Trading stocks on a daily basis can be exhilarating, but it's a risky way to invest. Markets can turn on a dime and very few investors have generated a long-term competitive advantage day trading.
Instead, buying and holding great companies over the course of years and decades is a better way to beat the market and generate wealth. Three stocks that could provide great returns (and allow you to sleep easy at night) are Apple (AAPL 0.64%), Zillow (Z 3.29%), and Square (SQ 5.04%).
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The cash flow machine
Apple can be a foundational company for any portfolio. Its products sell in high volumes and at high margin, and the company spits off a lot of free cash flow. Despite being one of the biggest companies in the world, Apple has continued to grow both revenue and free cash flow over the past five years.
AAPL Revenue (TTM) data by YCharts
What's great about Apple's business is how sticky it is, and how the company is gradually expanding into new hardware, software, and services. The iPhone is still the center of the ecosystem, but iPads, Macs, the Apple Watch, and Airpods continue to expand Apple's reach. And with new hardware in virtual and/or augmented reality expected in the next few years, we may see a new generation of Apple's product lineup emerge before our eyes.
Apple's shares aren't cheap by most historical standard with the stock trading at 34 times earnings and 27 times free cash flow. But Apple has also shown that its stability and slow but steady growth is worth paying a premium for. And in today's market this is still a great stock to own.
Disrupting real estate
Zillow is known as a place where shoppers can find information about real estate and even connect to a real estate agent. In fact, advertisements from real estate agents are where Zillow makes most of its money today. That's not really the company's future, though.
Zillow Offers is now a major player in real estate, generating $304 million in revenue in the fourth quarter of 2020 alone. The business buys homes directly from sellers and then sells them to a new buyer. Last quarter, Zillow generated a gross profit of $29,547 per home on 923 homes sold. When you consider that about 6 million homes are sold each year, this is an incredibly big growth market for Zillow to be entering.
Z Market Cap data by YCharts
Zillow isn't a cheap stock, trading at 10 times sales and more than 100 times trailing free cash flow. However, the business has incredible opportunities to grow to dominate the massive real estate market. The investment isn't without risk today, but it is a far better investment of time and money than day trading.
The future of financial services
Square isn't just a payment processing company for food trucks and breweries anymore. It's becoming a key financial services company for both consumers and businesses.
Square is expanding the number of locations it serves and the products it offers, like scheduling customer appointments , employee time tracking, inventory, and capital for its business customers . But its fastest-growing product is the Cash App, the company's brokerage and funds transfer app. It makes transferring Bitcoin (BTC 0.33%) and investing in stocks easy, and is only expanding the products it offers.
SQ Revenue (TTM) data by YCharts
We're now starting to see the potential for a world where Square is the center of our payment universe. It'll provide infrastructure for businesses, process payments, take deposits for retail customers, and handle loans and asset management. And the company could do all of this frictionless through its own systems. That could be a truly revolutionary business long term.
Don't trade. Buy and hold.
The common thread through Apple, Zillow, and Square is that they have very bright futures and that should translate into much higher stock prices. I don't know if it will happen today, next week, or five years from now, but I plan on holding long term to ensure I don't miss out on the day when the stocks rise.
