Finding a quality stock isn’t hard. Finding a true wealth-building name to own for the long haul, however, can be a different story. Not every leading company’s dominance is permanent, and not every business is future-proof. Just ask Kodak, MySpace, Pier 1 Imports, and Blockbuster!
Here’s a closer look at three stocks that could be easy wealth builders. Their brands are well-recognized, they’re in businesses the world will always need, and perhaps most important, each organization is able to adapt and evolve as the marketplace changes.
PDD Holdings
PDD Holdings (NASDAQ: PDD) probably isn’t a household name to you. And for most U.S. investors, neither was Pinduoduo before it changed its name to the more manageable PDD early last year. You are likely more familiar with this outfit than you realize, however. See, PDD is parent to online shopping website Temu, which is still growing like crazy.
Of course, it should be acknowledged that Temu’s shopping platform has something of a reputation for not delivering exactly what’s pictured on its website. It’s the source of several memes and hilarious videos, in fact, and much of the customer frustration is well-deserved. Just bear in mind that you tend to only hear the horror stories. When a shopper receives precisely what they expect, it usually goes unmentioned.
Sure, on the surface it’s just another online shopping website diving into a sea crowded with bigger competition like Amazon and Alibaba‘s Tmall and Taobao. There doesn’t seem to be much room left for the likes of Temu, or the Pinduoduo e-commerce platform it still operates in China. Temu and Pinduoduo both fill huge voids in the online marketplace, though.
For Temu that void is an easy way for Chinese manufacturers to sell directly to consumers outside of China, as opposed to doing so through middleman distributors that are no longer necessary or provide enough value. Pinduoduo essentially operates the same way within China, directly connecting the country’s producers with buyers. Pinduoduo also helps farmers sell fresh foods to customers far away from them.
Whatever it is, the business model clearly works. Its first-quarter top line was up an incredible 131% year over year, extending a long-standing growth streak that’s expected to persist at least for the next couple of years.
It’s now working with U.S. and European companies to help them directly address overseas shoppers as well. But the company has still only scratched the surface of helping more manufacturers connect with foreign consumers. Now that it’s becoming easy, this cross-border commerce opportunity could drive decades of such growth for PDD.
Broadcom
Most investors likely have heard of Broadcom (NASDAQ: AVGO), although many of them would be hard-pressed to name a single specific item the company makes. That’s because you never actually see its wares even if you’re using them. And you’re almost certainly using at least one of its products on a daily basis, if not several of them several times a day.
That’s because Broadcom manufactures a range of wireless broadband and mobile phone solutions, WiFi components, wired broadband hardware, fiber-optic equipment (including equipment used in artificial intelligence data centers), LED displays, and data-storage interfaces just to name a few. You’re very likely utilizing a Broadcom solution right now without even realizing it. Without its technology, the world’s communications platforms would work very differently — and for the worse.
The world’s reliance on its communication technologies doesn’t mean Broadcom stock is immune to cyclical setbacks. Shares are down 20% from June’s high, for instance, largely on fears that broad economic weakness could undermine demand for technological upgrades and new project installations. Just don’t read too much into this weakness and the economic red flags. The global economy reliably bounces back, and Broadcom’s business with it.
Its future isn’t apt to look very different from its past either. Data from GreyB indicates Broadcom currently holds over 12,000 active patents, with more being added all the time. As an example of these patents’ potential, its most recently granted one describes a fiber-optic coupling approach that works around a polarization problem for certain types of fiber-optic receivers.
You get the idea — Broadcom is forever finding ways to hold on to its commanding share of the digital communications market that’s never going to go away.
Coca-Cola
Last but not least, add The Coca-Cola Company (NYSE: KO) to your list of easy wealth-building stocks to buy.
Coca-Cola is of course the world’s most-recognized beverage brand. In addition to its namesake cola, it also owns Gold Peak tea, Minute Maid juice, Powerade sports drink, Dasani water, and more. Whatever your drink preference is, Coca-Cola’s probably got you covered.
Contrary to a common assumption, the beverage behemoth probably didn’t actually bottle the drinks you see sitting on your grocery store’s shelves; it largely outsources this aspect of the business. Coke’s business model is instead selling flavored concentrates to independent bottlers and then marketing the daylights out of its brands. The model means less revenue, but ultimately boasts far wider profit margins than dealing directly with retailers and other consumer-facing outlets.
This reliable profit flow in turn supports a reliable dividend. That’s how The Coca-Cola Company’s managed to not only pay a dividend like clockwork for decades, but also raise its dividend payment every year for the past 62 years.
This underscores an important detail about owning a stake in this organization with the hope of building real wealth. That is, while Coca-Cola shares have certainly logged regular price appreciation since the company become publicly traded all the way back in 1919, most of shareholders’ net gains have actually come from the stock’s dividends. The key has been reinvesting those dividends in more share of Coke, and then letting time do the heavy lifting.
For perspective, over the course of the past 50 years, reinvesting Coca-Cola’s dividend payments in more shares of the stock would have netted you an average annual gain of more than 12%. The stock itself, however, has only produced average annual growth of about 9% for the same time frame.
Investors may feel like they’re getting a slow start using this approach with low-growth Coke, but their net gains really pick up steam the longer you hold on to this name. Slow and steady wins the race.
Should you invest $1,000 in Coca-Cola right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool recommends Alibaba Group and Broadcom. The Motley Fool has a disclosure policy.
3 Stocks That Could Be Easy Wealth Builders was originally published by The Motley Fool
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