When a stock soars in the triple digits in a short period of time, it attracts everyone's attention. And if you've invested a lot in that particular player, you could get rich overnight. That sounds wonderful, but in reality, most wealth-building stories happen over a period of years, thanks to investing in rather average stocks.
By average, I mean companies that aren't necessarily developing a new cutting-edge technology or growing earnings in leaps and bounds. Instead, I'm talking about players that have simply found the right products to sell and have used this to grow earnings over time.
This shouldn't burst your bubble of excitement, though. In fact, it's actually great news because it means you don't have to hope for a once-in-a-lifetime opportunity to get rich. Instead, the path to financial freedom is right at your fingertips -- and you can get there by investing in companies you probably know very well. Let's check out three average stocks that, as part of a diversified portfolio, could make you rich.
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1. Johnson & Johnson
You may associate Johnson & Johnson (JNJ -0.46%) with the Band-Aid brand bandages or Aveeno lotion in your bathroom. But the healthcare giant spun off its consumer health business last year, leaving those and other well-known products to a new entity -- Kenvue.
Consumer health may have made J&J a household name -- and that's positive -- but the business actually had been holding back the company's earnings potential in recent years. And now, with a new focus on its pharmaceuticals and medtech businesses, J&J could step into a new phase of growth.
Today, this company we all so easily recognize has 25 platforms that deliver more than $1 billion in annual sales. We can expect growth from a wave of new products, with J&J aiming to launch 20 new ones and 50 expansions of current indications by 2030. But we also shouldn't overlook the power of the company's current products.
J&J said at the recent JPMorgan Healthcare Conference that one of the major drivers of growth for its pharma business is its existing portfolio, with plenty of growth opportunities ahead for oncology drugs Darzalex and Carvykti and potential expansion of immunology drug Tremfya into inflammatory bowel disease. In medtech, constant innovation should help the company reach its goal of one-third of sales coming from new products by 2027.
The $13 billion in proceeds J&J generated from its consumer health spinoff, along with the company's $15 billion in free cash flow, should help it support the pipeline -- and continue increasing its annual dividend as it's done for more than 60 years.
J&J has delivered total returns of more than 124% to investors over the past decade, and thanks to its new focus on growth, it may be able to do even better in the years ahead.
2. Coca-Cola
Coca-Cola (KO) is another company that's probably represented in your household -- this time, in your kitchen. The world's biggest non-alcoholic beverage company makes its eponymous drink as well as many other well-known brands -- from Minute Maid juices to Costa coffee.
What I like the most about Coca-Cola is its brand strength, a moat that protects it from losing ground to competitors. People have come back to Coca-Cola over time and through generations, and the company has demonstrated its strength by its ability to raise prices during difficult times without losing customers.
We saw this last year, as even through difficult economic times and price increases to compensate for higher costs, Coca-Cola continued to report rising earnings. In the most recent quarter, the beverage giant reported gains in revenue, global unit case volume, and earnings per share. Coca-Cola also continued to win share in the non-alcoholic ready-to-drink beverages market.
So, there's reason to be confident about the company's ability to maintain this momentum into the future as well. But market strength isn't the only reason to like Coca-Cola. The company also makes a great buy thanks to its dividend policy.
Like J&J, Coca-Cola has lifted its dividend for more than 50 straight years, putting it on the list of Dividend Kings. This shows dividend growth is important to Coca-Cola, so I would expect the company to continue along that path. Coca-Cola, with more than $10 billion in free cash flow, also has the financial strength to keep these payments climbing.
Today, Coca-Cola shares trade for about 21 times forward earnings estimates. And that seems like a very reasonable price for a stock set to grow your wealth over time, thanks to an unwavering competitive advantage and a willingness to share successes -- through dividends -- with shareholders year after year.
