As the end of the year approaches, many folks will commit to investing in the stock market for the first time. That would be a good decision, considering that stock investing is an excellent way to build wealth over the long term. While the results of any single month or year may be volatile, the stock market typically moves higher over the long run. And by the long run, I mean 10-year, 20-year, and longer time intervals.
For those new to investing in 2022, here are two stocks that would make an excellent start to building a portfolio which creates wealth.
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Target
Mega-retailer Target (TGT 0.25%) has been an excellent stock for investors in the past decade. Its stock price is up 328% in that time, excluding dividends paid. And since the pandemic's onset, Target's sales and profits have been surging. For the nine months ended Oct. 30, revenue is up 15% and profits have jumped 81% from the same time period last year.
Target's management has made prudent investments in developing its omnichannel capabilities, and customers love the added convenience. Folks shopping on Target's website or app now have multiple options on how they can receive their order. That includes picking up inside a Target store, having it delivered to your car inside a Target parking lot, having it delivered to your home within hours for a small fee, or traditional home delivery that could take several days.
The same-day service is especially popular, driving $6 billion in sales growth in the previous two years. Further, online shoppers choose one of these options on more than half of their orders. That's a competitive advantage Target can hold over Amazon. Consumers are voting in favor of getting their items on the same day, a feat Amazon is still not capable of outside of a few things in a few cities.
And despite Target's excellent stock price performance over the past 10 years, it's not expensive right now. The shares are trading at a price-to-free cash flow ratio of 19 and a price-to-earnings ratio of 16 -- which is about average for the stock over the past decade.
Netflix
Like Target, Netflix (NFLX 0.09%) has been good to shareholders over the past decade. That's an understatement; Netflix stock is up over 5,800% in that time.
The streaming pioneer is winning by offering a better option for watching content. With a traditional cable TV subscription, folks could only watch their content where they had a cable connection, typically at their home or office. A streaming subscription like Netflix can be viewed anywhere you take a mobile device and get an internet connection.
That's one key reason Netflix has reached 214 million subscribers as of Sept. 30. Those customers have put Netflix on pace to reach $30 billion in annual revenue, from which it can spend on creating and purchasing content for its viewers. The regular additions of new and exciting programming keep current subscribers engaged and attract new customers to the service, propelling a virtuous cycle.
Moreover, Netflix is built on a foundation that scales profitably. As its revenue has expanded, so has its operating profit margin -- from 4.3% in 2016 to 18.3% in 2020. Right now, this excellent stock can be bought at a price-to-earnings ratio of 53, close to its lowest in the past decade.
Target and Netflix are proven winners that can keep on winning. They will make an excellent start to a portfolio for those new to investing in 2022.
