Roth IRAs have the potential to make you rich while keeping Uncle Sam from getting his mitts on any of your profits. The tax-free retirement account is therefore best for stocks with the most potential for capital appreciation. Below, you'll find out why Visa (V -0.70%), Priceline Group (BKNG -1.55%), and Celgene (CELG) could be worth a closer look.
Cash or credit? Increasingly, it's credit
Todd Campbell: Visa is a credit powerhouse, but unlike credit card companies, it makes its money via transaction volume, not interest payments, and that makes it a bit less exposed to the risk of defaults than competitors like American Express.
Over the past decade, Visa's sales have surged as consumers shift purchases from stores to the internet, and that growth isn't slowing. In fiscal third quarter, Visa's payment volume increased 10% to $1.3 trillion and its total processed transactions grew 10% to $19.8 billion. As a result, Visa's revenue improved 3.1% year over year to $3.63 billion (up 6% in constant currency) and earnings per share clocked in at $0.69.
Currently, Visa's management is targeting fiscal-year adjusted revenue growth of between 7% and 8% and operating margin in the mid-60s. However, those figures could be conservative given that Costco officially switched from American Express to Visa in June. In the company's fiscal third-quarter conference call, management said Costco's switch-over had already helped improve U.S. transaction volume growth to 11% through July 14.
Overall, Visa's tailwinds from a shift from cash to credit aren't likely to end anytime soon, and since the company pays a small dividend (shares yield 0.68%), and management plans to buy back $7.3 billion of its shares, there's plenty of reason to think that Visa is an excellent addition to an IRA.
Send your portfolio on a trip higher
Dan Caplinger: For a stock in a Roth IRA, you want to make sure that you take maximum advantage of the tax-free returns you can earn with your investments inside your retirement account. Priceline Group can put you in a strong position to do exactly that, with its industry-leading position in online travel that has helped it produce impressive past growth for long-term investors. Priceline has taken advantage of the boom in global travel, but it has also done a good job of staying in front of its competitors.
Priceline was one of the first travel portals to realize that branching out aggressively into the international market was a forward-looking strategy that would pay off in the long run, and Priceline's global presence has indeed set it apart from the rest. Competitors have had to scurry in order to establish their own presence overseas, and meanwhile, Priceline has kept making new partnerships to build up its position. Even with new threats for room-sharing services like Airbnb, Priceline is fighting back with its Booking.com site accepting plenty of nontraditional accommodation options.
All in all, Priceline has the potential to keep delivering outpaced returns to investors, and a Roth can be the best way to realize future gains when they come.
Celgene's best days lay ahead
George Budwell: The cancer and inflammatory disease specialist Celgene Corp. may not seem like an obvious stock to stash away in a long-term-oriented portfolio like a Roth IRA. After all, the biotech's stock has already appreciated by a jaw-dropping amount over the last two decades or so:
Even so, Celgene has actually yet to peak from a growth standpoint, implying that this stock remains a great long-term investing vehicle.
The underlying issue to understand is that Celgene is currently posting industry-leading levels of growth, and this trend appears to be sustainable in the decades to come. Specifically, the biotech's core oncology portfolio, consisting of drugs such as Revlimid and Abraxane, has allowed it to sign multiple external partnerships and execute on a handful of value-creating acquisitions like its buyout of Receptos. The Receptos deal, for instance, brought in the experimental anti-inflammatory drug ozanimod that has the potential to generate peak sales in the neighborhood of $4 billion to $6 billion as treatment for multiple sclerosis, ulcerative colitis, and Crohn's disease.
The net result is that Celgene's internal and external clinical pipelines could possibly produce a whopping 50 new products by 2025. And as an added bonus, several of these experimental drugs have blockbuster sales potential.
Now, of course, there will be clinical setbacks along the way, and Celgene isn't exactly "risk-free," despite its massive portfolio of experimental-stage drugs. But the biotech's management has done a stellar job of creating deep value for shareholders and reducing the company's overall risk profile as a result. That's why Celgene shouldn't be overlooked as a possible addition to a Roth IRA.