Forever stocks can be tough picks in today’s market.
The stock market goes through many twists and turns. Sharp price movements can rattle many investors, but many savvy investors prefer to take a long-term approach.
You don’t have to pick the flashiest forever stocks that everyone else is talking about to retire early. Most financial success comes from focusing on elevating your income instead of chasing stocks with the highest return potential.
However, you don’t want your hard-earned money sitting in the bank where it’s guaranteed to lose purchasing power over time.
Investing in undervalued forever stocks can increase your portfolio’s returns while making your wealth less vulnerable to sharp price movements. Even if forever stocks take a hit, their status and financial opportunities make it easier for these companies to recover.
Costco (COST)
Costco (NASDAQ:COST) customers are incredibly loyal because of the company’s vast inventory and discounts.
Consumers can find many types of goods in a Costco warehouse, and this variety makes the stock more resilient during recessions.
As pandemic lockdowns materialized, Costco’s shares dropped by a little over 10% from late February until the end of March. No investor wants to see their stocks drop, but a mere 10% drop isn’t bad for that time frame. Many stocks lost 20%-50% of their valuations during that time frame.
Investors felt confident in Costco’s business model, and it’s easy to see why. Costco is the third largest global retailer and the 11th largest company in the Fortune 500. The company has 852 warehouses worldwide which have over 125 million square feet combined.
Costco shares are up by 23% year-to-date and have gained nearly 150% over the past five years.
Microsoft (MSFT)
Microsoft (NASDAQ:MSFT) has rewarded long-term investors for years. Its dominance in PCs, cloud computing, gaming, and other verticals can help it generate more returns in the years to come.
Shares have nearly tripled over the past five years. Microsoft also has a 0.85% dividend yield which doesn’t sound like much. However, Microsoft has enough cash to raise the dividend considerably.
From 2018 to 2023, Microsoft raised its quarterly dividend per share from $0.42 to $0.68. That’s a 61.9% increase over that time frame. Microsoft will raise its dividend again in the next quarter based on the company’s dividend history.
Microsoft has growing revenue and earnings that shouldn’t face many obstacles. The corporation has many revenue streams and a reasonable 29 forward P/E ratio given the company’s potential and the valuations of similar companies.
Visa (V)
Visa (NYSE:V) faces short-term headwinds that can bring its stock price down.
The return on student loan payments and rising inflation can hamper credit card spending. Americans also cumulatively eclipsed $1 trillion in credit card debt for the first time.
I am bearish on Visa’s short-term prospects and will wait for Visa to test the $200/share level before re-entering my position. Macroeconomic concerns and a 30 P/E ratio are the driving forces behind this assessment, but the company’s long-term business model is reliable.
Visa reports high net profit margins that exceed 50%. Visa maintained that standard with double-digit revenue and net income growth in the third fiscal quarter.
During that quarter, net revenue increased by 12% year-over-year, and GAAP net income jumped by 22% year-over-year. Visa also committed $3.9 billion to share repurchases and dividends.
Visa’s dividend yield is unimpressive, but its dividend payouts are growing. The quarterly dividend per share has more than doubled from $0.21 per share in 2018 to $0.45 in 2023. A dividend hike is due next quarter based on the company’s dividend history.
I remain on the sidelines for now due to short-term macroeconomic concerns, but Visa is a compelling forever stock that seems poised for long-term success.
Broadcom (AVGO)
Broadcom (NASDAQ:AVGO) is a semiconductor giant that had many growth prospects before the artificial intelligence boom.
Broadcom is well-positioned to profit from the rising demand for AI chips.
The company has rewarded shareholders with nearly 300% in gains over the past five years, excluding dividend payments. Even with the significant appreciation, Broadcom still has a 2.20% dividend yield.
The company’s quarterly dividend per share has more than doubled since 2018, going from $1.75 to $4.60. This remarkable jump represents 162.9% growth just for holding onto your shares.
Broadcom is a dividend growth investor’s dream for its ability to command high-profit margins and double-digit top and bottom-line growth.
Broadcom isn’t afraid to raise its dividend by significant percentages and can reward shareholders for many years to come. Broadcom’s pending acquisition of VMware will give the company exposure to the cybersecurity industry which can spark further gains.
Inmode (INMD)
Inmode (NASDAQ:INMD) is a hidden gem in the stock market. The corporation only has a $3 billion market cap and an 18 P/E ratio.
The company produces medical technologies that help with dermatology, otolaryngology, plastic surgery, and other medical procedures.
Inmode does not sit on any debt and has excellent revenue and earnings growth. Inmode recently achieved a record revenue of $136.1 million which represents 20% year-over-year growth.
Another big highlight from the second quarter was the company’s record GAAP net income of $55.7 million. That record represents 26.5% year-over-year growth.
Inmode has reliably achieved top and bottom-line growth, but its valuation does not reflect the company’s past results and future promise. Inmode has a forward P/E ratio of 14.50 and has the elements of a forever stock.
Cisco (CSCO)
Cisco (NASDAQ:CSCO) has had a rocky few years and has only generated a 15% return over the past five years.
However, the company’s exposure to cloud computing, software, and cybersecurity makes it worth a closer look.
Cisco’s business model is showing signs of a rebound. Cisco reported 16% year-over-year revenue growth and 43% GAAP EPS growth in the fourth fiscal quarter. Both numbers represent growth acceleration compared to the company’s Fiscal Year 2023 results. Artificial intelligence can help the company grow faster in the future.
That news helped shares jump by 2% in after-hours. Investors who buy Cisco stock now get to enjoy a dividend yield close to 3%.
Cisco isn’t the type of stock that delivers jaw-dropping returns. It’s only up 10% year-to-date which is behind broader indexes such as the Nasdaq-100. However, the more reasonable valuation and high-profit margins give Cisco shares a better margin of safety than other tech stocks.
Procter & Gamble (PG)
Investors interested in forever stocks may want to consider a company that has been around since 1837. Proctor & Gamble (NYSE:PG) sells various consumer goods products through an umbrella of brands.
The company sells various products, such as laundry products, paper towels, razors, and other resources.
Proctor & Gamble shares have been flat over the past year, but they have gained 83% over the past five years. The stock currently trades at a 26 P/E ratio and has a dividend yield approaching 2.50%.
This dividend aristocrat has raised its dividend for 68 consecutive years. The company grew its dividend by 3% year-over-year from 2022 to 2023, and its product diversification makes it more resilient in recessions than other stocks.
On this date of publication, Marc Guberti held a long position in AVGO and INMD. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.