The stock market is one of the best ways to build lasting wealth. That's because over time, the broad S&P 500 has averaged about a 10% yearly return.
But if we look back at history, we'll find some businesses that have crushed the market, turning small investments into seven-figure sums.
Here's a closer look at Apple (AAPL 0.85%), Costco (COST 2.43%), and Home Depot (HD 2.09%), three magnificent consumer stocks that turned $1,000 into more than $1 million.
1. Apple
NASDAQ: AAPL
Key Data Points
First on this list is the world's most valuable brand. Apple has been a leader when it comes to selling some of the most popular electronics products out there. And this has propelled the FAANG stock 191,000% in the last roughly 43 years, turning $1,000 into $1.9 million today, including dividends.
While the iPhone still brings in more than half of the revenue, the business is finding success with other devices, like the MacBook, AirPods, and Watch. Combined, hardware made up 81% of total sales in the fiscal 2024 first quarter.
But the software and services division is rapidly ascending to become a more important business driver. Offerings include things like Apple Card, Pay, Music, TV+, iCloud, and advertising. Revenue here was up 11%, higher than the company total. With a gross margin exceeding 70%, services can boost Apple's profitability over time.
Investors hoping for similar returns from this business over the next several decades should probably temper expectations. Apple's massive revenue base is struggling to grow at a high rate. Sales dipped 2.8% in fiscal 2023, indicating a mature enterprise.
And the current price-to-earnings (P/E) ratio of 29.3 is very expensive, at least based on the average valuation of the last 10 years. This can also limit forward returns.
2. Costco
NASDAQ: COST
Key Data Points
With trailing-12-month sales of $241 billion, Costco is the world's third-biggest retailer. It operates hundreds of warehouses across the globe, offering shoppers high-quality merchandise at extremely low prices. This business model hasn't changed over the decades.
While Costco sounds like a boring company, the returns are exciting. The retail stock is up 123,000% in the last 49 years, including dividends. Even in recent years, shares have crushed the broader market. Gains are buoyed by special one-time payouts, like the $15 dividend announced in December.
What separates Costco from a typical retailer is its successful membership model. Consumers must pay annual fees for the right to shop at a warehouse, providing a high-margin and recurring revenue stream. Membership sales were up 8.2% in the last quarter, with a worldwide renewal rate of over 90%.
Like Apple, Costco isn't a cheap stock by any means, trading at a P/E multiple of 49.4. This is 47% higher than its trailing-10-year average. Even though there is meaningful growth potential, with management planning to open new stores at a healthy clip, a move that will certainly push up earnings figures, it's not a smart idea to buy the stock today.
3. Home Depot
NYSE: HD
Key Data Points
Another top retailer that turned $1,000 into more than $1 million is Home Depot (HD 2.09%). The home improvement giant's stock has been an even bigger historical winner than Apple or Costco, which you might not expect. Since 1981, Home Depot shares have turned a $1,000 initial capital outlay into a whopping $29.9 million today (including dividends).
Similarly to Costco, Home Depot's business hasn't changed much over time. The company sells various tools and supplies through its large stores to do-it-yourself (DIY) and professional customers looking to spruce up their homes. It's a boring business, but the financial results are excellent.
Home Depot's operating margin and return on invested capital have averaged 14.2% and 34%, respectively, over the past decade. These metrics are better than the company's key rival, Lowe's. Home Depot's focus on driving efficiencies in its stores by investing in omnichannel capabilities and bolstering the supply chain has helped those metrics.
The business is dealing with a bit of a slowdown following strong demand trends during the pandemic. But industry tailwinds favor solid long-term growth. With shares trading at a reasonable P/E ratio of 23.3, investors might want to take a look at the stock.
While it's not likely these three companies can repeat their past performances in the future, they are industry leaders that continue to dominate.
