For many investors, the ultimate goal of investing is to enjoy a comfortable retirement. The basics seem deceptively simple: Buy some shares of well-run companies, reinvest their dividends, and ignore the near-term volatility.
However, it can be surprisingly difficult to find stocks that can be reliably held for the next few decades. Even the best companies can run out of room to grow, get disrupted by aggressive newcomers, become complacent under weak management, and fail to survive economic downturns.
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In my opinion, the best stocks for an early retirement share four qualities: an evergreen brand, a wide moat, clear plans for the future, and a history of generating consistent returns for at least the past ten years. These three companies check all four boxes: LVMH Moët Hennessy (LVMUY -2.16%), L'Oréal (LRLCY -1.14%), and Lululemon Athletica (LULU -1.26%).
1. LVMH Moët Hennessy
LVMH is the world's largest luxury company. The French conglomerate was established 34 years ago and owns 75 houses across five main markets: wines & spirits, fashion & leather goods, perfumes & cosmetics, watches & jewelry, and selective retailing. Its most well-known brands include Louis Vuitton, Dior, Fendi, Loewe, Bvlgari, Tiffany & Co., Hennessy, and Sephora.
Between 2011 and 2021, LVMH grew its annual revenue at a compound annual growth rate (CAGR) of 10.5%, even as it endured a series of financial crises in Europe and the temporary closures of its stores throughout the COVID-19 pandemic. Its net profit grew at a CAGR of 14.7%.
LVMH remains such a resilient investment for two simple reasons. First, the company targets affluent consumers who can afford to keep spending money throughout economic downturns. Second, it's so well-diversified that it can easily offset a temporary slowdown in one sector with the growth of its other businesses. That flexibility and resilience make it an evergreen investment.
LVMH's stock has nearly doubled over the past three years, but it still looks reasonably valued at 26 times forward earnings and pays a decent forward yield of 1.5%. Its rival Hermès (HESAY -2.48%), which mainly focuses on the growth of its namesake brand instead of acquisitions, trades at 50 times forward earnings and pays a much lower forward dividend yield of 0.6%.
2. L'Oréal
L'Oréal is the world's largest cosmetics company. The 112-year-old French company operates four main business segments: Professional Products, Consumer Products (mid-range brands), L'Oréal Luxe (higher-end brands), and Active Cosmetics (skincare products). Its top brands include L'Oréal, Lancôme, Maybelline, NYX Cosmetics, and Garnier.
Between 2011 and 2021, L'Oréal's revenue increased at a CAGR of 4.7% as its earnings per share (EPS) grew at a CAGR of 7.4%. Those growth rates aren't as impressive as LVMH's, but L'Oréal also targets higher-end consumers. Cosmetics are also generally resistant to economic downturns because they're considered essential consumer staples.
Therefore, L'Oréal's ability to straddle the luxury and consumer staple markets -- which are both resistant to inflation -- makes it an attractive long-term investment. That's why its shares have risen more than 50% over the past three years.
L'Oréal's stock is a bit pricey today at 36 times forward earnings, and its growing dependence on China might worry some investors. However, I believe L'Oréal will remain an evergreen investment as it locks in customers with its brand appeal and continues to acquire smaller brands to expand its portfolio. The stock also pays a decent forward yield of 1.3%.
3. Lululemon Athletica
Lululemon Athletica carved out a high-growth niche in the yoga apparel, activewear, and athleisure apparel markets over the past two decades. The Canadian retailer differentiated itself from other athletic apparel retailers by aggressively targeting female shoppers, providing free yoga classes, and building a reputation as a higher-end brand with pricier products.
Lululemon's annual revenue rose from $1 billion in 2011 to $6.3 billion in 2021, representing an impressive CAGR of 20.2%. Its EPS grew at a CAGR of 19.4%. During that decade, it more than tripled its number of stores from 174 to 574, and continued to open new locations throughout the pandemic.
Back in 2019, Lululemon claimed it could generate double-digit annual revenue growth through the end of 2023 by doubling its men's revenue, doubling its digital revenue, and quadrupling its international revenue.
The pandemic initially cast some doubts on those plans, but Lululemon surpassed its men's and digital targets in 2021 and plans to quadruple its international sales ahead of schedule in 2022. For 2022, it expects its revenue to grow 20%-22% and for its adjusted EPS to rise 17%-20%.
Lululemon's stock has rallied 120% over the past three years, and it doesn't look cheap at 40 times forward earnings. However, I'd argue that it deserves that premium valuation because it's also a luxury brand that can weather future economic downturns like LVMH and L'Oréal.
