Has this manic market turned you into more of a trader and less of a true buy-and-hold investor? You're not alone. The environment has recently rewarded certain short-term trades, and obscured what we can reasonably expect from the future.
Winning investment philosophies haven't been altered, though. This is still a game ultimately won by the people willing to ignore the noise, buy quality stocks, and stick with those positions for years on end.
With that as the backdrop, here's a rundown of three quality picks that are not only safe enough to own for the long haul, but also potent enough to dish out surprisingly strong gains.
You know the company. In fact, the whole world knows the company. Consulting company Interbrand rates McDonald's (NYSE: MCD) the ninth-most valuable brand of 2020, jibing with other, similar rankings that peg its golden arches as one of the world's most recognizable logos. That's huge for a restaurant chain in constant competition with other chains.
Investors looking at McDonald's as a fast-food play, however, are looking at the company all wrong. It is rightfully described by many people as a real estate company. It is first and foremost in the business of being a landlord, charging its franchisees not only a monthly service fee of 4% of sales, but also rent for company-owned real estate. It just happens to help its tenants generate much-need revenue by facilitating the sale of cheeseburgers, fries, and milkshakes.
It's an occasionally adversarial relationship. The company's financial demands on franchisees can at times seem heavy-handed and unaffordable. Most of them typically acquiesce to the parent organization's demands, however, because the headache is worth it. McDonald's restaurants tend to dramatically produce more sales and earnings for operators than other fast-food restaurants do. That's how the company has been able to raise its dividend payout every year for the past 45 years.
While this isn't always the ideal move, reinvesting those dividends in more shares of the same company is a smart way to quickly build your stake in the income-producing investment.
Investors won't have to make such a dividend decision with Nvidia (NASDAQ: NVDA), as the company barely pays one. But that's not why you'd want to own this tech company anyway. Nvidia is a long-term buy because it's perfectly positioned to capitalize on the current and future growth of data centers.
The company is best-known as a maker of computer graphics cards. It's also the name behind some computer processing chips. As it turns out, however, the underlying tech used in its graphics cards and processors is very usable in a data center. Its second-quarter data-center hardware revenue of nearly $2.4 billion not only improved 35% year over year, but also accounted for more than a third of Nvidia's total revenue. Depending on the quarter, sometimes data centers are a bigger business than video gaming is.
The company has only scratched the surface of the data center market's potential. Artificial intelligence is increasingly accessible and affordable largely thanks to Nvidia's efforts. Market research company Omdia estimates Nvidia processors are handling 80% of the world's AI work currently being done, and that's an estimate that doesn't yet reflect demand for Nvidia's Grace chip, slated to launch in 2023. The company says the Grace CPU is 10 times more powerful than anything on the market today, which means investors can expect continued dominance of an AI market IDC believes will grow at an annual pace of more than 17% through 2023.
Finally, add JPMorgan Chase (NYSE: JPM) to your list of investments you'll be glad you bought now.
With nothing more than a passing glance, JPMorgan looks a lot like all the other megabanks. Lending, investments, and consumer banking are part of its repertory. While its business is booming on some fronts, like trading and commercial banking, this lengthening era of low interest rates has been tough on the bottom line since banking is a more profitable business when rates are higher. But that has been true of all banking names, and remains so.
Don't dismiss JPMorgan Chase as the wrong name in the wrong place at the wrong time, though, for a couple of reasons.
One reason: the rising odds of rising interest rates for the next couple of years. Although it would still leave rates at below-average levels, the Federal Reserve's governors are collectively predicting between four and six increases in the Fed Funds rate between now and the end of 2024. Newcomers will benefit from JPMorgan's widening margins linked to those rate hikes.
The other oft-overlooked reason this financial name is such a great long-term addition is the company's commitment to generous dividend growth. JPMorgan Chase has raised its dividend every year since 2011, and raised it in a big way. This year's payout is $3.80 per share, versus 2011's full-year dividend of $0.80.
As is the case with McDonald's, if you don't need the income right now, the best course of action is reinvesting those dividends in more shares of JPMorgan.
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