Companies that achieve a $1 trillion market capitalization always boast dominant brands. But as the market downturn of 2022 proved, there are often bumps along the way that cause companies to temporarily fall out of that revered group of companies.
The end of 2021 to late-2022 saw Amazon, Tesla, and Meta Platforms (formerly Facebook) all fall off the list. Now, there are just four companies that each have a $1 trillion market capitalization.
As time goes on and companies become more profitable, they will also become more valuable. Here is a pair of dominant stocks that stand a good chance of reaching a $1 trillion market cap by 2038.
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1. Visa: The undisputed champion of the payments industry
As is the case in any industry, size matters. And the payments processing industry is no exception. That's because the more dollar volume a company processes and cards it has on its payment network, the more likely merchants will be to accept that payment method at their businesses.
Visa (V +0.61%) is the largest publicly traded payments processing company in the world. Visa's trailing-12-month total payment volumes of $11.6 trillion is well above Mastercard's $8.2 trillion in trailing-12-month total payment volumes. This explains how the former's $472 billion market cap is head-and-shoulders greater than the $361 billion market cap of the latter.
NYSE: V
Key Data Points
As more individuals turn to online shopping and shift away from cash, alternative payment methods will continue to flourish. This is why the consulting firm Boston Consulting Group anticipates that the global payments processing industry will see total revenue grow at a high-single-digit percentage clip annually to reach $3.3 trillion by 2031.
Since Visa is the leader of the industry and will likely make acquisitions to strengthen its competitive position, it's not surprising that the company's earnings outlook is promising. Analysts believe that non-GAAP (adjusted, non-generally accepted accounting principle) diluted earnings per share (EPS) will compound at 14.9% annually through the next five years.
To reach a $1 trillion valuation by 2035, Visa's share price only has to increase 5.4% annually for another 12 years. This seems quite doable, given the company's growth prospects.
And at a forward price-to-earnings (P/E) ratio of 26.7, the stock's valuation multiple isn't unreasonably higher than the credit services industry average forward P/E ratio of 18.2. This is especially true considering that the Buffett-owned stock doesn't assume credit risk, which justifies the current premium valuation.
2. Procter & Gamble: The biggest consumer staple maker on the planet
Similar to Visa, Procter & Gamble (PG +2.74%) is the clear leader of its industry. The company boasts countless household-name brands, including Crest toothpaste, Oral-B electric toothbrushes and floss, Downy fabric softeners and dryer sheets, and Charmin toilet paper.
NYSE: PG
Key Data Points
P&G's $358 billion market cap is bigger than the market cap of the next four household and personal products companies combined. The company's products are so well known that 5 billion consumers throughout the world use them. And as the global population is set to surge from about 8 billion now to more than 10 billion by 2060, household products will become more important than ever.
This is why analysts believe that P&G's earnings will climb 4.9% annually during the next five years. If anything, this seems to be conservative compared to the last five years of 9.5% annual earnings growth. For the sake of conservatism, I will assume that P&G's stock price keeps pace with earnings growth and earnings growth comes in at 7.3% annually. This is the about the midpoint between past earnings growth and the analyst consensus for future earnings growth.
That would be enough to propel P&G to a $1 trillion valuation by 2038. And the stock's forward P/E ratio of 23.6 is meaningfully lower than the household and personal products industry average forward P/E ratio of 30.2. This arguably makes P&G a compelling buy for the long haul.
