There are many ways to make money in the stock market. Every investor has their own style, different levels of risk tolerance, and diverse goals. But one of the easiest and most profitable ways to get rich on Wall Street is to follow in the footsteps of true masters such as Warren Buffett and Benjamin Graham.
It's elementary, really. First, identify companies with fantastic growth opportunities, sustainable business advantages over their rivals, and excellent management teams. Then, buy these stocks at reasonable prices. It's OK to overpay a bit if you have to. Quality doesn't always come cheap.
Then, stick those shares under your proverbial pillow and get some undisturbed sleep. Do absolutely nothing for years or even decades. Companies with the qualities I listed a minute ago should be able to deliver solid returns for the long haul, unlocking the magic of compounding returns over very long periods.
Even ardent growth investors with a high tolerance for market risk should have a handful of these surefire long-term bets in their portfolios. For example, my own collection of small-cap tickers, promising growth stocks, and the odd speculative bet is built around a solid core of long-term champions. Whatever happens to the rest of my real-world holdings, I don't lose a minute of sleep over these proven winners. The stocks mentioned below are firmly established members of that elite group.
Read on to see why every investor should consider holding a few shares of Roku (ROKU +0.23%), Alphabet (GOOG +0.20%) (GOOGL +0.07%), and Walt Disney (DIS 0.60%). All of these familiar names are poised to keep winning for many years to come, each in its own inimitable way.
Time is money. Image source: Getty Images.
Roku: Modern entertainment in a nutshell
Streaming media is everywhere nowadays. The COVID-19 pandemic accelerated the mainstream adoption of digital entertainment services, and the health crisis struck just as every entertainment company on the planet seemed to be launching its own streaming platform.
Roku benefits from all of this activity, being the global leader in media-streaming technologies. The company's service-agnostic philosophy does a couple of important things for Roku's long-term success. First, this company can be a huge winner no matter which content studio walks away with the trophy for having the most viewers in the end. Second, Roku's omnipresent nature in the set-top box and smart TV markets forces every new service to develop support for Roku's platform. These two qualities reinforce each other as time goes by, further cementing Roku's rock-solid growth trajectory.
Streaming entertainment is here to stay. Roku has claimed the catbird seat for itself in this explosive growth market. It would take a massive effort by an established entertainment technology giant to dethrone Roku at this point. Most of those large-scale rivals are too deeply attached to their long-standing traditions to really go for it.
For example, I would eat my shoe if Apple (AAPL +0.29%) ever decided to give equal support to every available streaming service and hardware device. The Apple TV app is only available for devices designed in Cupertino, and the Apple TV set-top box works best with the iTunes ecosystem. That's the exact opposite of Roku's agnostic attitude, and the main reason why I don't see Apple as a serious Roku competitor.
A larger company could give up on promoting its in-house platform options and just buy Roku instead. However, Roku is trading at 208 times forward earnings or 210 times free cash flows. The company's enterprise value stands at a hefty $44.1 billion today. That's rich enough to make any tech giant think twice about putting together an acquisition offer, especially one with a buyout premium large enough to win the required shareholder vote. The lofty price tag is Roku's best takeover defense.
This is one of those situations where a high price shouldn't deter you from picking up Roku shares. You get to own a premium business when you pay that premium price.
So if you want to bet on the future of digital entertainment without worrying about the content production side of things, Roku is your best bet. This stock should deliver market-beating returns for the foreseeable future.
Alphabet: Throwing spaghetti at the wall for fun and profit
So far, almost all of Alphabet's success and financial gains have sprung from the Google-branded set of online search and advertising tools. In the recently reported second quarter of 2021, Google services and Google Cloud accounted for 99.2% of Alphabet's total sales. The remaining operations, under the "other bets" segment, also reported an operating loss of $1.1 billion, while the Google segments generated $8.1 billion in operating profits. It's all about the Big G.
That won't always be the case, though.
Google transformed into the conglomerate known as Alphabet exactly because the company knows that big changes are coming. Web browsers and ad-boosted websites will not always provide a stable revenue stream for Google. Mobile apps and the Android platform are ready to take over, but this too shall pass.
And Alphabet is trying out a whole bunch of alternative business ideas. So far, the company is looking at ideas such as self-driving cars, high-speed internet services, advanced medical research, and next-generation agriculture development. One or several of those unconventional bets should stand ready to carry Alphabet's financial torch when the time comes. Or maybe we haven't even heard of Alphabet's best ideas yet.
Nobody knows exactly where this train is going, but I'm OK with that. Alphabet is willing to keep throwing spaghetti at the wall until something really sticks, creating the foundation of whatever this company might become. Alphabet's ambitious moonshot projects generally strike me as wholesome ideas that could benefit humanity on a large scale -- and I would be happy to benefit from their potential success.
That's why Alphabet will always hold a place in my investment portfolio. This company is ready and able to change with the times. That's one effective way to build a successful business for the ages.
The winds of change are blowing. Image source: Getty Images.
Disney: Always ready to turn on a dime
Finally, Disney's leaders are proving their willingness to try new ideas. The House of Mouse reorganized itself around streaming content last year, thumbing its nose at the traditional media industry to refocus on what's next. Its world-class theme parks are adapting to the restrictions of social distancing, putting together a positive third-quarter showing after several quarters of negative operating profits.
This is the only old-school media studio I would consider owning nowadays. Unfortunately, Disney's sector peers often respond to changing market conditions by retreating into their shells to defend the operating procedures of old, and those efforts are mostly ineffective.
For example, movie theater attendance has been falling for decades. Hollywood at large wanted to address this problem by raising ticket prices, which then resulted in even fewer ticket sales. In Disney's case, the company eventually fired up a serious media-streaming service packed with the company's legendary content, supported by a steady stream of brand new original material.
Disney+ is the company's future in many ways, and you won't see CEO Bob Chapek or chairman Bob Iger complaining about that fact. Instead, they tweaked their company's operating structure to accelerate the transformation.
I don't know where the entertainment and media markets are going in the long run, but I don't really have to. I'm convinced that Disney will do whatever it takes to stay relevant and thriving in whatever market conditions might be around the bend. Again, I really like owning stocks tied to businesses that can and will change over time. Disney is another great example of this market-beating quality.
