This has been a truly unforgettable year for investors, with the broad-based S&P 500 losing as much as 34% in less than five weeks, then regaining more than 70% of what was lost in the subsequent 10 weeks. In terms of volatility, we've simply never seen anything like this before.
But if you're a long-term-minded investor, volatility can be your friend. That's because instances of panic-selling have always offered an opportunity for long-term investors to pick up great companies at attractive prices.
The thing you have to understand is that brand-name companies, despite having large market caps, can still make investors rich if given the proper amount of time. If you have cash to spare and a long investment time horizon, consider putting your money to work in these well-known companies.
Even though Amazon (AMZN 2.07%) is the third-largest publicly traded company in the U.S. at the moment, my belief is that it could reasonably double in value in the next three or four years and become the largest publicly traded company in the world by market cap.
Most folks are probably familiar with Amazon as the dominant player in e-commerce. Though estimates vary, Amazon controls in the neighborhood of 40% of all U.S. online sales. That's an enviable position to be in considering the U.S. is a consumption-driven economy. Further, fees collected from the more than 150 million Prime members worldwide help Amazon undercut brick-and-mortar retailers on price and encourages consumers to stay within its seller ecosystem.
However, make no mistake about it, the company's future is dependent on the success of its cloud-services segment, Amazon Web Services (AWS). Since cloud margins are substantially higher than retail and ad margins, Amazon's operating cash flow should explode higher as AWS becomes responsible for a larger percentage of total revenue. With Wall Street forecasting a near-tripling in cash flow per share between 2019 and 2023, the sky is the limit for Amazon.
Credit-services provider Visa (V 0.12%) might already be the 10th-largest public company in the U.S. by market cap, but that doesn't mean it's anywhere near done growing. Among financial stocks, it's about as close to "set it and forget it" as long-term investors can get.
One reason Visa has been virtually unstoppable for such a long period of time is because it acts solely as a payment processor and not a lender. Though some of its peers also lend, and are therefore able to double dip during period of economic expansion -- i.e., collect merchant fees, as well as interest/fees on credit cards -- lenders are exposed by rising loan delinquencies during periods of contraction or recession. Since Visa doesn't lend, it has no direct delinquency concerns.
Visa also has an exceptionally long runway when it comes to credit-service penetration. It's been estimated that roughly 85% of the world's transactions are still conducted in cash. This means Visa has a multidecade growth opportunity to expand its infrastructure into Africa, the Middle East, and southeastern Asia, while also basking in organic spending growth in developed nations.
You might think Alphabet's (GOOG 2.36%) (GOOGL 2.39%) nearly $1 trillion market cap means growth is a thing of the past, but this couldn't be further from the truth for the company behind the Google search engine and YouTube. Long-term investors who buy into Alphabet now should be pleasantly surprised over the next decade -- and beyond.
If you think Amazon is dominant in retail, then you should take a gander at Google's dominance in the search market. According to GlobalStats, Google was responsible for 92% of worldwide search market share in May 2020. With figures like this, it should have little trouble charging top-dollar to advertisers for prime placement. Best of all, since the global economy spends much more time expanding than contracting, Alphabet's cyclical ad industry should benefit it more years than not.
However, the Alphabet growth story is about more than search. In the first quarter, YouTube ad revenue surged by 33% from the prior-year period, while Google Cloud sales soared 52% from Q1 2019. Similar to Amazon, Google Cloud offers substantially higher margins than its ad-centric operations. This means as Cloud grows into a larger percentage of total sales -- it's already pacing $11 billion in sales on an annualized basis – Alphabet's cash flow should expand considerably.
While Berkshire Hathaway (BRK.A 1.66%) (BRK.B 1.71%) may not be of the same brand-name caliber as Amazon or Visa, there's a pretty good chance you've heard of its CEO, Warren Buffett, or have dealt with one of the five dozen companies it owns, such as insurer GEICO or railroad BNSF.
The most obvious benefit to buying into Berkshire Hathaway is getting Warren Buffett as your money manager. In addition to having acquired roughly 60 companies over many decades, Buffett and his team are also responsible for managing a 46-security portfolio worth almost $206 billion as of June 1, 2020. Over the past 55 years, Buffett has outperformed the aggregate return of the S&P 500, inclusive of dividends, by more than 2,700,000%. And just in case you think Buffett has lost his swagger, he's up well over $40 billion on his investment in Apple in just a couple of years.
The Oracle of Omaha is also a big fan of investing in cyclical businesses. This is to say that many of Berkshire's top holdings perform their best when the U.S. and global economy are expanding, which is similar to what I described above with Alphabet's advertising operations. As Buffett opined in his most recent annual shareholder meeting, "Never bet against America."
Finally, don't overlook social media giant Facebook (META 1.70%), which doesn't look to be anywhere near done with its growth story.
First off, Facebook ended the first quarter with 2.6 billion monthly active users (MAU), as well as 2.99 billion family MAUs, which takes into account the company's other platforms: Instagram, Facebook Messenger, and WhatsApp. There's simply nowhere else advertisers can go where they're going to be able to reach between 2.6 billion and 3 billion targeted eyeballs. This gives Facebook exceptional ad-pricing power and the ability to grow along with the global economy.
But what you might not realize is that Facebook hasn't fully monetized its platforms. Though ads are driving revenue growth on Facebook and Instagram, Facebook Messenger and WhatsApp have yet to be monetized. That's four of the seven most-visited social platforms, of which only two are generating notable sales for Facebook. As I said, this growth story is far from over.