Investing is one of the best ways you can build and grow your wealth to prepare yourself better for retirement. By allocating your money to promising, well-run growth companies, you can compound your funds over time to achieve that coveted pot of gold. Of course, it’s important to select the right stocks to buy and hold, as a wrong pick could see you losing substantial sums of money as the business deteriorates over time.
So, you might ask, what qualifies as a great stock to own for the long term? Businesses that have a strong market position and competitive moat pass the first filter. This attribute allows them to weather the economic downturns that periodically crop up. The company should also sport a great track record of consistent growth and possess catalysts that can sustain its long-term development. These catalysts may include a clear strategic roadmap or trends that will persist for the future.
Here are three stocks that could multiply your investment by five times or more by the end of this decade.
Adobe (ADBE 1.64%) runs a software business and a platform with digital tools to assist its clients with creative, marketing, and document management. Its portable document format (PDF) is now an industry standard for a wide range of documents, and it is also running an e-signature service to help corporations sign agreements remotely and securely. The company has boasted impressive growth over the past three years, with revenue rising from $11.2 billion in fiscal 2019 (FY2019) to $15.8 billion in FY2021. Net income grew in tandem with its top line, going from $2.9 billion to $4.8 billion over the same period. The software company has also been a consistent free-cash-flow generator, churning out an average of $5.4 billion.
Adobe’s growth momentum has carried on its FY2022. Its third-quarter revenue jumped 13% year over year to $4.4 billion with all of its three major divisions reporting double-digit year-over-year revenue growth. For the first nine months of FY2022, revenue increased by 12% year over year to $13.1 billion while operating income rose 6.8% year over year to $4.6 billion.
There could be more growth in store for Adobe. The company recently announced a transformational $20 billion acquisition of Figma, a leading web-based collaborative design platform. Founded just 10 years ago, Figma boasts gross margins of around 90% and generates positive operating cash flows. Adobe expects the acquisition to add $400 million in annual recurring revenue by the end of FY2022 and add to the company’s earnings per share by the end of the third year of the acquisition.
Chipotle Mexican Grill
Chipotle Mexican Grill (CMG 0.68%) owns and operates around 3,100 Mexican-themed restaurants in the U.S., Canada, and Europe with around 100,000 employees on its payroll. The company has displayed an impressive ability to continue growing through the pandemic even when COVID-19 restrictions forced the temporary closure of its restaurants. Chipotle pivoted to food deliveries and takeaway orders along with a “buy online, pick up in store” (BOPIS) model. Total revenue rose from $5.6 billion for FY2019 to $7.5 billion in FY2021 ending Dec. 31. Net income climbed from $350.2 million to $653 million over the same period, and Chipotle also generated free cash flow in every one of the three years.
For its latest quarter, Chipotle has continued to deliver. Total revenue jumped 13.7% year over year to $2.2 billion, and the company chalked up positive comparable-store sales of 7.6%. Digital sales made up more than one-third of total food and beverage revenue, attesting to the success of the company’s digital pivot during the pandemic. A total of 43 new restaurants were opened during the quarter, and management is targeting to open 255 to 285 new stores next year. With Chipotle’s strong customer base, successful execution, and long-term strategy to open more stores, the company looks set to successfully grow both its top and bottom lines.
Operating around 35,000 stores worldwide, Starbucks (SBUX 0.42%) is one of the largest specialty coffee chains around the globe. The company’s revenue has been growing steadily in tandem with its store growth, going from $26.5 billion in FY2019 (ending Sept. 30) to $29.1 billion in FY2021. Aside from a sharp dip in net income for FY2020 due to temporary store closures, the coffee chain still managed to report $4.2 billion of net income in FY2021, higher than the $3.6 billion reported two years ago. Investors will be thrilled to know that founder Howard Schultz has been back at the helm of Starbucks since April and is working to reinvent the company to take it to the next level.
Since then, the company has been busy. A new CEO, Laxman Narasimhan, was appointed in September to transition the company to a new phase of growth while Schultz takes a back seat on the board of directors. Meanwhile, Starbucks has also upped its quarterly dividend for the 12th consecutive year to $0.53 per share and signed an agreement with Swiss food behemoth Nestle to sell its Seattle’s Best Coffee brand for an undisclosed sum.
At the same time, the company hosted its biennial investor day where it announced a three-year roadmap to deliver both comparable-store sales and earnings growth. Termed a “reinvention plan,” Starbucks intends to grow its store sales by 7% to 9% annually and deliver annual earnings-per-share growth of 15% to 20% from 2023 to 2025. Store count will expand to nearly 45,000 by then and is on track to hit 55,000 by the end of this decade, in line with what was communicated during its 2020 investor day. This reinvention plan, along with Starbucks’ continued acceleration of its Starbucks Rewards membership base in the U.S., will set the company on the path to steady, sustainable growth for many years to come.
Royston Yang has positions in Adobe Inc. and Starbucks. The Motley Fool has positions in and recommends Adobe Inc., Chipotle Mexican Grill, and Starbucks. The Motley Fool recommends the following options: long January 2024 $420 calls on Adobe Inc., short January 2023 $92.50 puts on Starbucks, and short January 2024 $430 calls on Adobe Inc. The Motley Fool has a disclosure policy.