Investing is critical to retiring comfortably or meeting other goals in life. Over the long term, the S&P 500 has returned an average of 10% annually. And here's the good news: The percentage of Americans investing in stocks is rising fast, and the excitement grows with the market closing in on all-time highs.
Actually, participation is at its highest rate since the 2008 financial crisis, as shown below.
Source: Statista.
Here are some more interesting investing statistics courtesy of financial services company, Empower.
By age 40, the average investor has around $162,000 in stocks (~50% of their total portfolio), while investors in their 50s have the largest stock balances, averaging $437,000 (~45% of their portfolios). Don't be discouraged if you aren't there yet; you aren't alone. The most important thing is getting started and being consistent.
Interestingly, young investors in their 20s have the most significant percentage of cash other than people over 70, at 32%. Generally, one should be more heavily weighted in stocks when young and gradually move to safer vehicles like bonds and CDs as they age.
Younger investors could be more cash-heavy because they are dipping their toes in the water before making the plunge or aren't sure where to start. But there are advantages. Being nimble at this age is important since you may be looking to purchase a home, finish your education, or have children. Lots of life-changing events happen during our 20s.
The advent of online brokerage services and zero-cost trading enables average folks to easily invest not just in mutual funds but in individual stocks. This is positive overall; however, it can lead to heavy losses for those inexperienced or taking unnecessary risks to get rich quickly. Building a portfolio is about time in the market and investing in terrific companies.
Here are a few suggestions.
1. Amazon
Amazon (AMZN 3.43%) is among the most successful companies of all time. With over 200 million Prime subscribers, a rapidly growing advertising business, and a logistics service rivaling the size of UPS, it isn't finished growing. Amazon Web Services (AWS) is the world's largest cloud services provider.
Total sales grew 13% year over year (YOY) last quarter to $143 billion. Digital advertising growth led the way at 25%, reaching $12 billion in the quarter and $44 billion over the trailing 12 months (TTM). Amazon's ad services, like pay-per-click and product placement, are popular since they reach consumers who are ready to buy.
AWS revenue grew 12% last quarter to $23 billion and $88 billion over the TTM. Companies cut back on their data spending, muting growth, in anticipation of a recession that never materialized. Loosening budgets and increased generative artificial intelligence (AI) programs could reverse this trend in 2024.
Amazon stock had a terrific 2023 yet remains undervalued historically based on operating cash flow and sales, as shown below.
AMZN Price to CFO Per Share (TTM) data by YCharts.
Amazon's valuation and well-rounded revenue streams make it an excellent long-term investment.
2. AbbVie
For those looking for dividend income and resistance to recessions, AbbVie (ABBV -4.58%) is terrific. This pharmaceutical giant has raised the dividend annually since its inception, as shown below, and currently yields close to 4%.
ABBV Dividend data by YCharts.
Biosimilars for Humira (the best-selling drug ever, which put AbbVie on the map) were introduced in the U.S. this year and will take away much of this revenue. However, AbbVie's management has prepared for this for years. New drugs Skyrizi and Rinvoq are expected to have peak sales, over $21 billion, that exceed peak sales for Humira by 2027. AbbVie also gets solid contributions from aesthetics like Juvederm and Botox, among others.
AbbVie recently acquired ImmunoGen for about $10 billion, providing AbbVie with a terrific pipeline in oncology and the drug Elahere, which fights ovarian cancer and had a run-rate of $420 million in sales last quarter.
If a recession hits, pharmaceutical companies will likely perform better than other sectors because the products are mostly necessities. AbbVie isn't going to make you rich overnight, but it is a terrific income-producing option to backstop a portfolio.
3. Booking Holdings
Travel site Booking Holdings (BKNG 0.53%) operates Booking.com, Priceline, KAYAK, OpenTable, and others. The company is highly profitable and produces oodles of free cash flow, which it returns to shareholders through stock buybacks. Stock buybacks have advantages over dividends since they aren't taxable to the shareholders at the end of the year. The company took a whopping 8% of the 2022 year-end shares off the table through the third quarter of 2023 and indicates that there is much more to come. The fewer shares on the market, the more valuable your shares are.
Bookings sales grew 27% YOY through Q3 2023 to $16.6 billion. Additionally, the company achieved a remarkable 41% increase in free cash flow, reaching $5.7 billion with a 35% margin.
The shock to the travel industry caused by the pandemic caused valuation metrics to get wonky for travel stocks, but they are normalizing. Booking's price-to-earnings (P/E) ratio of 24 is reasonable. It is lower than Expedia (NASDAQ: EXPE) at 26 but higher than Airbnb (NASDAQ: ABNB) at 16. Booking doesn't face the same regulatory headaches that hound Airbnb, which is one reason for the premium price.
Share buybacks will enhance shareholder value and are an excellent protection against a downturn in the stock price. If the price dips, the company can take even more shares off the market for the same amount of money. This leverages investors' gains when the stock recovers, making Booking another outstanding stock for the long haul.
