The stock market has been on a great track for the past year and a half. Since it was recorded in late March 2020 in the wake of the coronavirus-fueled market crash, Standard & Poor’s 500 doubled in value. This performance underscores the strength of the buy-and-hold strategy.
Even when the market is in recession, staying the course – rather than panic selling – is the right thing to do. The longer you hold the stocks of the big companies, the higher your returns. With that in mind, let’s look at two stocks that could help investors beat the market for many years to come: Abbott Laboratories (NYSE: ABT) And Visa (NYSE: V).
1. Abbott Laboratories
The history of Abbott Laboratories for Medical Devices goes back more than 100 years. As a publicly traded company, it has soundly outperformed the market over the past several decades. Of course, past performance is not a guarantee of future success. But Abbott’s long-standing habit of delivering solid results is an important strength. Having been a major player in the field of medical devices for a long time, the company is capitalizing on its solid reputation.
Doctors, like most consumers, tend to stick with what they know works. Additionally, with significant barriers to entry into the healthcare sector, the opportunities for new entrants with similar industry experience and knowledge are minimal. Moreover, the company’s rich assortment of certified devices is protected by dozens of patents and copyrights, which helps to isolate it from the competition.
One of the company’s key growth drivers is the FreeStyle Libre, a continuous glucose monitoring (CGM) system that helps diabetics keep track of their blood sugar levels. CGMs greatly reduce the need for painful toenails, making them the most attractive option for patients. The growing adoption of this technology continues to drive sales growth for Abbott’s crown jewel.
During the second quarter ended June 30, Abbott’s diabetes care revenue was $1.1 billion, up 40% from the same period last year. The company owned Freestyle Libre to thank for this performance. And while it competes with many other companies in this field – most notably Medtronic And DexCom (NASDAQ: DXCM) This market will only continue to grow. According to the US Centers for Disease Control and Prevention, more than 34 million Americans have diabetes, a number that is set to increase dramatically in the coming years.
This trend is unfortunate, but it underscores the need for innovative technologies to help people with diabetes manage the disease. Note that in 2020, Abbott’s Freestyle Libre sales were $2.6 billion, compared to DexCom’s total revenue of $1.9 billion (DexCom generates revenue from the sale of the G6 CGM system as well as tools and accessories that go with it). Abbott appears to be well positioned to remain a major player in this market, which is, in my opinion, more than enough to accommodate two or more major players.
The company already has other devices that can drive growth, including the MitraClip, which treats mitral valve regurgitation (a condition in which blood doesn’t flow out of the heart properly), and the Tricuspid Repair System, a non-surgical device to help repair the tricuspid valve. Finally, Abbott’s business extends beyond its medical devices unit. The company’s nutritional products and existing pharmaceutical segments add diversity.
Abbott Laboratories is trading at 26.8 times forward earnings, compared to the average forward price-to-earnings (PE) ratio of 17.3 in the healthcare sector. This makes shares of the medical device company expensive, but in my view, it is worth paying a premium to the company. Business is still thriving for this healthcare giant, and it will be difficult for competitors to weed out any time soon. This makes Abbott Laboratories stock worth waiting in your wallet for many years to come.
Visa is one of the companies whose services people use every day. Many of us proudly carry debit or credit cards that display their logo. Visa helps facilitate transactions between consumers and merchants. They do not issue credit or debit cards per se – that is the purpose of banks. Instead, Visa provides a transaction processing network that supports debit and credit card purchases. The company charges a fee for every transaction made with a card in its name.
Visa stock has done exceptionally well since its IPO in 2008, easily beating the market from then on. There are two main reasons why the company continues to perform well. First, Visa’s business is benefiting from the network effect. That is, the value of its services increases the more it is used. The company’s payment network becomes more attractive to merchants as more consumers join it. And with more merchants, more consumers are likely to use Visa to pay.
This dynamic ensures that it will be difficult to take up Visa’s market share. In the meantime, the Visa network will continue to grow. This brings us to the second reason the company continues to beat the market: exciting opportunities ahead. According to a report published by management consulting firm McKinsey, cash transactions accounted for about 28% of all transactions by volume in the United States in 2020.
This figure is somewhat in line with that of other developed countries, but cash continues to take the lead for developing countries. The digital payments market is expected to continue to expand rapidly.
With one of the largest payment networks in the world, Visa is well equipped to take advantage. As the financial services industry continues to evolve, it is looking to expand its reach. In June, the company announced its acquisition of Sweden-based fintech startup Tink, which allows banks and other institutions to access financial data to build consumer banking and financial tools. The acquisition value is 1.8 billion euros (about 2.1 billion dollars).
And Visa shares aren’t cheap – they are currently trading at 46.05 times ex-dividend and 39.13 times ex-dividend. But note that Visa’s closest competitor, Master Card Credit Card (NYSE: MSc), has a forward PE and PE ratio of 49.34 and 43.62, respectively. While these two companies dominate the industry, Visa retains the advantage. For fiscal 2019, Visa had higher payment volumes ($8.9 billion versus $4.8 billion), higher total transactions (207 billion versus 122 billion), and more cards in its name (3.4 million versus 2.2 million).
Visa also generates higher revenue and profits. In the last reported quarter, Visa’s net profit was $6.13 billion — higher than Mastercard’s $4.53 billion. Visa stocks aren’t that expensive when put in context. Given the company’s competitive advantage and growth prospects, it will continue to deliver solid financial results, thus driving its share price higher than ever before.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.