<p>[Editor’s note: “These 7 S&P 500 Stocks Will Deliver a Repeat Performance in the Next Decade” was previously published in December 2019. It has since been updated to include the most relevant information available.]
In terms of S&P 500 stocks over the past decade, the top 20 performing cumulative returns, including dividends, delivered between 1,053% and 3,767%.
Cintas (NASDAQ: CTAS) generated a total return of 1,053% between the end of 2009 and December 5, 2019. The best performer at 3,767% was none other than Netflix (NASDAQ: NFLX), the company that famously swung from DVD rental via email for online video streaming.
Given that the S&P 500 has averaged an annual return of 10% since June 30, 1927, these top results really delivered for long-term shareholders.
Who will be the great artists in the coming decade?
From a list of the top 20 S&P 500 stocks over the past decade, I have selected seven that I think can deliver a repeat performance.
MarketAxess Holdings (MKTX)
Bonds may have a bad reputation with today’s investors, but MarketAxess Holdings (NASDAQ: MKTX) did well for investors who owned the stock over the past decade, delivering a cumulative return of 3,182%, the second-best return behind Netflix. All these gains came from creating the largest institutional market for bond trading.
With decent cost controls in place, it’s no wonder MarketAxess increases its earnings per share by 25% on an annual basis.
It is no surprise given its free cash flow generation that the company also has an untouched balance sheet with only $ 92 million in operating leases, no long-term debt and $ 556 million in cash, cash and cash equivalents and investments.
It may not be a sexy business, but I see that MarketAxess will continue to increase its market share in the coming decade.
It’s hard to imagine that Abiomed (NASDAQ: ABMD), the people behind Impella, the world’s smallest heart pump, could have delivered a better 10-year cumulative return than the 2121% return it had put over the past decade.
But if not a drop in the share price of 56% compared to the year before, that is exactly what it would have done in the last decade. It would not have surpassed Netflix, but it would have cemented its second place. For the next ten years, Abiomed’s Impella heart pumps should continue to take a significant share of the global heart pump market.
Last year, the ABMD stock took a 20% dive after two studies were critical of the company’s product, indicating that there were serious complications associated with Impella. The company claimed that the studies involved Impella patients who were sicker than the rest of the cohort and, of course, affected the outcome of the studies.
Over the past three years, Abiomed increased its revenues and operating profit by 33% and 51%, respectively. I do not understand why it can not continue to grow its business at double-digit prices. An aging population should only help, not hinder Abiomed’s Impella business.
United Rentals (URI)
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United Rentals (NYSE: URI) rents heavy equipment to companies that need a project completed.
Growing organically and through acquisitions, United Rentals had more than $ 14 billion in equipment for rent in 2018, generating approximately $ 8 billion in sales.
Despite all its growth, it still controls only about 13% of the US heavy equipment rental market. There are definitely more acquisitions underway.
To be a good consolidator, a company must be good at quickly evaluating another company’s prospects, making a reasonable offer and then integrating the acquired business into the company’s fold. United Rentals does this flawlessly.
Between 1998 and 2001, United Rentals made about 250 acquisitions as it rolled out stores for renting moms and pop equipment across the United States. In recent years, the acquisitions may have become larger, but they all have a certain integration risk.
Since 2009, URI has grown the top line by 14.4% compounded annually and the bottom line (adjusted EBITDA) by 22.3% annually over the same period.
Another boring but much needed service company that will not disappear anytime soon.
Constellation Brands (STZ)
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You would not know it by Constellation Brands (NYSE: STZ) latest return – the stock‘s total return over the last 52 weeks is -27.4% – but over the past decade the company has a cumulative total return of 1124%, which makes it the only alcoholic beverage company in S&P to reach the top 20.
Constellation’s current problems revolve around its desire to create a fourth revenue stream for its overall operations. I’m talking about the company’s multi-billion dollar investment in Canopy Growth (NYSE: CGC), Canada’s largest cannabis company and one of many companies positioning itself for global dominance.
Although things have not gone nearly as smoothly as CEO Rob Sands would have liked, the fact that Canopy hired David Klein, Constellation’s current CFO, as CEO to replace Bruce Linton, suggests that it is important to see its investment in long term . Some have even speculated that Klein was the one who brought the Canopy investment to Rob Sands.
“[Klein] could have been the one who actually brought the deal to them … so maybe he needs to go in and clear the mess he’s responsible for, says Purpose Investment’s Chief Investment Officer Greg Taylor to BNN Bloomberg.
Although it is an interesting theory, I think Klein has been chairman of the board since October and has given him a good estimate of what controls need to be put in place at Canopy so that it does not spend like a drunken sailor. Rob Sand’s fourth leg will ultimately prove to be a smart idea.
No matter what happens in the next decade, you can be sure that Mastercard (NYSE: MA) will be in the thick of fintech. Over the past decade, the MA stock generated a cumulative total return of 1,078%, which may not seem like much compared to Netflix returns, but compared to Visa (NYSE: V), its biggest rival, it has exceeded 350 points. .
Although payment shares have generally developed well in recent years, the fact that Mastercard returns so much money to shareholders suggests that it is safe to increase its cash flow in the next few years.
I would be shocked if Mastercard was not one of the better performing S&P 500 stocks in the coming decade.
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InvestorPlace contributor Luke Lango recently highlighted the “Top 5 technology portfolio from the decade of the 2010s.” In fifth place was Nvidia (NASDAQ: NVDA), California’s manufacturer of graphics processing units, whose chips have been used for everything from self-driving cars, data centers, artificial intelligence and other next-generation technologies.
Lango is convinced that NVDA has a lot of gas left in the tank to do well during the 2020s and beyond. I could not agree more.
Over the past three years, NVDA has increased its top sales by 33% per year and its operating income by an impressive 63% per year. It is therefore not surprising that Nvidia has increased its free cash flow by 109% during the same period.
In June, I suggested that Nvidia was a good buy considering the share price correction. Now that we are dealing with this market-wide correction, it makes the same sense to buy.
For me, I love the fact that Nvidia generates a lot of free cash flow. The same cannot be said of another chip darling, Advanced Micro Devices (NASDAQ: AMD). While I think AMD‘s CEO Lisa Su is one of the best executives in technology, Nvidia’s cash flow generation gives me a much more comfortable feeling. With a recession that is likely to hit sometime in the next 2-3 years, cash will be king.
Ulta Beauty (ULTA)
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Of all the S&P 500 stocks on this list, Ulta Beauty (NASDAQ: ULTA) is without a doubt the most difficult of my choices.
Ulta has been in negative territory for the past year, with more than 52%. For a stock that routinely crushed the S&P 500 over the past decade – it has a cumulative total return of 1,233%, good enough for 9th place out of the top 20 – it has failed to gain momentum over the past three years and set a significant cloud over its long-term performance.
Even worse, given the sales of cosmetics, it does not look like Ulta’s business will be stronger in 2020. The company’s CEO Mary Dillon, who I consider to be one of the best in retail, acknowledged in the Q3 2019 conference call that makeup was in a ” down-bike “and can stay there for a while. Cosmetics accounts for 51% of the company’s sales, which means that an extended cycle does not help drive the ULTA share higher.
What I do know is that the company’s expansion to Canada 2020 and beyond should help cover up some blemishes created by a weakened makeup business.
At this time in 2029, I expect Ulta to be on the top 20 list of S&P 500 shares.
At the time of writing, Will Ashworth had no position in any of the above securities.