For many individual investors, the best way to build wealth over the long run is with one or more simple, low-fee index funds, which can be all we need to build secure financial futures.
Index funds require little brain power from us and little attention. Keep adding money to the funds over many years, and they should grow well for you, delivering roughly the same returns as the indexes they track.
An S&P 500 index fund, for example, will aim to offer returns similar to the index itself, which encompasses 500 of America's biggest companies.
But if you want to aim for above-average returns, you might add some individual stocks to your mix. (The Motley Fool recommends spreading your money across 25 or more, for diversification.) Here are three stocks with promising futures. See if any of them pique your interest.
1. Starbucks
Starbucks(NASDAQ: SBUX) boasts over 38,000 locations around the world, where its 381,000-plus employees serve up coffee, tea, snacks, breakfast, and much more. The company had more than $36 billion in annual revenue recently, and it has room to grow more.
Shares have outperformed the S&P 500 handily over the past 20 years, but they haven't always done so over shorter periods, and the company is facing some challenges.
To avoid being disappointed, it's smart to buy into stocks when they seem undervalued, thereby giving yourself a margin of safety. Starbucks shares do appear undervalued at recent levels, with a forward-looking price-to-earnings (P/E) ratio of 20, below its five-year average of 28.
The attractive valuation is largely due to Starbucks having posted lackluster results for its second quarter, sending many investors away. Some worry about its debt load, and that it's struggling in China, its second-largest market.
The company's long-term prospects seem solid, though -- it knows how to grow geographically and introduce successful new products. It has also delivered many quarters and years featuring double-digit growth. On top of that, it has a valuable brand, recently worth an estimated $15 billion and ranking among the top 50 brands globally.
Long-term believers who invest now can enjoy the Starbucks dividend, which recently yielded 2.8% and has grown at an average annual rate of 10% over the past five years.
2. Estée Lauder
Estée Lauder Companies(NYSE: EL) has been around since 1946, selling cosmetics and more. Its brands today include Estée Lauder, Aramis, Clinique, Origins, M·A·C, La Mer, Bobbi Brown Cosmetics, Aveda, and Bumble and bumble, among many others.
Estée Lauder has more than $15 billion in revenue annually, and its most recent earnings report showed that sales were up 5% year over year, and net earnings more than doubled. (Notably, about 80% of its global workforce is female.)
The company is being challenged by weakness in U.S. department stores, but it still has multiple strong brands and is investing internationally while expanding its digital sales channel.
In its third quarter report, CEO Fabrizio Freda said, "During the second half of fiscal 2024, we have strategically expanded our consumer reach in exciting ways, from Clinique's debut on the U.S. Amazon Premium Beauty store, which has greatly exceeded our retail sales expectations thus far, to striking new flagship stores in Asia/Pacific for Jo Malone London and Le Labo."
The company's stock seems appealingly valued at recent levels, with a forward P/E of 27, well below the five-year average of 38. The stock also offers a dividend, recently yielding 2.4%, and it has boosted that payout by an average annual rate of 9% over the past five years.
3. Realty Income
Realty Income(NYSE: O) is a real estate investment trust (REIT), which means it must pay out at least 90% of its taxable earnings as dividends. REITs typically own a lot of properties that they lease out.
As of the end of March, the company had 15,485 properties, leased to 1,552 customers in 89 industries. Its top tenants include Dollar General, Walgreens, Dollar Tree, and Walmart.
This company isn't sitting still, either. Realty Income's first quarter was solid, with revenue up 33% year over year, and a 98.6% occupancy rate.
Shares are looking attractive at recent levels, with a forward P/E of 37, below the five-year average of 43. REITs are often generous dividend payers, so it's not that surprising to see a recent yield of 5.9%. And if interest rates fall in the coming years, as many expect, more investors could be drawn to REITs such as Realty Income with relatively high dividend yields, pushing up their stock prices.
These are just a few of many impressive and promising stocks out there to consider for your long-term portfolio right now.
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Selena Maranjian has positions in Realty Income and Starbucks. The Motley Fool has positions in and recommends Realty Income, Starbucks, and Walmart. The Motley Fool has a disclosure policy.
