You don't have to be a genius to find market-beating stocks. Indeed, many are hiding right under our noses. Let's take a look at two iconic American companies whose stocks have shown that a simple business model and savvy management are enough to post market-beating results.
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Visa
First up is Visa (V 0.78%). To me, Visa is the Rodney Dangerfield of stocks -- it gets no respect. Despite being the 13th-largest American company with a market cap of over $600 billion, Visa tends to draw little attention compared to "Magnificent Seven" stocks like Nvidia, Meta Platforms, and Tesla.
That said, it's hard to ignore Visa's consistent outperformance. As of this writing, the company's stock has a 10-year compound annual growth rate (CAGR) of 18.2%. That easily beats the S&P 500's CAGR of 12.4% over the same period.
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Key Data Points
So why the disconnect? Why isn't there more buzz around Visa?
The short answer is that Visa's business model isn't the most exciting. It revolves around charging small usage fees for access to the company's immense payment network. That might not be as thrilling as Tesla's vision to put robotaxis on every street, but it works just fine.
In fact, it works so well because it is simple. With over 4 billion Visa-branded debit and credit cards in circulation today, Visa supports trillions of dollars worth of net payment volumes each and every quarter. Consequently, the company's revenue is steady and sizable.
Over the past decade, Visa has grown its quarterly revenue by an average of 12.8% per quarter. Annual revenue has nearly tripled over that span from $13.2 billion to $36.8 billion.
V Operating Revenue (Quarterly YoY Growth) data by YCharts
Even more impressive has been the company's profit growth, thanks to its asset-light business model. Annual diluted earnings per share (EPS) has nearly quintupled from $2 in 2017 to $9.92 today.
What's more, none of this growth shows any signs of slowing down. Indeed, as the world continues to grow richer, more people will continue to switch from cash to cards as their preferred payment method, increasing the total payment volume on Visa's network and further growing its bottom line.
Visa isn't always the first stock investors think of when looking for market-beating returns -- but perhaps it should be.
AT&T
Next is AT&T (T 0.40%). This certainly isn't a name I would have considered as a prime market-beating candidate two years ago. However, times change -- and so has AT&T.
The company has finally taken serious steps to reinvent itself. It has shed unprofitable ventures and is refocusing its business model on wireless and fiber connectivity. Moreover, AT&T is addressing one of the largest drags on its stock -- its less-than-perfect balance sheet.
In 2018, AT&T's total net debt hit a record high of $180 billion. Even for a massive company like AT&T -- which, at the time, generated nearly $30 billion per year in free cash flow -- $180 billion in net debt was a staggering sum.
In the years since then, AT&T has steadily reduced its debt through repayments and strategic divestitures. As of this writing, the company's net debt is $122 billion. That's still an eye-watering sum, but it's down more than 32% from its peak.
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Key Data Points
As a result, the company's shares have found their legs. Since the start of 2023, AT&T stock has generated a total return of 69%, beating the S&P 500's 53% return over the same span.
Finally, income investors in particular might be attracted to AT&T because the company pays an annual dividend of $1.11, which works out to a dividend yield of 4.1%.
AT&T appears to be back on track with a new strategy and a leaner balance sheet. Investors looking for an under-the-radar stock that could beat the market might want to give this iconic company a hard look.
