Building wealth through the stock market is a simple process of building up a collection of great businesses and holding them in your portfolio for many years. Investors can achieve excellent long-term returns in this way, even by owning mostly large index funds that mirror the performance of the S&P 500.
You can bolster these returns with individual stocks that outperform the wider market, of course. And by choosing successful businesses with strong finances, you'll maximize your chances to generate wealth over the decades. Let's look at a few of these standout stocks that can make growth an easier process for your retirement portfolio.
1. Procter & Gamble is the easy choice
Procter & Gamble (PG -0.78%) has most of the ingredients you could want in a long-term stock holding. The company dominates dozens of product categories with goods consumers use daily, giving shareholders stability through a wide range of selling environments. Its market leadership position confers big financial benefits, too, in the form of faster growth and higher profitability. Compare its 24% operating profit margin with Kimberly-Clark's 15% rate, for example.
PG Operating Margin (TTM) data by YCharts. TTM = trailing 12 months.
It hasn't been all good news for P&G's business lately, as sales volumes dipped into negative territory last year. But its pricing power offset that decline, allowing overall organic sales to continue rising. Management is projecting another year of modest growth ahead in fiscal 2024.
Investors can take advantage of Wall Street's lack of enthusiasm about that growth to pick up P&G's shares at a discount today since the stock sat out most of the rally in the past year.
2. Microsoft is cash-rich
If you have more of an appetite for risk, consider adding Microsoft (MSFT 1.82%) stock to your retirement portfolio. The tech giant has already produced many millionaires on its way to its current $3 trillion market capitalization. But don't let that eye-popping valuation scare you away from Microsoft's stock.
After all, growth is still going strong at 16% in the most recent quarter. Microsoft is seeing big gains in its core cloud services segment but has also returned to growth in the personal computing segment. Its recent acquisition of Activision Blizzard helped its gaming segment soar through late December.
Investors who prioritize cash flow will love this business, which generated $49 billion of operating cash in the past six months compared to $34 billion a year earlier. These wins will allow for robust cash returns through dividends and stock buybacks in the years to come, amplifying investors' total returns from here.
3. Shopify will profit
Shopify (SHOP 1.11%) looks like a growth stock that's just getting started on a long expansion journey. The e-commerce infrastructure specialist is building on its roughly 10% market share in the U.S., with sales jumping 26% in 2023. Cash flow and profit margins took big steps higher last year, too, with help from the company's sale of its expensive logistics segment.
There's every reason to expect more of the same in 2024. "We look to build on the momentum that we achieved in 2023 and continue to deliver both top-line growth and profitability," CFO Jeff Hoffmeister said in mid-February.
As you might expect, the stock's valuation has jumped in response to this good news. You'll have to pay 14 times sales to own Shopify today compared to 10 times sales a year ago.
Still, that premium won't matter much in a decade or more if the company can keep generating higher transaction volumes while improving its financial strength. Watching the stock for a pullback might be the best strategy if you're worried about its high valuation. But having a long holding period in mind reduces the risk of overpaying for a successful growth stock like this.
