Despite the impact of COVID-19 on the economy, the stock market has proved to investors that it remains a reliable way to foster long-term wealth. The S&P 500 looks to finish the year up over 15%. The headline success stories in 2020 of companies like Tesla and stay-at-home companies like Zoom Video Communications, Teladoc Health, and Chewy were somewhat surprising, but also well-publicized throughout the year.

The less discussed investing stories in 2020 were the successes of Disney (NYSE:DIS), Caterpillar (NYSE:CAT), and FedEx (NYSE:FDX). Disney and Caterpillar are trading at all-time highs despite reporting terrible overall results. Wall Street has hated FedEx for years, but now it's a darling that is taking full advantage of a huge surge in e-commerce.

Here's why the market is pricing these three stocks at their highest valuations in history, and the lessons you can take with you to beat the market for years to come.

The silhouette of a bull on a mountain at sunrise.

Image source: Getty Images.

1. Disney

Disney is one of the most fascinating winners of 2020 and arguably the best example of why investors should focus on long-term growth instead of short-term challenges.

At the height of the pandemic sell-off, shares of Disney collapsed below $80 and the stock languished below $110 for nearly two months. The sell-off was brutal. But at first glance, it made sense. Its parks and studio entertainment revenue, which was over 70% of 2019 revenue, fell off a cliff. Even in the third quarter, as things are improving, both segments were down over 50% year over year. 

On paper, Disney had a terrible year. Considered by many to be a premier blue-chip stock, Disney's vulnerability to the COVID-19 pandemic was put on full display. It reported its first fiscal year loss in more than 40 years and completely suspended its dividend. But now, shares are trading above $170, a new all-time high. The reason Disney's stock is hitting an all-time high despite reporting such bad results is undeniably due to the growth prospects of Disney+.

Disney+ achieved excellent subscriber growth in the second quarter, but Disney stock was still on sale. Things really took off in the third quarter when Disney+ reported 73 million paid subscribers, which is in the range of what it initially forecasted it would have by the end of the fiscal year 2024.

Since the third-quarter announcement, Disney+ has racked up more subscribers and now has over 86 million. Disney+ could hit over $4 billion in revenue by 2022. The company is now forecasting 230 million to 260 million Disney+ subscribers by 2024. For context, Netflix had 195 million paid subscribers as of the end of the third quarter. 

2. Caterpillar

Caterpillar is a cyclical company that tends to boom and bust with the economy. But despite 2020's challenges, shares of Caterpillar crushed the market and reached a fresh all-time high in the process. And it wasn't due to North American sales.

In fact, Caterpillar's North American sales have been terrible and have stayed terrible even as things picked up in the third quarter. The third quarter as a whole was still bad as Caterpillar reported a 54% year-over-year profit decline, but it was an improvement from the second quarter's 70% decline. 

DIS Total Return Level Chart

DIS Total Return Level data by YCharts

Like Disney, Caterpillar had a bad year on paper. But it has a similar ace in the hole as Disney+ -- you just have to look hard to find it. The secret is that Caterpillar is becoming more of an international success than some may realize. Its North American business now comprises less than half its revenue. The company is tapping into China and taking advantage of booming construction, mining, and energy needs. Asia, Europe, Africa, and the Middle East are also doing well. And Caterpillar had a strong balance sheet to make timely acquisitions, buying assets that blend with its business at bargain prices.

The thing to remember is that Caterpillar's North American business has traditionally been its bread and butter. So while its short-term results are bad, its international growth could make it a more valuable company a year or two from now once North America rebounds from the pandemic. And because of that assumption, investors are willing to pay more for the stock now than they were at the beginning of the year.

Although its earnings can fluctuate from year to year, Caterpillar has proven itself to be one of the most consistent cyclical companies on the market. Its annualized dividend has increased for 26 consecutive years, earning it a coveted spot on the list of Dividend Aristocrats. Shares of Caterpillar have a dividend yield of 2.3%.

3. FedEx

Shares of FedEx have tripled from their 52-week low in March to a new all-time high. Although the shares have sold off a little over the past few weeks, the stock has still nearly doubled for the year.

Metric

Disney

Caterpillar

FedEx

End of 2019 per-share price

$144.63

$143.36

$148.97

52-week low

$79.07

$87.50

$88.69

52-week high

$179.45

$183.81

$305.66

Current per-share price

$172.89

$180.96

$275.50

YTD gain

20%

26%

85%

YTD = year-to-date. Data source: Yahoo! Finance

Before 2020, FedEx had been struggling mightily, underperforming the market over the past few years. For the eight quarters between the third quarter of fiscal year 2018 and the second quarter of fiscal year 2020, shares of FedEx fell the day after its earnings announcement. Investor confidence was low, to say the least.

FedEx's turnaround has been remarkable. Surging residential deliveries and e-commerce growth led to blowout numbers. Along with rival UPS, FedEx has been proving that package delivery stocks can, in fact, thrive during a recession.

Management says that FedEx is now in the midst of its best holiday quarter ever. The transportation company is delivering record volumes as more and more gifts are purchased online than in-store. Expectations are high for the remainder of fiscal year 2021, where FedEx expects sustained growth throughout its business. 

Timeless investing lessons

If you had bought shares in any of these three companies at their 52-week lows, you would have more than doubled or tripled your money. But even if you bought any one of these stocks at the beginning of January, you would have crushed the market with a better return in one year than you could have gotten from a savings account in 10 years. If you'd sold them in the spring or summer, you would have lost money.

The lessons here are timeless:

  1. Investing in good companies and holding them through thick and thin beats the market.
  2. The market values future earnings more than current ones.
  3. The short term matters little if the long-term thesis remains intact.

Whether you're familiar with the stock market or completely new to investing, remember 2020. Like many others, this year proved classic investing principles -- but it did so in a dramatic way under completely unexpected and unprecedented conditions. Learning these lessons now should help you grow your wealth not just in 2021, but for a lifetime.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.