This has been a wild year to be an investor. We've witnessed some of the craziest up-and-down vacillations in the history of the stock market, and yet the S&P 500 sits pretty darn close to the flat line on a year-to-date basis.
This volatility can be especially confusing for investors in their 50s. With retirement potentially looming within a decade, the preservation of capital is important. Then again, with Social Security Administration data showing that the typical 65-year-old lives an average of 20 more years, growing your nest egg for the years to come is imperative, too.
With the understanding that inflation will whittle away the value of cash put under the mattress or into ultraconservative investment vehicles, such as bank CDs, investors in their 50s would be wise to stick with a tried-and-true wealth creator: the stock market. If you're in your 50s and looking for wealth-building ideas, here are three perfect stocks that offer a blend of growth, income, and capital preservation.
I know what you're probably thinking, and no, you shouldn't be scared of investing in money-center banks -- especially Wells Fargo (WFC 1.11%). Even with the memories of the financial crisis probably still fresh in the minds of some investors in their 50s, Federal Reserve oversight has required banks to improve their balance sheets and prepare for the worst.
Of course, this still hasn't stopped Wells Fargo from being clobbered in recent years. The coronavirus recession and the unearthing of Wells Fargo's unauthorized account scandal between 2009 and 2016 have done a number on the company's shares.
But at only 65% of its book value, it's also cheaper than it's been at any point over the past three decades, save for a one-week span during the height of the financial crisis over a decade ago. Since bank stocks are inherently cyclical, and the U.S. economy spends far more time expanding than contracting, Wells Fargo seems to have a good chance of regaining much (if not all) of what's been lost over time.
Wells Fargo's success has also been dependent on its ability to attract affluent clients. Rarely do we see instances where PR flubs have a lasting impact on a banks' ability to lure new clients. Wells Fargo should have no issue continuing to court high earners and will reap the rewards of offering this wealthier clientele multiple products, including mortgages and asset management services. The rich are Wells Fargo's key to its consistently superior return on assets.
Additionally, take note that the CEO carousel has stopped. Former Visa CEO Charles Scharf is now steering the ship, and he was responsible for doubling Visa's per-share profitability during his four-year tenure at the leading payment processor.
A possible doubling in value over the next five to 10 years and a 1.6% annual yield to boot translate to a nice growth, income, and value proposition for investors in their 50s.
Innovative Industrial Properties
Once again, I assure you, I'm not crazy. Over the next decade, few industries can offer the growth potential that legal cannabis can bring to the table. But you still have to be selective when investing in this high-growth space, which is why I believe Innovative Industrial Properties (IIPR -0.76%) is a smart buy-and-hold pick for mature investors.
Innovative Industrial Properties, also known as IIP, is a cannabis-focused real estate investment trust (REIT) in the U.S. It acquires medical marijuana cultivation and processing properties in states that have legalized these activities and leases them out for extended periods, often 10 to 20 years. In addition to collecting rental income, IIP annually increases the rental rate its tenants pay. It also collects a property management fee that's tied to the base rental rate. This is a fancy way of saying that IIP has a modest organic growth component built into its business model.
However, make no mistake about this company's primary means of growth: acquisitions. Innovative Industrial Properties is a master of the sale-leaseback agreement. With U.S. multistate operators (MSO) having minimal access to traditional banking services, IIP has been acquiring assets from MSOs in exchange for cash, then immediately leasing the property back to the seller long term. As long as cannabis banking reform remains off the table in Washington, D.C., IIP should continue to benefit from sale-leaseback arrangements.
And did I mention that Innovative Industrial Properties is also one of the two most profitable pot stocks on the planet? On the one hand, it has highly transparent cash flow from its long-tenured lease agreements. On the other, the costs to maintain its properties are relatively low. This combination has resulted in exceptionally strong profitability. According to Wall Street analysts, IIP is expected to top $5 in earnings per share in 2021.
Ultimately, investors in their 50s would get a company that could consistently grow by a double-digit percentage (primarily via acquisitions) for the foreseeable future. Oh, and it pays out a 3.7% yield.
No dividend? No problem -- at least when you own a stake in a business with clear-cut competitive advantages and a path to double-digit growth potential over the long term. That's why surgical systems developer Intuitive Surgical (ISRG -0.89%) should be considered a (pardon the pun) staple holding for investors in their 50s.
In terms of dominance in the medical device space, there's no company quite like Intuitive Surgical. Its da Vinci surgical system, which assists surgeons in a variety of soft tissue procedures, has been installed around the world for the past two decades. As of the end of June 2020, Intuitive Surgical had 5,764 of its systems installed, which is far and away more than its competitors combined. Further, some of its deep-pocketed peers have run into issues launching rival surgical systems, which will likely increase Intuitive Surgical's already commanding market share.
There are two reasons to be particularly excited about this company's future. First, Intuitive Surgical's operating margins are built to expand over time. While selling its pricey da Vinci systems generates a healthy amount of revenue, these are intricate systems to construct, and therefore the margins associated with selling them are only mediocre. The bulk of the company's margins comes from selling instruments with each procedure, as well as from servicing its systems. As more of its systems are installed, the percentage of sales derived from these higher-margin segments will rise.
The second factor to consider here is that the company's share of the surgical market still has incredible upside potential. Though the da Vinci system is the leader in urology and gynecology surgical share, it's still angling for leading share in thoracic and colorectal procedures.
At this point, double-digit growth should be expected out of Intuitive Surgical throughout this decade. That makes it the perfect growth stock with a healthy base for investors in their 50s to buy.