3 Actions That Could Create Sustainable Generational Wealth

There are always at least a few great stocks to buy at any given time. Finding stocks to buy and hold for the very long term, however, can be a different story. The underlying companies should be industry leaders who are always in search. These organizations must also be able to adapt as necessary to changes in the marketplace, whether those changes are technological leaps, evolving consumer preferences, or new competition.

Not many companies fit that bill. However, there are some names like this that can be bought and held for a generation (or more), building more and more wealth the longer you and your heirs hold them. Here’s a closer look at three of your best bets among these tickers.

1. Amazon

There’s no denying that Amazonhis (NASDAQ: AMZN) the days of greatest growth are in the past. The e-commerce market is largely mature, and its competition is finally figuring out how to be, well, competitive.

Still, it doesn’t look like this company doesn’t have a strong second act lined up. In fact, it already has some compelling growth engines.

One of these engines is, of course, cloud computing.

Although Amazon Web Services (AWS) only accounts for less than one-fifth of the company’s revenue, this arm generates nearly two-thirds of its operating income. It’s still growing in a big way, too. In the first half of the year, AWS’s top line grew 18%, and there’s much more of the same in store. Market research team Mordor Intelligence suggests that the global cloud computing market will grow at an annual rate of more than 16% until 2029.

The other key growth driver to be excited about is Amazon’s advertising business.

You already know that Amazon was launched as an e-commerce outfit, making little to no profit in its early days in exchange for the eventual dominance of the online shopping market it now enjoys. eMarketer reports that Amazon’s share of the US retail market is in the order of 40%. It is also increasingly monetizing the massive volume of web traffic that Amazon.com attracts.

But he does it in a different way. In addition to earning a small fee from third-party sellers’ sales or making a small profit from sales of their own goods, Amazon now also collects money from third-party sellers who want to prominently display their products on the site. In the second quarter alone, it made nearly $12.8 billion in value from this high-margin ad business, up 20% year over year.

None of these business models are particularly complicated or impossible for a rival to replicate. Both operations are capable of growing indefinitely, however, and Amazon already dominates each. It’s already the market leader in both, and Amazon is positioned to capture at least its fair share of future growth in each market.

The story continues

2. PepsiCo

Coca cola is the common name for investors looking to add a dividend-paying consumer staples stock to their portfolio — and understandably so. Almost everyone is familiar with its brands, and the company has not only paid a dividend like clockwork for decades, but has increased its annual dividend payments every year for the past 62 years. Beautiful.

However, Coca-Cola is not your best bet to generate revenue in the beverage arena. That honor belongs to the rival PepsiCo (NASDAQ: PEP). Although it has only increased its annual dividend in each of the last 52 years, it has grown much faster than its rival.

That’s not the only difference in PepsiCo’s stock from Coca-Cola. In contrast to Coca-Cola’s more modest share buybacks, PepsiCo’s outstanding shares have declined at a considerably faster rate than its rival’s over the past 20 years.

A more aggressive share buyback program is obviously a key reason why PepsiCo’s dividend growth has outpaced Coca-Cola’s. However, PepsiCo has demonstrated the ability and desire to increase its net shareholder value to a degree that Coca-Cola simply has not.

This is never going to be a big growth name, to be clear. But slow and steady wins the race. The key to creating generational wealth with PepsiCo is buying it and then reinvesting the dividend payments into more shares of the stock. This slow accumulation of shares steadily accelerates overall net growth throughout the time you hold this often-overlooked consumer staple name.

3. Berkshire Hathaway

Finally, add Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) to your list of actions that could create sustainable generational wealth.

It is not a stock in the traditional sense. Rather, Berkshire is a basket of stocks handpicked by Warren Buffett and his lieutenants. From this perspective, it is no different from a mutual fund.

Even that comparison somehow doesn’t do it justice. A stake in Berkshire Hathaway is, in many ways, a means of letting Buffett manage your money for you, based on his proven and valuable approach to stock picking. You must be willing to make the same long-term commitment to a particular business. If you’re really generation oriented, no problem.

That said, Warren Buffett’s stock-picking prowess still isn’t the main reason you might want to own Berkshire for the long haul.

Although it’s rarely discussed, most of Berkshire Hathaway’s value does not come from the stocks it owns. As of the most recent figure, only about a third of Berkshire’s market capitalization of more than $900 billion reflects the sum total of all its equity investments.

The remainder reflects the value of all wholly owned private companies that also contribute to the conglomerate. These include battery company Duracell, underwear brand Fruit of the Loom, insurer Geico, flooring equipment Shaw Industries and railroad BNSF, to name a few. These are cash-generating businesses that likely do better over the long term by not being publicly traded, allowing them to avoid the wrongful influence of short-term shareholders.

That’s what Berkshire Hathaway’s performance suggests, anyway. Although it may be late S&P 500 time after time, over the long term, it reliably beats the general market. That’s why it’s another one of those names that you’ll just want to buy and then leave alone for years on end, trusting the basic premise of the investment itself. Just remember that — unlike PepsiCo — there are no dividend payments to reinvest here. It’s all capital appreciation.

Should you invest $1,000 in Berkshire Hathaway right now?

Before buying Berkshire Hathaway stock, consider the following:

The Motley Fool Stock Advisor the analyst team has just identified what they think they are 10 best stocks for investors to buy now… and Berkshire Hathaway was not one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you would have $752,835!*

Stock advisor provides investors with an easy-to-follow blueprint for success, including portfolio construction guidance, regular updates from analysts, and two new stock picks every month. The Stock advisor the service has more than four times return of the S&P 500 since 2002*.

See the 10 stocks »

*The stock advisor returns as of August 12, 2024

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. James Brumley has positions in Coca-Cola. The Motley Fool has positions in and recommends Amazon and Berkshire Hathaway. The Motley Fool has a disclosure policy.

3 Stocks That Could Create Sustainable Generational Wealth was originally published by The Motley Fool