When looking for stocks to own for multiple decades, I think a company's staying power is probably the most critical factor. In other words, how likely is it that the business will still be around and relevant far into the future? Having solid growth prospects also certainly helps.
Using this mental framework, it's not too difficult to identify businesses that could create lasting generational wealth. Here's why Costco Wholesale (COST 0.68%), Visa (V +0.94%), and Starbucks (SBUX +1.39%) are three great stocks to consider if this is your investment objective.
NASDAQ: COST
Key Data Points
Costco: Driving customer loyalty through memberships
Thanks to its massive scale, with $53 billion in fiscal 2023 Q3 net sales, and no-frills warehouse shopping environment, Costco is able to obtain its merchandise at favorable prices and keep expenses under control, and pass the savings on to customers. The typical markup at a Costco location is just 11%, much lower than that of other big-box retailers. This alone makes people want to shop there.
But Costco requires that shoppers pay annual membership dues to become customers. In the latest quarter, the business generated over $1 billion in membership income, up 6% year over year. This provides the company with a high-margin, stable, and recurring revenue stream.
Costco's incredible customer loyalty, as exemplified by its worldwide membership renewal rate of 90.5% and driven by its low prices, increases the chances that the business will be still be dominating the retail sector a long time from now.
And although this is already a huge corporation, investors can get excited about Costco's growth prospects. Total revenue increased at an annualized rate of 12% over the last five years. Over the next five, Wall Street consensus analyst estimates call for revenue to rise at a healthy compound annual rate of 7%. Costco could be a foundational holding in your portfolio.
NYSE: V
Key Data Points
Visa: Winning the war on cash
It's difficult to find anything wrong with Visa's business. For starters, the company is insanely profitable. In 2022, the giant card network registered an operating margin of 64%. I dare you to find any business with a figure anywhere near that level.
This has resulted in Visa producing a lot of free cash flow quarter in and quarter out, money that management has used to buy back shares and pay dividends. These capital allocation moves help to boost shareholder returns.
Visa also has one of the strongest economic moats around. As of March 31, there were 4.2 billion Visa cards active across the world and 100 million merchants that accepted them. This creates incredible network effects, a situation where the growing number of cards or merchants on the platform increases the value for all other participants.
Because it takes a fee from every transaction that runs across its network, Visa is something of an inflation hedge. If consumers are forced to pay more for groceries, for example, the amount of fees that Visa collects rises as well. That's an attractive characteristic to have.
Cash and checks are still popular payment choices, prompting CEO Ryan McInerney to be optimistic about the company's future. "There is a very long runway for growth in this business," he said on the Q2 2023 earnings call.
NASDAQ: SBUX
Key Data Points
Starbucks: Benefiting from a powerful brand
The most notable feature about Starbucks is just how recognizable its brand is. The business has been around for five decades, and it has successfully figured out how to charge premium prices for a commoditized product like coffee, with an annual gross margin that has averaged 29% in the last 10 years.
According to Interbrand, Starbucks' brand is the second most valuable (among restaurants), behind only McDonald's. This position is definitely bolstered by Starbucks' loyalty program, which now has 30.8 million rewards members. This consumer connection and mindshare should keep the brand relevant for a very long time.
As of April 2, there were a jaw-dropping 36,634 Starbucks locations globally, with about 44% of them here in the U.S. Based on this gigantic sum, it shouldn't be surprising that investors might assume there is simply no more growth left. But the management team sees there being a whopping 55,000 stores worldwide by 2030.
China, which has a huge middle class with discretionary spending power, will be a big part of Starbucks' growth plans. The country returned to positive same-store sales growth in the latest fiscal quarter after a delayed post-pandemic recovery. So it should provide a near-term catalyst for Starbucks. But over the next few years, Starbucks plans to aggressively open new locations in China.
