Many stocks crumbled this year as inflation, rising interest rates, and other macro headwinds drove investors toward more conservative investments. As a result, it's been difficult to find stocks that can consistently stay ahead of the S&P 500 and generate positive returns.
But if we look back further at the past 10 years, we'll find some well-known stocks that have consistently beaten the market -- and could continue to do so over the next decade. Let's take a look at three stocks which fit that profile: Hermès International (HESAY 0.72%), Costco Wholesale (COST 0.34%), and Dollar General (DG 0.40%).
1. Hermès International
Hermès is both a growth play and a recession-resistant investment. Between 2011 and 2021, the French luxury house's revenue rose from 2.84 billion euros to 8.98 billion euros ($9.06 billion), representing a compound annual growth rate (CAGR) of 12%. Its net income also grew at a CAGR of 15%, from 594 million euros to 2.45 billion euros ($2.48 billion).
Hermès continued to flourish, regardless of the macroeconomic conditions, because it mainly served affluent customers who were well-insulated from economic downturns. It also manufactures most of its products in small workshops in France instead of mass-producing them overseas. That approach shields it from supply chain disruptions and reinforces its luxury appeal with a sense of brand-building craftsmanship and scarcity.
Over the past ten years, Hermès' stock soared nearly 300% as the S&P 500 advanced about 190%. The stock isn't cheap right now at 42 times forward earnings, but I believe Hermès' stock will continue to command a premium valuation if a recession starts since its core customers will continue to purchase its pricey leather goods, accessories, watches, perfume, and beauty products as less affluent customers rein in their spending.
2. Costco Wholesale
Costco is another evergreen stock that provides both long-term growth and plenty of downside protection during a recession. Costco's approach is simple: It sells cheaper products in bulk, locks in its shoppers with sticky annual subscriptions, and continues to open new stores in the U.S. and overseas.
Between fiscal 2011 and 2021, which ended last August, Costco's revenue rose from $87.1 billion to $192.1 billion, at a CAGR of 8%. Its net income -- which primarily comes from its higher-margin membership fees -- increased at a CAGR of 13%, from $1.46 billion to $5.01 billion.
Costco ended its latest quarter with 830 warehouse stores worldwide, compared to 592 locations at the end of fiscal 2011, making it one of the few retailers that continuously expanded its brick-and-mortar presence over the past decade as other retailers shuttered their stores to cut costs.
Costco fared well throughout the pandemic as shoppers stocked up on more packaged foods and household products, and it will likely remain a top shopping destination as inflation drives consumers to buy more products in bulk. Costco's stock has already rallied about 430% over the past 10 years -- and it certainly isn't cheap at 34 times forward earnings -- but I believe it will continue to beat the market for years to come.
3. Dollar General
Dollar General is one of the largest "dollar store" chains in the U.S. It doesn't sell everything for a dollar anymore, but it still sells most of its products at lower prices than Amazon or Walmart. Unlike its rival Dollar Tree, which mainly serves urban and suburban areas, Dollar General primarily targets rural areas, which are underserved by larger retailers.
Dollar General's business model is simple, and revenue has steadily grown from $14.8 billion in 2011 to $34.2 billion in 2021, representing a CAGR of 9%. Net income rose at a 12% rate from $767 million to $2.4 billion.
Like Costco, Dollar General also continued to open new stores as other brick-and-mortar retailers retreated. It ended its latest quarter with 18,356 locations across the U.S., compared to just 9,937 at the end of 2011.
Dollar General is also well-insulated from macro headwinds because it attracts bargain-seeking shoppers during economic downturns. That's why its stock has outperformed the market over the past 10 years with a stunning gain of nearly 430%. The stock trades at just 21 times forward earnings today, and it could still have plenty of room to run in both future bear and bull markets.