Have you ever wondered how some savvy investors seem to have an uncanny ability to pick stocks that outperform the market, even in uncertain times? As we look ahead, identifying companies that combine resilience with growth potential could be the key to unlocking a prosperous investment future. These steady-Eddie businesses are prime candidates to best the market over the next five years. The notion of a stock potentially doubling within that timeframe isn’t as far-fetched as it might sound. Achieving a 15% annualized return over five years places an investment slightly ahead of the market’s historical annualized total return of about 11% to 12%.
United Parcel Service (UPS) and Murphy USA (MUSA) are two such companies that fit this profile. Both trade at a discount to the S&P 500’s valuations, suggesting they might be undervalued opportunities. Here’s an in-depth look at why these two businesses seem poised to excel in the coming years.
UPS faces a challenging scenario, with Amazon overtaking it as the largest delivery business in the U.S. and remaining its largest customer, responsible for 11% of UPS’s total revenue in 2022. Despite this, there are compelling reasons to consider UPS a strong dividend stock over the next five years. For starters, UPS has begun a rebound, securing a new five-year contract with its workers, which has seen a notable uptick in daily shipments. If this growth sustains, it could translate into significant sales growth.
Secondly, UPS is expanding into more specialized and profitable niches, such as time-sensitive and temperature-controlled healthcare shipping. Acquisitions like MNX Global Logistics and Bomi Group, coupled with a new venture in India, forecast a promising international expansion.
Perhaps most crucially, UPS’s return on invested capital (ROIC) stands at an impressive 21%. This is indicative of excellent profitability against its capital expenditures, bolstering the case for its continued outperformance. Moreover, with a dividend yield reaching near 10-year highs and a valuation at near 10-year lows, UPS’s investment appeal is strong, fueled by a strategic blend of operational rebound and favorable valuation.
Switching gears, Murphy USA—a convenience store chain with a network of over 1,700 stores—has obliterated the market’s returns, yet it remains under the radar for many investors. A substantial cost advantage allows Murphy USA to offer lower gas prices, drawing in value-focused customers and creating avenues for merchandise sales. This advantage is further solidified by the fragmented nature of the convenience store industry and the company’s high ROIC of 21%, signifying robust income and cash flow generation.
Murphy USA’s aggressive share buybacks, which have reduced outstanding shares by 54% since 2013, and a recently introduced dividend that has seen consecutive raises, reinforce its financial strength. Trading at just 15 times earnings, the company presents a compelling buy for investors looking for underappreciated growth stories.
It is worth noting that both companies have shown a pattern of resilience and strategic growth that could very well continue to yield returns above the market average, especially as they leverage their respective advantages.
As an investor, it’s tempting to seek out the next big thing, but it’s equally important to consider companies with a proven track record of steady growth and strategic agility. UPS and Murphy USA exemplify this blend of stability and potential, making them worthy of consideration for those aiming to grow their wealth over the next five years.
In consideration of these insights, we encourage our readers to take a closer look at these opportunities, conduct their due diligence, and consider how such investments could fit into a diversified portfolio aimed at long-term growth. We invite you to share your thoughts and questions in the comments below, or to delve deeper into the potential of these investments through further research.
In conclusion, in an environment where finding investments that offer both security and the potential for robust returns can be daunting, companies like UPS and Murphy USA stand out. Their strategies of carving specialized niches, cost advantages, and sound financial management position them as strong contenders to beat the market in the next half-decade. As you navigate the investment landscape, remember that knowledge and strategic choice-making are your most valuable assets. Stay informed and invest wisely.
FAQs
What makes UPS a good investment despite competition from Amazon? UPS’s recent rebound in shipments, expansion into specialized shipping niches, and a high return on invested capital (21%) make it a strong contender for growth. Its attractive valuation and high dividend yield also add to its investment appeal.
Why has Murphy USA been successful in outperforming the market? Murphy USA’s success can be attributed to its significant cost structure advantage in fuel pricing, its strategic expansion through acquisitions, and its impressive return on invested capital (21%). Share buybacks and a growing dividend also signal a strong financial position.
What does a 15% annualized return over five years indicate for an investment? A 15% annualized return over five years signifies that an investment is outperforming the market’s historical annualized total return, thus potentially doubling in value within that period.
How do strategic acquisitions contribute to a company’s growth? Strategic acquisitions can help companies expand into new markets, enhance their service offerings, and achieve economies of scale, contributing to increased sales and a stronger competitive position.
Is it better to invest in stocks with higher dividend yields or those with potential for capital gains? The choice between investing in stocks with higher dividend yields versus those with higher potential for capital gains depends on individual investment goals, risk tolerance, and time horizon. A balanced approach considering both income and growth potential is often recommended.
Let’s know about your thoughts in the comments below!
