Companies that can deliver market-beating returns typically have several characteristics in common. These typically include a competitive advantage over their peers and a strong position in an industry that is still in growth mode.
Investing in stocks that boast at least one of these traits can help an investor achieve financial independence. Let's look at two excellent companies that fit the bill: Medtronic (MDT -1.41%) and Airbnb (ABNB 0.10%).
1. Medtronic
Medtronic is one of the largest medical device companies in the world. The healthcare giant's portfolio is vast, boasting dozens of products across four main business segments. Medtronic also has footprints all across the globe, with a presence in more than 150 countries.
Here's what grants Medtronic a rock-solid competitive edge: The medical device industry is difficult to break into. Developing innovative technologies in this space takes years of work and plenty of up-front cash, and that's not to mention the regulatory and clinical barriers to entry.
A company as well established as Medtronic automatically has a leg up on potential newcomers. And the more than 49,000 patents it holds help insulate its products from competition. The company is still investing heavily in research and development, as evidenced by its deep pipeline and its ever-expanding portfolio. Between August 2020 and August 2021, the company scored 190 regulatory approvals.
Image source: Getty Images.
Medtronic continues to feel the negative impact of the pandemic. Decreases in the volume of procedures resulting from the outbreak affect the company's top line. That's one of the reasons Medtronic has underperformed the market this year. During the second quarter of its fiscal year 2022, which ended on Oct. 29, 2021, Medtronic recorded revenue of $7.8 billion, representing a meager 3% year-over-year increase.
While this headwind will continue to put downward pressure on Medtronic in the short term, it does little to affect its long-term prospects. Medtronic is well-positioned to continue riding the wave of the growing medical device industry. The company recently jumped into the exciting arena of robot-assisted surgery thanks to its Hugo system, and this opportunity will help drive future growth.
Medtronic is also a Dividend Aristocrat, having raised its payouts for the past 44 years in a row and currently offering a yield of about 2.37%, higher than the S&P 500's 1.30%. The company's historical performance dwarfs that of the broader market. This healthcare stock will undoubtedly continue rewarding shareholders for years.
2. Airbnb
The pandemic has also disrupted Airbnb's business. Back in 2020, the entire travel industry suffered due to government-imposed lockdown orders that were issued in an attempt to curb the spread of the disease. These challenging conditions did not stop Airbnb from going public in December 2020. The company priced its IPO at $68 per share but debuted on the market at $146, closing its first day at $144.71.
Airbnb has underperformed the market since then, however, probably partly due to a resurgence of cases of COVID-19. Another legitimate issue investors should consider is Airbnb's valuation. The company is trading at 11.8 times next year's sales. The market has high hopes for Airbnb, and failure to live up to these expectations could send the stock crashing down. Even with these caveats, Airbnb still looks like a great buy.
For one thing, its top line continues to grow at a rapid clip. Airbnb's revenue for the third quarter was its highest ever. During the quarter, the company recorded revenue of $2.2 billion, almost 70% higher than the year-ago period. Perhaps more importantly, Airbnb's top-line figure for the third quarter jumped by 36% compared to Q3 2019, which shows that it is performing better than even in its pre-pandemic days.
On the bottom line, the company recorded a net income of $834 million, growing by 280% compared to last year and 213% compared to the third quarter of 2019.
Although the surge of COVID-19 cases due to the omicron variant could halt Airbnb's progress, this would be a temporary headwind. In the long run, there is a lot going for the company. Airbnb benefits from the network effect, a powerful competitive advantage: The value of its platform increases as more people use it. On the demand side of the equation, people looking for places to stay while traveling will want to choose from a library of options, and that's what Airbnb provides.
And as more customers flock to its platform, so will property owners looking to attract a wide clientele. Airbnb offers a convenient and cheap alternative to traditional hotels, along with a host of amenities. Moreover, millions of people started working remotely during the pandemic, and many of them will never go back to traditional offices. Demand for places to call a "home" away from home -- where people can relax and work -- will only increase in the post-pandemic years and beyond.
Airbnb estimated its total addressable market to be roughly $3.4 trillion. Capturing even a fraction of this opportunity would help the company's revenue and earnings soar along with its stock price.
