27 share price will look like a steal of a deal, especially once interest rates begin rising again.
Teva Pharmaceutical Industries
Another company that's left a lot to be desired in recent years is brand-name and generic-drug developer Teva Pharmaceutical Industries (TEVA 0.91%). Teva settled charges on bribery, lost exclusivity on its top-selling multiple sclerosis drug (Copaxone), overpaid for generic drugmaker Actavis, and more recently has contended with a 44-state lawsuit regarding its role in the opioid crisis. But these factors don't mask the fact that Teva can be a top stock over the next decade.
One thing for certain is that the right person is guiding the ship. CEO Kare Schultz is a turnaround specialist who's managed to reduce annual operating expenses by roughly $3 billion, as well as consistently chip away the company's large debt position. In three years, Teva's net debt has been reduced by more than $8 billion, with operating cash flow likely to remain above $2 billion annually moving forward.
Teva is also a company that's built for an aging global population. As access to medical care improves worldwide, generics will be leaned on more than ever to fill a role in maintenance therapy. With generics being a volume-driven business, Teva's long-term outlook remains bright.
At less than 4 times Wall Street's consensus profit estimate for 2021, now is the time for investors to strike.
Not every top stock is necessarily a deeply discounted value in the traditional sense, as is the case with Wells Fargo and Teva. Social media platform Pinterest (PINS -1.27%) isn't even profitable yet and is likely going to deal with a significant decline in advertising revenue during the second quarter as a result of nonessential business shutdowns tied to COVID-19. But these shot-term concerns are no reason to head for the sidelines. Rather, they're the perfect opportunity to buy a high-growth stock relatively early in its development.
Although Pinterest, like other social media platforms, generates the bulk of its ad revenue from U.S. monthly active users (MAUs), the real excitement stems from its overseas potential. Last year, 90% of the 70 million MAUs that were added were derived from international markets, with average revenue per user more than doubling to $0.54 from $0.25. As Pinterest adds more users (and eyeballs), advertisers are going to be willing to pay more to reach MAUs on the platform.
Pinterest is also a long-term play on e-commerce growth. Beyond just being a platform where users can share their interests, Pinterest allows small and medium-sized businesses an opportunity to capitalize on user interest to sell their products. This e-commerce segment is just scratching the surface on its potential.
With Pinterest likely to be profitable on a recurring basis by 2021, and capable of a double-digit growth rate for many years to come, it looks like an excellent place to park your money for the next decade.