Over the long run, there's no better bang for your buck than the stock market. Despite undergoing numerous major corrections, including the dot-com bubble in the early 2000s, the Great Recession of 2007-2009, and the coronavirus crash, the benchmark S&P 500 has delivered an annual average total return (i.e., including dividends) of 10.9% over the trailing 40-year period. In other words, it's taking less than seven years for investors to double their money.
But as investors, we're also acutely aware that no two stocks are the same. Businesses that can offer game-changing innovation or disrupt big-dollar industries can carry a portfolio to market-topping gains. These are the types of companies investors should want to hold for 10 years, if not longer.
If you have cash at the ready and are looking to add potential industry disruptors to your portfolio, here are four to buy and hold for the next decade.
The War on Cash is well under way. In the years to come, we're likely to see a continued shift to plastic and digital payments. No matter the path businesses and consumers choose, Square (SQ -2.21%) stands to benefit.
Most folks are familiar with Square because of the point-of-sale devices it supplies to small merchants. Between 2012 and 2019, the gross payment volume (GPV) traversing Square's network catapulted from $6.5 billion to $106.2 billion (a 49% annual growth rate). Interestingly, the company has become more adept at attracting larger merchants in recent quarters. Since this is a fee-driven operating segment, merchants that generate more annual GPV should be a big plus for the company.
An even more impressive growth driver for Square is its digital payment platform, Cash App. Between the end of 2017 and mid-2020, Cash App's monthly active user count more than quadrupled to 30 million. People are utilizing Cash App to make payments, initiate bank transfers, and invest. Cash App has become especially popular for Bitcoin exchange, too.
In terms of fintech stocks, Square could lead the pack in annual growth rate over the next 10 years.
Another industry disruptor poised to get bigger is robotic surgical system developer Intuitive Surgical (ISRG -0.83%). Intuitive's key revenue driver, the da Vinci surgical system, is used in place of traditional laparoscopic surgery for select soft tissue procedures.
Since 2000, the company has installed nearly 6,000 of its da Vinci surgical systems in hospitals and surgery centers around the world. That probably doesn't sound like a lot, but it's more than all of the company's competitors combined. Intuitive Surgical has built up invaluable rapport within the medical community and its competitive edge looks virtually insurmountable.
Its operating model is also built to improve with age. As more da Vinci systems are installed, the company will generate a larger percentage of its sales from the instruments and accessories sold with each procedure, as well as from regularly servicing these systems. Both of these segments generate considerably juicier margins than selling the high-priced but costly-to-build da Vinci systems.
The company has a huge runway to expand into thoracic, colorectal, and general soft tissue procedures. It's also introducing new devices (e.g., the Ion minimally invasive lung biopsy). Intuitive Surgical thus looks like an unstoppable force in the healthcare space.
When you think of disruption, electric utility stocks probably don't come to mind. However, the biggest electric utility of them all, NextEra Energy (NEE -0.17%), is changing the game for the entire industry.
Long reliant on fossil fuels to create electricity, NextEra was the first major utility to truly embrace renewable energy sources. Today, no U.S. utility generates more capacity from solar or wind than NextEra. Although these investments in renewables don't come cheap -- the company expects to spend up to $55 billion on new infrastructure investments between 2020 and 2022 -- they pay off in substantially lower electricity generation costs and a long-term growth rate in the high single digits. Electric utilities the size of NextEra simply don't grow by 7% to 9% annually.
Shareholders of NextEra also enjoy the predictability of the utility sector. With few exceptions, demand for basic-need services like electricity are relatively constant, regardless of how well or poorly the U.S. economy is performing. That means highly predictable cash flow and sustainable profits.
Let this be a lesson not to judge a book by its cover. Utility stocks are boring, but they can still be disruptive.
Disrupting the retail space isn't easy with behemoths like Amazon and Walmart throwing their weight around. But consumers love Etsy's (ETSY -3.55%) unique online marketplace.
Etsy stands out in a very crowded retail space thanks to the emphasis it places on small businesses and personal connections. The Etsy marketplace is home to small businesses that are willing to customize products or otherwise go the extra mile for consumers.
While the company undeniably benefited from the coronavirus pandemic, its sales trajectory has been pointing higher for years. Gross merchandise sales effectively doubled through the first nine months of 2020, with net income more than tripling to $200.7 million. Best of all, existing customers have substantially increased their buying activity, which is Etsy's key to sustainably bigger profits.
Etsy is also investing heavily in segments that generate high-margin revenue. For example, it recently introduced listing videos and has reworked its Etsy Ads infrastructure to give merchants more actionable data.
Consider Etsy the online platform with the local appeal that shoppers value.