Consumers and investors are wary these days. The S&P 500 index is at the same level it was at the end of 2021. A recession could be looming. And some Wall Street analysts are predicting years of sluggish economic growth and sideways stock market returns.
Enough with all the doom and gloom! says leading investment advisor Bill Staton, CFA. If there’s one thing he has learned during his 53-year investing career, it’s never to bet against America. He thinks our country’s economic progress will continue to surprise the world. In fact, he expects broad market indexes such as the S&P 500 index to double—or even triple—over the next decade.
Skeptical? Just think about what has occurred since 2009. The US economy and investors have endured one calamity after another—from recessions and wars to a once-a-century pandemic and the highest inflation in decades. Yet the S&P 500 still soared more than 500%! Sure, stocks were helped by ultra-low interest rates much of the time. But if we can achieve typical stock market returns of 10% a year now that interest rates are back to normal historical levels, the S&P 500 could rise more than 250% between now and 2034.
Yet Staton sees many investors hunkered down in cash, pessimistic about the economy and stocks. That’s because they are overlooking powerful drivers of future economic growth, including…
The greatest wealth transfer in history as Baby Boomers pass down an estimated $80 trillion in assets to their heirs.
A revival of domestic manufacturing and the need for massive corporate investment to remain competitive. Over the last two decades, the US has underspent, by about $5 trillion, on domestic factories and equipment.
Artificial Intelligence (AI)—it may seem like an overhyped novelty for consumers, but it is transformative for businesses. Even small companies will have an Amazon.com-like capacity to track and anticipate customer needs in real time, cutting costs and boosting profits.
Bottom Line Personal spoke to Staton to find out why it pays to maintain a positive attitude and to learn his strategy to profit from the rising stock markets…
Many people think that being optimistic about stocks means you’re naïve about risk or susceptible to chasing speculative investments—but it is nothing of the sort. I’m an optimist because an extensive body of financial research shows pessimism is detrimental to building wealth and growing your portfolio. Investors who are focused on the next downturn or fearful of setbacks and periods of stagnation tend to sabotage themselves with short-term decision-making and miss out on long-term market returns. Example: The odds of the stock market rising or falling on any given trading day since 1928 is about 50%—that is akin to a coin flip. But according to the Capital Group, a research firm that runs American Funds and oversees $2 trillion in assets, the probability of a positive cumulative return over the course of one year is 73%…over 10 years, it is 94%.
Warren Buffett said the simplest way to benefit from those odds is to buy an S&P 500 index fund. In fact, his own will instructs that 90% of the cash inherited by his family be invested that way. But it always bothered me that owning an index fund meant that you had exposure to scores of mediocre companies. Why not just do what Buffett did and own a handful of the very best companies?
I use a simple screen to identify the finest companies. I start by looking for dividend-paying companies headquartered in the US that have raised their annual dividends for at least 10 years in a row. Reason: A cash dividend is the one number a publicly-traded company reports that it cannot adjust. Being able to increase dividends over long periods is proof that a business has strong cash flow and profitability. Next, I narrow down the list by looking for additional criteria including a lower price-to-earnings ratio and a higher dividend yield than that of the Dow Jones Industrial Average and the S&P 500…a solid balance sheet…and high return on equity, which can be a gauge of how efficient management is at generating profits.
You won’t find any Nvidia or Tesla in my portfolio. I believe many investors fail in stock picking because they think the best companies are exciting high-tech businesses with massive growth potential. But there’s a downside to chasing what’s hot. Example: Going back to 2000, Nvidia’s stock dropped 83% one year and 76% another year. In 2022, it fell 50%. Would you have been able to hang on to your shares through that level of volatility? Instead, I focus on plain-vanilla businesses that offer great stability and durable products that allow them to keep growing in any economic environment…
Ameriprise Financial (AMP). The global-asset and wealth-management company oversees more than $1.3 trillion and is best known for its network of more than 10,000 financial advisors and the Columbia Threadneedle family of mutual funds. Since its 2005 spin-off from American Express, Ameriprise stock has grown nearly 10-fold. Performance: 21.46%.* Recent yield: 1.4%.
Digital Realty Trust (DLR) is the Fort Knox of Internet data. This real estate investment trust (REIT) operates more than 300 data centers, massive high-tech warehouses filled with computer servers and specialized data-communications equipment that are rented out to companies such as Amazon, Google and Microsoft. The growth of AI is expected to turbocharge the demand for cloud-data storage. Over the next five years, the company is developing $7 billion worth of new data centers in Frankfurt, Paris and Northern Virginia. Performance: 12.68%. Recent yield: 3.64%.
Lockheed Martin (LMT). The defense contractor has more than $66 billion in annual sales, and it is virtually guaranteed decades of stable revenue and profits from its contracts to produce and maintain F-35 fighter jets, a mainstay of US defense forces. The company also manufactures rocket and air-defense systems and hypersonic missiles, all of which will benefit from the federal government’s need to modernize the military and address geopolitical tensions in Asia, Eastern Europe and the Middle East. Performance:13.74%. Recent yield: 2.68%.
Polaris (PII) designs and manufactures powersports vehicles worldwide. The 80-year-old company is a market leader in snowmobiles and all-terrain and off-road vehicles, but it also produces Indian and Slingshot motorcycles and leisure boats under the brand names Bennington, Hurricane and Godfrey. Performance:15.28%. Recent yield: 2.93%.
Texas Instruments (TXN). The 94-year-old company makes more than 80,000 types of analog semiconductor chips that are designed to control simple processes such as on-off power management and sound and temperature in consumer electronics and automotive and industrial products. This is not as exciting as Nvidia’s sophisticated semiconductors, but Texas Instruments’ chips are highly profitable. Those profits should continue to expand thanks to the massive growth of Internet-connected electronic devices from door locks to high-tech clothing. Performance: 18.79%. Recent yield: 3.03%.
