This has not been a particularly good year for investors. Since reaching their respective all-time closing highs, the timeless Dow Jones Industrial Average, broad-based S&P 500, and growth-focused Nasdaq Composite have plunged by as much as 19%, 24%, and 34%.
But when there's fear on Wall Street, there's always opportunity -- at least for long-term investors. Despite the S&P 500 undergoing 39 double-digit declines since the beginning of 1950, each of the previous 38 drops (i.e., not counting the current bear market) were eventually cleared away by a bull market. These figures clearly show that patience and optimism prevail on Wall Street.
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It's also a fantastic reminder that innovative, game-changing companies are currently trading at a discount. On the day we celebrate our independence as a nation, I offer five remarkable stocks that can use their unique tools and intangibles to guide you to financial independence in 20 years.
The first phenomenal company that can lead you to financial freedom when held for two decades is social media stock Pinterest (PINS -1.55%). Although Pinterest's stock has been under pressure because of a short-term decline in monthly active users (MAU) and growing concerns about a recession, these shortsighted worries overlook a number of competitive advantages.
As an example, the recent MAU decline can be explained by COVID-19 vaccination rates climbing and people returning to some semblance of normal. However, if Pinterest's MAU growth is examined over a five-year period, it's maintained a pretty steady upward trajectory.
What's far more important is that the company has had no trouble generating more revenue from its users. Even with 45 million fewer MAUs in the March-ended quarter, relative to the prior-year period, global average revenue per user (ARPU) climbed 28%, with especially strong ARPU growth in international markets. This illustrates that merchants are willing to pay a premium to get their message in front of Pinterest's 433 million MAUs.
Furthermore, Pinterest's entire operating model is based on the idea that users are willingly sharing the things, services, and places that interest them. It effectively puts all pertinent info on a silver platter for merchants to target potential shoppers.
Berkshire Hathaway
Just because a company has a mammoth market cap, it doesn't mean it can't deliver jaw-dropping returns over multiple decades. Just ask Warren Buffett, the CEO of conglomerate Berkshire Hathaway (BRK.A 1.18%) (BRK.B 1.28%).
Since taking the reins in 1965, the Oracle of Omaha has led his company's Class A shares (BRK.A) to an annualized return of 20.1%, which works out to 3,641,613% on an aggregate basis, through Dec. 31, 2021.
One reason Berkshire Hathaway has been such an unstoppable force for nearly six decades is Warren Buffett's penchant for playing a simple numbers game. Buffett is well aware that recessions are an inevitable part of the economic cycle. But rather than trying to time when recessions will occur, he's packed Berkshire's investment portfolio with cyclical businesses. Because periods of economic expansion last significantly longer than recessions, Buffett has angled Berkshire Hathaway's portfolio to take advantage of the long-term expansion of the U.S. and global economy.
What's more, Berkshire Hathaway is a passive income-collecting machine. Over the next 12 months, Buffett's company should bring in more than $6 billion in dividend income. It should be noted that income stocks have a history of handily outperforming companies that don't offer a dividend; and Berkshire's portfolio is loaded with dividend-paying stocks.
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Etsy
A third remarkable stock that can help you pave a path to financial freedom is specialty e-commerce retailer Etsy (ETSY -0.86%). Similar to Pinterest, Etsy's near-term concerns regarding growth are easily outweighed by its sustainable competitive advantages.
Though it might seem as if online retailers are a dime a dozen, Etsy's platform is truly unique. Instead of relying solely on volume, no other online retailer focuses on consumer personalization at scale quite like Etsy. The company's platform is founded on small merchants and proprietors that sell unique or customized products. There simply isn't a lateral substitute for what Etsy offers.
The company has also done an incredible job of keeping its user base engaged. Between the end of 2019 and the end of 2021, the number of habitual buyers on the platform increased by 224%. A "habitual buyer" is someone who makes at least six purchases totaling $200 in aggregate over a 12-month period. Growing the number of habitual buyers is what allows Etsy to charge merchants more to utilize its services and analytics.
As long as Etsy continues to reinvest in user-engagement initiatives, such as its recent push to incorporate video on its platform, it shouldn't have any issue delivering for patient investors.
Lovesac
When you think of highly innovative businesses that can put you on track to reach financial independence in 20 years, furniture stocks probably don't come to mind. However, Lovesac (LOVE 2.21%) has been demonstrating for years that it can effectively disrupt the stodgy furniture industry.
One of the biggest ways Lovesac has differentiated itself from traditional furniture retailers is with its products. Although beanbag-styled chairs, known as "sacs," were once its top item, nearly 88% of net sales now come from "sactionals." A sactional is a modular couch that can be arranged dozens of ways to fit virtually any living space.
Aside from functionality, what separates sactionals from traditional furniture is choice and its ecofriendly construction. Sactionals have more than 200 different cover options, which means they can match any color or theme of a room. Buyers can also upgrade their sactional to include wireless charging stations and/or surround-sound speakers. But perhaps the greatest aspect of sactionals is that the yarn used in the covers is made entirely from recycled plastic water bottles.
If you need one more reason to trust in Lovesac's future, consider its omnichannel sales platform. During the pandemic, it was able to shift a significant portion of its sales online, as well as rely on popup showrooms and retail partnerships. With lower overhead costs than traditional furniture stores, Lovesac's operating margins should leave its peers in the dust.
Alphabet
A fifth remarkable stock that can guide you to financial independence over the coming two decades is Alphabet (GOOGL -1.23%) (GOOG -1.10%), the parent company of internet search engine Google and popular streaming platform YouTube.
For more than two decades, Google has been the company's cash cow. Over the past two years, Google's share of global internet search has been no lower than 91%, which makes it a veritable monopoly. Businesses understand that the most-effective way to reach users via internet search is by advertising with Google. Long story short, Alphabet consistently enjoys strong ad-pricing power.
However, Alphabet's future might rest with its other, faster-growing revenue channels. YouTube has become the second most-popular social media site on the planet, which has unquestionably helped boost its ad revenue and premium subscriptions.
Meanwhile, Google Cloud has gobbled up 8% of global cloud infrastructure spending, according to first-quarter estimates from Canalys, and has been steadily growing by 40% to 50% on a year-over-year basis. Because cloud service operating margins are higher than the operating margins generated from advertising, Google Cloud could become Alphabet's leading cash flow generator by as soon as the midpoint of this decade.
