It might not seem like it at the moment, but 2022 has been a blessing in disguise for long-term investors.
Even though the 2022 bear market has delivered some painful unrealized losses over a short time frame, the stock market has demonstrated time and again that it increases in value over the long run. This makes every correction, crash, and bear market an opportune time to pounce.
Time can be an especially strong ally for investors when they hold stakes in game-changing businesses. What follows are five surefire stocks that can help build generational wealth over the next 20 years.
Image source: Getty Images.
Visa
Let's get one thing straight: Large-cap stocks can still deliver big-time returns. One such winner that can keep on winning for its shareholders is payment processor Visa (V -0.48%).
In terms of credit card network market share by purchase volume, Visa is in a class of its own in the United States. It held a 54% share in 2020 and was the only one of the four major U.S. payment processors to substantially expand its market share following the Great Recession (2007-2009).
However, there's more to Visa than just sitting in the pole position in the No. 1 market for consumption in the world. With most global transactions still being facilitated with cash, Visa can organically enter underbanked markets, as well as use its deep pockets to make acquisitions in order to expand its reach. It did this in 2016 with the purchase of Visa Europe.
But what makes Visa truly rock-solid is its laser focus on payment processing. Although some of its processing peers act as lenders, Visa has chosen not to. This decision means it avoids loan loss responsibility when inevitable recessions arise. Not having to set aside asset reserves to cover potential loan losses is a powerful tool that keeps Visa's margins juiced and allows it to rebound from economic downturns quicker than most financial stocks.
CrowdStrike Holdings
A second game-changing stock with the ability to make patient investors a whole lot richer over the next two decades is cybersecurity company CrowdStrike Holdings (CRWD -0.49%).
From a macro perspective, cybersecurity has shifted from an optional service to an absolute necessity for businesses of all sizes. The COVID-19 pandemic taught businesses the importance of having an online presence, and they've responded by moving their data online and into the cloud. As time passes, the onus of protecting this data falls evermore onto the laps of third-party providers like CrowdStrike.
While its new customer growth has been impressive -- from 450 subscribers to 21,146 in under six years -- what's considerably more important is the organic growth from existing customers. Whereas only a single-digit percentage of subscribers purchased at least four cloud-module subscriptions six years ago, 60% of its 21,146 clients have purchased at least five cloud-module subscriptions as of the recent quarter. Add-on subscription sales is CrowdStrike's key to jaw-dropping profit growth.
Credit is also due to the company's end-user security platform known as Falcon. This is a platform that relies on artificial intelligence (AI) and machine learning to become more efficient at spotting and responding to potential threats. It's clearly doing its job as evidenced by CrowdStrike's slow but steady climb in gross retention.
The all-electric Nio ET7 sedan. Image source: Nio.
Nio
The third surefire stock with generational wealth-building potential over a 20-year time frame is China-based electric vehicle (EV) manufacturer Nio (NIO 6.71%).
Similar to CrowdStrike, there's a macro thesis at play that very much favors Nio (and its peers). Since most developed countries want to reduce their carbon footprint, promoting EVs and other clean-energy modes of transportation is a no-brainer solution. Given that China is the No. 1 auto market in the world, we could be talking about a multidecade vehicle-replacement cycle that drives above-average growth for Nio.
For its part, Nio has responded by introducing more than a half-dozen models of varying price points. The ET7 and ET5 sedans, which respectively began deliveries in late March and September of this year, have been especially popular. Nearly 44% of Nio's record 14,178 EV deliveries in November were sedans. Look for this model diversification to really drive delivery and sales growth for the company.
Nio also has a good chance to retain the loyalty of its early EV buyers thanks to its battery-as-a-service (BaaS) subscription. Although enrollment in BaaS nets buyers a discount on the purchase price of a Nio EV, it more importantly allows Nio to receive high-margin recurring revenue from buyers. This should help keep them loyal to the Nio brand.
Fiverr International
A fourth phenomenal company that's fully capable of building generational wealth in 20 years is gig economy up-and-comer Fiverr International (FVRR 7.40%).
Fiverr operates an online marketplace for freelancers that provides three distinct tailwinds for the company. To begin with, the pandemic has resulted in more people than ever working remotely. This looks to be a permanent labor force shift, which would favor Fiverr's online-services marketplace model.
Second, Fiverr's online marketplace brings differentiation to the table that buyers of freelancer services clearly appreciate. Specifically, Fiverr's freelancer marketplace presents jobs at an all-inclusive price, as opposed to the hourly rates found on competing online-service marketplaces. Considering that both the aggregate number of buyers on Fiverr and spend per buyer have continued to climb, the takeaway is that price transparency is incredibly important.
And third, Fiverr's take-rate is unmatched. By "take-rate," I'm talking about the percentage of each deal negotiated on its platform that it gets to keep. Fiverr's take-rate hit an all-time high of 30% in the third quarter. The company has consistently grown its freelancer and buyer community despite netting a larger percentage of each deal over time. That's a recipe for substantial long-term growth.
Berkshire Hathaway
The fifth and final surefire stock that can build generational wealth in 20 years is none other than conglomerate Berkshire Hathaway (BRK.A -0.16%) (BRK.B -0.20%).
While Berkshire Hathaway isn't exactly a household name, its billionaire CEO for the past 57 years certainly is. Since taking the reins in 1965, Warren Buffett has led his company's Class A shares (BRK.A) to an average annual return of 20.1% through Dec. 31, 2021. At this rate of return, shareholders have been doubling their money, on average, every 3.6 years for more than a half-century.
One of the reasons Berkshire Hathaway is such a successful company is because Warren Buffett and his investment team packed the investment portfolio with cyclical stocks. The Oracle of Omaha is well aware that timing the stock market is impossible. Instead, he invests in businesses that can take advantage of long-winded periods of expansion. Ultimately, economic expansions last considerably longer than recessions/contractions.
The other key factor to Berkshire's outperformance is dividend stocks. More than 30 of the roughly four dozen securities held in Berkshire Hathaway's investment portfolio offer a payout. All told, Buffett's company is in line to collect more than $6 billion in dividend income in 2023. Dividend stocks have a rich history of outperforming their non-paying peers, which makes them a smart choice for an investor with a long-term mindset like Warren Buffett.
