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Motley Fool Issues Rare “All In” Buy Alert
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Over half of Millennials own stocks, according to recent research by The Motley Fool. It might not seem like it today, but the stock market has historically proven resilient, enduring recessions and wars to deliver annual returns averaging 10% over decades. In other words, owning stocks is one of the most proven ways to build wealth.
Don’t panic if you’re one of those who haven’t gotten started yet; it’s never too late. You can build a diversified portfolio of stocks that produces compound returns and helps brighten your financial future. Remember that Millennials and Gen Z are the upcoming generations of consumers. Below are three companies younger consumers love that have the robust financials to make them superb investments for kick-starting a diversified portfolio.
Image source: Getty Images.
Technology conglomerate Alphabet (GOOG 2.80%) (GOOGL 2.86%) owns the internet search engine Google and the video platform YouTube, the two most-trafficked websites in the world. Google conducts 84% of the world’s internet searches, while YouTube dominates video content. According to a study by Morning Consult, Google and YouTube rank among Gen Z’s most-beloved brands, which probably shouldn’t surprise anyone considering Alphabet’s internet presence.
Alphabet monetizes all of the attention it gets by selling ads to the billions of eyeballs on its websites. The company did $282 billion in revenue over the past four quarters, making $62 billion in cash profits (22% free cash flow conversion rate). Alphabet also has deep pockets, including $116 billion in cash on its balance sheet, which can act as a safety net to help the company during hard times and fund new growth ideas during good times.
GOOG Revenue (TTM) data by YCharts
The stock has fallen 36% from its high in this bear market, but business is still doing well. Analysts believe that Alphabet’s earnings per share (EPS) will grow by an average of 11% annually over the next three to five years. Ad dollars typically flow toward the largest audiences, so until someone challenges Google and YouTube for internet supremacy, the stock seems poised for long-term success.
Electronic device maker Apple (AAPL 1.19%) dominates the smartphone market with the iPhone, which owns roughly 55% of the market in the United States. Phones have become the technology hub for everyday life, which resonates with young consumers. According to a survey by Business Insider, Apple is the top brand among Millennials. Apple’s a massive company; it did $394 billion in revenue over the past year, and is also a cash cow, generating $111 billion in cash profits, or 28% of its revenue.
Motley Fool’s internal research uncovered that the technology and financial sectors are popular among young investors, and Apple hits the mark there. Think of the nearly 2 billion active iOS devices worldwide as a distribution network. Apple makes about a quarter of its revenue by selling subscription services to device users. The company’s various services include Apple Pay, which is steadily growing its share of digital wallets worldwide, with 507 million users. It’s a potential growth opportunity that could become an even bigger deal.
AAPL Revenue (TTM) data by YCharts
Apple has held up better than most stocks in the bear market, down just 19% from its high. You can’t predict the share price in the short term, but analysts believe Apple’s EPS will grow by 12% annually over the next three to five years. A stock’s share price eventually tends to follow the business performance over time, so Apple could still have a lot to give investors over the coming years.
Young consumers have grown up in the age of e-commerce, and Amazon (AMZN 0.46%) is the undisputed king in the United States with a roughly 50% share of e-commerce business. Jeff Bezos spent the past 28 years building the company that now virtually everyone knows, whether they watch football on Amazon Prime or see the company’s famous logo on its many trucks on the roads. That could play a key role in why Gen Z and Millennials love the brand; both generations lean heavily on investing in companies they know.
Amazon’s one of the world’s largest companies, and made $502 billion in revenue over the past year. You can see below that cash profits were negative $26 billion over the past year due to inflation, which raised the company’s costs. However, Amazon has $58 billion in cash on its balance sheet, so investors shouldn’t panic about its inflation-driven hiccup.
Amazon has also built the world’s leading public cloud platform, Amazon Web Services (AWS). This business segment is very profitable — Amazon’s operating income in the third quarter of 2022 all came from AWS. It’s still just 15% of Amazon’s revenue, which could make it even more critical as AWS grows moving forward.
AMZN Revenue (TTM) data by YCharts
Inflation headaches have caused Wall Street to sour on Amazon, which has fallen 47% from its peak. However, Amazon’s dominance in high-growth industries like e-commerce and cloud computing should continue driving growth over time. Analysts are looking for EPS growth averaging 20% annually over the next three to five years. In hindsight, the company’s short-term fall could look like a massive opportunity if Amazon can live up to expectations.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Apple. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/15/2022.
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