Volatility has been the name of the game on Wall Street since the start of 2020. All three major stock indexes have worked their way through two bear markets (2020 and 2022), as well as period of unfettered exuberance (2021).
However, volatility tends to be a blessing in disguise. It’s what allows everyday investors the opportunity to buy game-changing businesses at a discount. Investing in innovative companies over long periods is the simple recipe that leads to meaningful wealth creation.
What follows are five surefire stocks that have the tools and intangibles necessary to help everyday investors build generational wealth over the next 20 years.
The first top-tier stock that can help you create life-altering wealth over the next two decades is leading payment processor Visa (V -0.18%).
Although Visa is cyclical, and therefore exposed to recessions, the numbers are very much in its favor over long periods. Since the end of World War II, there have been a dozen recessions in the U.S., all of which have lasted between two and 18 months. By comparison, the typical expansion goes on for years, if not a decade. Visa is disproportionately benefiting from these long periods of U.S. and global growth.
Visa also has an exceptionally long growth runway. It has a roughly 29-percentage-point share lead over Mastercard in the U.S., with regard to credit card network purchase volume, and it has ample opportunity to expand organically or acquisitively into underbanked emerging markets. This includes the Middle East, Africa, and Southeastern Asia. A sustained growth rate in the high-single-digits or low-double-digits isn’t out of the question.
Lastly, Visa’s avoidance of lending removes a key risk. While lenders are able to generate interest income and fees, they’re also exposed to credit delinquencies and possible loan losses during recessions. Because Visa isn’t a lender, it isn’t required to set aside capital to cover losses. In short, it’s going to bounce back from economic turbulence quicker than most financial institutions.
A second winning stock that can help deliver life-changing returns by 2043 is online-services company Fiverr International (FVRR -3.91%). Fiverr has a mix of macro and company-specific catalysts that make it a no-brainer stock to own.
To start with, the COVID-19 pandemic has completely changed the labor landscape. Though some people have returned to the office, more folks than ever are working remotely. That’s excellent news for a company like Fiverr, whose platform connects freelancers with businesses looking for their services.
Another catalyst for Fiverr is the company’s online-services platform. Whereas most freelancer marketplaces provide service listings on an hourly basis, freelancers on Fiverr are listing their tasks as completed jobs. Choosing this route means freelancer pricing is highly transparent, which is something that buyers really seem to appreciate, as evidenced by the persistent rise in spend per buyer.
Perhaps most importantly, Fiverr’s take-rate is unmatched among freelancer marketplaces. The “take-rate” refers to the percentage of each negotiated deal Fiverr gets to keep, including fees. Not only has Fiverr’s take-rate continued to climb over the years, but its 30.7% take-rate in the June-ended quarter is nearly double that of its closest peers. Fiverr is taking a bigger cut and not chasing away its freelancers or buyers. That’s a winning formula.
The third surefire stock that can build generational wealth over the next 20 years is none other than Berkshire Hathaway (BRK.A -0.40%) (BRK.B -0.44%), the conglomerate headed by billionaire CEO Warren Buffett. Since taking over in 1965, Buffett has overseen an annualized return in his company’s Class A shares (BRK.A) of 19.8% (through Dec. 31, 2022).
One reason Berkshire is such a special company is because Buffett and his investment team have focused on owning and investing in cyclical businesses. The Oracle of Omaha is keenly aware that the U.S. economy spends far more time expanding than contracting. Rather than try to guess when short-lived downturns will occur, he’s positioned his company to take advantage of these long periods of economic growth.
Berkshire Hathaway is also raking in dividend income. Berkshire’s investment portfolio should generate north of $6 billion in dividend income over the next 12 months, with the bulk of it coming from a half-dozen top holdings. Companies that regularly pay a dividend tend to be profitable and offer a rich history of outperformance, when compared to publicly traded companies that don’t offer a payout.
Additionally, investors are benefiting from a sizable capital-return program. Though Berkshire Hathaway doesn’t pay a dividend, Buffett and executive vice chairman Charlie Munger have overseen more than $71 billion in share repurchases over the past five years. Buybacks are way to reduce the company’s outstanding share count and boost earnings per share, which makes Berkshire stock even more attractive.
A fourth no-brainer stock that can help build lasting wealth in the next two decades is biotech stock Vertex Pharmaceuticals (VRTX -0.15%).
Vertex’s competitive edge comes from its work in treating cystic fibrosis (CF), a genetic disease characterized by thick mucus production that can obstruct a patient’s lungs and pancreas. The company has developed four generations of CF treatments focused on improving lung function and is currently working on a fifth. With no other Food and Drug Administration (FDA)-approved CF treatments, Vertex’s cash flow is well-protected from competition.
However, Vertex is looking to move beyond just one of area of focus. Its most-exciting developing drug is exagamglogene autotemcel, which is better known as exa-cel. This is a gene-editing drug developed in cooperation with CRISPR Therapeutics for patients with severe sickle cell disease or transfusion-dependent beta thalassemia. FDA approval on both indications would give exa-cel a shot at $1 billion in annual sales within five years.
Vertex’s balance sheet is another source of optimism. The company closed out June with $11.2 billion in cash, cash equivalents, and marketable securities, and its board has approved an up to $3 billion share repurchase program. The key takeaway here is that Vertex has ample cash to innovate or acquire, if necessary.
The fifth and final surefire stock that can build generational wealth in 20 years is fintech company PayPal Holdings (PYPL -0.36%).
For starters, we’re still early in the growth cycle for digital payments. A report released in May by Boston Consulting Group calls for global fintech sales to grow roughly sixfold, from $245 billion to $1.5 trillion, by 2030. PayPal is the leader in the fintech industry, and would therefore be in the driver’s seat to benefit from this growth.
Despite historically high inflation in the U.S. threatening to reduce discretionary spending for low-earning workers, PayPal’s key performance indicators remain surprisingly strong. Total payment volume on its network continues to grow by a double-digit percentage, sans currency movement, and active account engagement has soared since the pandemic began. Between the end of 2020 and June 30, 2023, the average number of transactions completed over the trailing-12-month period by active accounts has jumped 34% to 54.7. With PayPal being a fee-driven business, increasing engagement is incredibly important.
PayPal’s management team is also doing what it can to reward long-term shareholders. The company expects to have reduced its 2023 operating expenses by at least $1.3 billion, and is targeting around $5 billion in share repurchases this year. A reduced share count should positively impact earnings per share for a company that’s already historically cheap.
Sean Williams has positions in Fiverr International, Mastercard, PayPal, Vertex Pharmaceuticals, and Visa. The Motley Fool has positions in and recommends Berkshire Hathaway, CRISPR Therapeutics, Fiverr International, Mastercard, PayPal, Vertex Pharmaceuticals, and Visa. The Motley Fool recommends the following options: long January 2025 $370 calls on Mastercard, short December 2023 $67.50 puts on PayPal, and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.