Long-term investors should make bank with these fast-growing companies.
This article originally appears on The Motley Fool, written by Sean Williams.
Investing in the stock market isn't hard. What's difficult is having the patience to allow your investment thesis to play out over time, and the confidence to purchase stocks even with the market at or near new all-time highs.
As of last week, both the iconic Dow Jones Industrial Average and benchmark S&P 500 were at record closing highs. It might sound wise to simply wait for a pullback, but that could cause you to miss out on purchasing great businesses at reasonable prices -- especially if you have a long-term mindset.
If you have $3,000 in cash that can be put to work to right now, which won't be needed to pay bills or cover emergencies, you have more than enough to buy the following trio of surefire stocks.
Alphabet
For some investors, Alphabet (NASDAQ:GOOGL)(NASDAQ:GOOG) trading a stone's throw from its all-time high would be a turnoff. But it shouldn't be. Between Alphabet's dominance in internet search and its fast-growing ancillary operations, it's set to become a cash flow kingpin this decade.
Alphabet is the parent company behind Google, the most-popular internet search platform in the world. According to GlobalStats, Google has controlled between 91% and 93% of worldwide search for much of the past two years. With dominance like this, it should be no surprise that advertisers are clamoring for placement. This foundational business should continue to benefit from a rebounding U.S. and global economy, and will likely see higher operating margins over the long run as traffic acquisition costs level off.
Beyond internet search, Alphabet has two very fast-growing segments. First is streaming platform YouTube, which is one of the three most-visited social sites in the world. Ad revenue from YouTube jumped 46% in the fourth quarter, with annual run-rate revenue from the platform now topping $27 billion.
Arguably even more exciting is cloud infrastructure service segment Google Cloud. With more businesses than ever pushing online and into the cloud, Google Cloud was able to deliver revenue growth of 47% in the fourth quarter, along with extrapolated annual run-rate sales of over $15 billion. Cloud margins should handily outpace ad margins over time, making Cloud Alphabet's golden ticket to serious cash flow growth by mid-decade.
Innovative Industrial Properties
U.S. marijuana stocks are projected to be a big-time growth opportunity throughout the 2020s. According to New Frontier Data, annualized weed sales growth should come in at 21% between 2019 and 2025. But it's not just the direct players that'll benefit. Ancillary pot stocks like Innovative Industrial Properties (NYSE:IIPR) should also thrive.
Innovative Industrial Properties, or IIP for short, is a cannabis-focused real estate investment trust (REIT). In English, this just means it purchases cannabis cultivation and processing facilities and leases them out for long periods of time. The goal is to generate boatloads of rental income that far outpaces what IIP invests in its properties.
As of the first week of April, IIP owned 68 properties spanning 6 million square feet of rentable space in 18 states. But the best stat here is that 100% of these facilities were leased, with a weighted-average lease length of 16.7 years. Even though the company stopped reporting its average yield on capital invested over a year ago, it was then above 13%. If it's still around this level, or even a bit lower, IIP should net a complete payback on its capital invested in seven years or less, with everything beyond this point being gravy.
Innovative Industrial Properties is also a prime beneficiary of the federal government's failure to reform cannabis banking laws. Since marijuana is a Schedule I (illegal) drug at the federal level, some banks won't deal with direct players in the pot industry. IIP has stepped in with its sale-leaseback program. IIP acquires assets for cash from multistate operators (MSO) and immediately leases these properties back to the seller. This way the MSO nets the cash they desire and IIP lands a longtime renter.
Innovative Industrial has a good shot at maintaining a double-digit growth rate and dividend yield of around 3% for years to come.
Mastercard
A third surefire stock you can put $3,000 to work in right now is payment facilitation giant Mastercard(NYSE:MA).
Like most financial stocks, Mastercard isn't invincible. When economic contractions and recessions arise, consumers and businesses spend less. With the company generating its revenue from payments, this is a recipe for weaker profits. However, Mastercard is also at the center of a big numbers game that long-term investors are in great shape to win. That's because recessions are dwarfed by the average length of economic expansions. With the typical economic expansion lasting years, Mastercard is easily able to navigate contractions or recessions that usually last mere months or a couple of quarters.
Just like its primary rival Visa, Mastercard also isn't a lender. It might seem foolish (with a small 'f') for Mastercard to turn down the opportunity to generate fees and interest income during periods of economic expansion, but the benefit of this decision is seen when contractions or recessions arrive. Whereas most banks are hit with credit and loan delinquencies, Mastercard is in the clear and doesn't have to set capital aside to cover bad loans. This is a big reason why Mastercard rebounds so quickly following recessions.
Something else to consider about the Mastercard growth story is that it has a long runway. Most of the world's transactions are still conducted in cash, and there are numerous underbanked regions of the world for Mastercard to infiltrate. Despite its large market cap, Mastercard is still capable of sustainable double-digit annual growth.
Leo Sun owns shares of Baidu and JD.com. The Motley Fool owns shares of and recommends Alibaba Group Holding Ltd., Baidu, JD.com, and Tencent Holdings. The Motley Fool recommends iQiyi. The Motley Fool has a disclosure policy.
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.
