After a tough year in the stock market, investors are looking for high-quality investments that can set their portfolio up for a strong recovery. In the short term, the stock market could still struggle against the volatility created by high interest rates and recession fears.
However, these three stocks offer great long-term potential for investors, regardless of any near-term uncertainty.
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1. UnitedHealth Group
UnitedHealth Group (UNH -1.98%) is the second-largest health insurance plan provider in the U.S., covering more than 45 million people domestically with an additional five million international customers. The company also serves more than 100 million consumers through its Optum Health subsidiary. UnitedHealth offers a broad range of products, including commercial medical insurance, as well as prescription, Medicare Advantage, Medicare Supplement, Medicaid, and Medicare Part D plans.
This scale and diversification set the stock apart from others in its peer group. The company consistently outperforms its major competitors in terms of profitability.
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Higher margins also result in better efficiency ratios, such as return on assets and return on equity, which suggest that UnitedHealth is doing a better job in utilizing its financial resources to produce shareholder returns.
These factors combine to create a remarkably stable company that produces reliable cash flows throughout various economic cycles. UnitedHealth will never be a transformative growth vehicle, but it can be one of the most dependable dividend stocks in your portfolio. Its shareholder distributions have grown consistently over the past decade, and the stock currently bears a 1.3% dividend yield.
The 29% payout ratio indicates the company is producing more than enough earnings to maintain and grow those dividends. With a forward P/E ratio below 20, investors can buy UnitedHealth shares without taking on much risk for volatility. This is a great stock to consider for retirees, income investors, or anyone who favors stability in their portfolio.
2. Block
Block (SQ 1.68%) is a fintech innovator that can fulfill a growth role for investors with a higher risk tolerance. Block's product portfolio includes two high-profile fintech solutions: Square and Cash App.
Square is a mobile payment platform that's popular among small businesses. It includes hardware for payment processing, along with software for payroll, transfers, and analytics. Cash App is a consumer finance platform that provides services such as transfers, payments, and an investment brokerage. Block also expanded operations by acquiring Afterpay in 2021, a large buy-now, pay-later service.
Along with these transformative tech businesses, Block is also committed to continued innovation. The company has invested internal resources in blockchain and other decentralized finance technologies, according to management. The company's significant Bitcoin holdings and 2021 corporate name change are testaments to this. If Block can execute on CEO Jack Dorsey's vision, the company will remain a leader in the rapidly evolving technology world.
Recent results indicate Block is executing well. Its gross profit expanded nearly 40% year over year in the third quarter of 2022 with major contributions from both Square and Cash App. Block is also free-cash-flow positive over the past year. Those are all bullish signals for growth investors, and the company has identified international markets as a major opportunity moving forward.
Despite that operational strength, the stock is down nearly 70% from its all-time high. Block tumbled after reaching a sky-high valuation during the market's most bullish months in 2021. It has followed a pattern that's common among growth stocks and any company associated with cryptocurrencies.
Block's forward P/E ratio is now just below 50, less than one-third of its peak valuation in 2021. Long-term investors who aren't worried about short-term volatility have a chance to buy one of fintech's best innovators at a discounted price right now.
3. HubSpot
HubSpot (HUBS 0.68%) is another growth stock, but its risk profile is different from Block's. HubSpot operates a customer relationship management (CRM) platform that's targeted at small- and medium-sized businesses. Its product suite offers a variety of functions, including lead management, prospect outreach, customer communications, scheduling, billings, and payments. It's become an essential function for many smaller organizations, and it fills a market niche that's ignored by larger competitors like Salesforce.
The company's growth rate has slowed in the past year, but revenue still expanded more than 30% in the most recently reported quarter, driven by subscription revenue. Subscription revenue grew more quickly than customer count, indicating that HubSpot is finding ways to retain subscribers and expand those relationships. That's an important indicator of product quality and economic moat. HubSpot is also on pace to produce $195 million in free cash flow for full-year 2022, making it a lower risk proposition than some cash-burning growth stocks.
The stock is down nearly 60% from the peak it reached in late 2021, creating a more reasonable entry point for investors. The valuation still isn't cheap with a forward P/E multiple above 130 and price-to-sales at 8.7. Nonetheless, its steady performance and a growing addressable market make HubSpot a compelling buy with excellent long-term prospects.
