Funding an early retirement remains an enticing long-term goal that many investors have for their portfolios. It's largely an achievable target, too, with the key variables being how early you start contributing, your portfolio's average returns, and the size of your annual contributions.
Maximizing the impact from each of these categories is the surest path toward financial success. But, while you have some control over the timing and the size of your retirement contributions, a portfolio's return is far less predictable.
The good news is you can boost those returns by picking up strong businesses at attractive stock prices and holding them for many years. With that goal in mind, let's look at two potential winners to consider as you aim for an early retirement.
One big benefit of investing for retirement is that it gives you plenty of time to allow growth stocks like lululemon athletica (LULU 1.74%) to fulfill their potential. The athleisure clothing company has boosted its annual sales footprint by a wide margin over the last few years, but there are likely bigger gains ahead over the long term.
It's targeting a much larger international sales segment by fiscal 2026, for example, and this past quarter's 52% spike supports that bullish idea. The company is pushing into new demographics outside of its core segment of women as well. Sales gains can be further supported by its entry into complementary product categories like outerwear and footwear.
The business is already highly profitable, with an operating margin holding above 20% of sales. But retirement investors might benefit from steady improvements here as lululemon grows beyond the $10 billion of annual sales that management is targeting for fiscal 2023.
Okta (OKTA 0.06%) represents an attractive way for investors to gain exposure to the growing niches of cybersecurity and digital identity management. Sure, the company isn't profitable today. In fact, the operating loss this past quarter was a painful 29% of sales.
Yet that result was a solid improvement over the prior year, when losses topped 46% of sales. Okta paired that financial success with a return to positive cash flow and adjusted operating profitability in the second quarter. "Our focus on execution and efficiency has delivered solid top-line results," CEO Todd McKinnon told investors in late August.
The bullish thesis for this stock is about much more than Okta's march toward positive earnings, though. Despite a tougher IT spending environment, the software-as-a-service specialist is finding new customers in 2023, especially larger enterprises. And existing clients are frequently renewing their contracts at higher rates. These wins convinced management to raise the fiscal-year outlook to call for overall sales gains of just under 20%.
To be sure, there are risks associated with owning Okta, which is a relatively small player in a competitive software niche. The company hasn't proved that it can generate sustainable profits, either. Yet there are some encouraging signs that it is headed in that direction, including positive cash flow and improving gross profit margin.
There will likely be more sales volatility ahead for the business as IT spending patterns shift over the next few quarters. But retirement investors are better off focusing on less noisy metrics like average contract size and Okta's growing pool of customers. Gains in these areas are likely to support positive shareholder returns over the long term.