People have different lifestyles and spending habits. This is precisely why it would be absurd to think that there is a one-size-fits-all amount of money that would be able to support all individuals in retirement.
But for the sake of argument, let's base this amount on the lifestyle of the average American. A recent survey of over 2,000 adults conducted by the financial advisory firm Northwestern Mutual found that the typical American will need just over $1.2 million for a comfortable retirement. This suggests that millionaire status is a prerequisite for most Americans to enjoy a secure retirement.
Here are three stocks to consider for your portfolio that have been millionaire-makers in the past and could continue to do well in the future.
Image source: Getty Images.
1. Home Depot: The dominant player in a massive industry
Home ownership is still at the heart of the American dream. In fact, a clear majority (86%) of Americans would prefer to own their own home rather than rent a home. And no retailer is playing more of a role in renovations and new home constructions than Home Depot (HD 2.18%). After generating $157.4 billion in sales in its prior fiscal year across more than 2,300 stores, the company is unquestionably the leader of the $1 trillion home improvement retail market.
If you had made a $10,000 investment in Home Depot 20 years ago, it would be worth $176,000 today with dividends reinvested. For context, that is almost triple the $68,000 that the same investment amount put into the S&P 500 index would now be worth with dividends reinvested.
Home Depot's strategy for future growth is to focus on improving the shopping experience for professional contractors. These customers are especially lucrative for the company, since they spend more money more frequently compared to do-it-yourselfers.
Home Depot also yields 2.9%, which is much more than the S&P 500 index's 1.7% yield. Investors can pick up shares of the stock at a forward price-to-earnings (P/E) ratio of 17.3, which is a reasonable premium valuation against the home improvement retail industry average forward P/E ratio of 16.2.
2. American Express: A Warren Buffett favorite
Payment methods like credit cards have gained immense popularity over the last few decades. In recent years, American Express (AXP -0.74%) has closed the gap between acceptance of its credit cards at U.S. merchant locations compared to Visa and Mastercard. With 99% of merchants in the U.S. that accept credit cards now accepting AmEx cards, the company has emerged as a truly powerful brand.
AmEx's exceptional brand power explains why Warren Buffett's Berkshire Hathaway owns a 20%-plus stake in the company, worth $24.5 billion. The company has outperformed the market over the last 20 years, parlaying a hypothetical $10,000 investment into $70,000 with dividends reinvested during that time.
As more trends like e-commerce continue to thrive, it should bode well for alternative payments moving forward. The global payments industry is expected to top $3 trillion in annual revenue by 2031. That's why I believe it is reasonable to expect similar returns from AmEx over the long run.
Investors can scoop up the stock and its 1.5% dividend yield at a forward P/E ratio of 12.7. Putting that into perspective, this is well below the credit services industry average of 16.8.
3. UnitedHealth: Demographics are a major growth catalyst
Few industries come with demand as predictable as health insurance. No company has benefited as much from this reality as the world's largest health insurer, UnitedHealth Group (UNH -0.10%). A $10,000 investment made this time in 2003 would have compounded to an astonishing $273,000 now with dividends reinvested.
While it would be unreasonable to expect a repeat performance in the next 20 years, UnitedHealth could still have plenty of growth left in the tank. That's because anybody who has paid attention to demographic trends in recent decades knows that the world is growing older. This is almost sure to result in growing demand for healthcare services like health insurance.
That's why analysts believe that UnitedHealth Group's non-GAAP (adjusted) diluted earnings per share (EPS) will grow by 13.9% annually over the next five years.
Investors can buy shares of the stock for a forward P/E ratio of 18.4. This may be far above the healthcare plans industry average of 14.2. But as one of the greatest wealth builders of this century to date, this premium valuation is justified.
