4 stocks that could be worth $ 1 trillion by 2030
Listed companies with a market capitalization of $ 1,000 billion are psychologically satisfying, but quite rare. Of more than 8,000 stocks that investors can choose from, only five in the United States have achieved a valuation of $ 1,000 billion or more: Apple, Microsoft, Amazon, Alphabet, and Facebook.
But we also know that the US and global economy will grow over time. This growth, coupled with continued innovation, should allow other companies to reach the psychologically significant valuation of $ 1,000 billion. The following four stocks appear to have all the tools needed to grow into $ 1 trillion companies by the end of the decade.
One of the surest ways to build wealth for more than five decades has been to hitchhike the tails of billionaire Warren Buffett. Buffett was the CEO of the conglomerate Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) since 1965, and during this period led the shares of his company to an average annual return of 20%. Including cumulative gains in 2021 for Class A (BRK.A) stocks, Buffett has overseen cumulative stock gains of nearly 3,400,000%!
Buffett’s cyclical trends are one of the reasons Berkshire Hathaway has so consistently proven itself to shareholders. Even though recessions and contractions are part of the normal business cycle, the Oracle of Omaha is keenly aware that economies grow over time and that booms last much longer than contractions. He has piled his firm’s capital into sectors that thrive after periods of expansion, such as technology, finance, and consumer staples.
Warren Buffett is also a big fan of dividend-paying stocks. Although Berkshire Hathaway has never paid dividends, the company is poised to collect more than $ 5 billion in dividend income this year. Compared to Berkshire’s cost base, we’re talking about a 5% return on costs, which is exceptionally good. Since dividend stocks are generally profitable and proven, they are the ideal type of business Buffett is looking to add to Berkshire Hathaway’s portfolio.
While Buffett won’t be running Berkshire Hathaway forever, the company will be in good hands with lieutenant investors Todd Combs and Ted Weschler exerting their influence. Combs and Weschler have added a number of innovative growth companies to Berkshire’s portfolio in recent quarters to take advantage of the outperformance of growth stocks.
Given Berkshire Hathaway’s track record, it looks sure to hit a $ 1,000 billion valuation long before 2030.
While Berkshire Hathaway’s current market cap is closest to this list at $ 1,000 billion, the fintech stock Square (NYSE: SQ) is the furthest away (market capitalization of $ 123 billion). But that does not mean that an eightfold return from this point is not possible by 2030.
Square’s bread and butter operating segment for over a decade has been its seller ecosystem. This is the division that provides point of sale devices, analytics, and loans to help merchants grow their business. In the seven years leading up to the pandemic, the gross payment volume (GPV) of the seller ecosystem grew from $ 6.5 billion to $ 106.2 billion. In 2021, GPV will likely surpass $ 140 billion with ease.
In addition, the seller ecosystem generates a greater portion of its GPV from large merchants (that is, those with $ 125,000 or more in annualized GPV). As this is a merchant fee driven segment, bigger merchants mean more gross profit potential for Square.
However, the company’s long-term growth potential will be dictated by the peer-to-peer digital payment platform Cash App. Over the past three years, ending in 2020, the number of Monthly Active Users (MAUs) of Cash App has more than quintupled to 36 million. Additionally, Square generates gross profit of $ 55 per MAU, compared to just $ 5 per user to attract new users. It’s a hell of a margin.
What will tie it all together is the pending acquisition of Square to buy now, pay the business later After payment. Afterpay will help Square create a closed payment ecosystem, which means merchants will be able to accept Cash App. Tying these services together could allow Square to be one of the fastest growing financial services companies of the decade.
The cloud-based customer relationship management (CRM) software provider is another high-growth stock that has a very good chance of reaching a $ 1,000 billion valuation by 2030. Salesforce.com (NYSE: CRM).
CRM solutions are used by businesses in direct contact with consumers to improve customer relationships and increase sales. In addition to simple tasks such as logging and accessing real-time data, CRM software is used to manage online marketing campaigns, run predictive analytics on an existing customer base, and monitor product or customer issues. services. It is a solution commonly deployed in the service sector, but CRM is increasingly finding its place in newer sectors, such as healthcare and finance.
Salesforce is the center of attention in this double-digit growth space. It was responsible for 19.8% of all global CRM spending in the first half of 2020, according to a report from IDC. This was more than the company’s four closest competitors on a combined basis. With nearly four times the CRM share of its closest competitor, it’s highly unlikely that Salesforce will lose its competitive edge anytime soon.
The company’s management team has also demonstrated a talent for making smart, profit-generating acquisitions. CEO Marc Benioff oversaw the buyouts of MuleSoft, Tableau and, most recently, Slack Technologies. While the Slack purchase agreement opens up a new source of revenue, it’s the ability to sell its CRM solutions to a multitude of small and medium-sized businesses that makes the Slack buyout so smart.
According to Benioff, Salesforce is on track to reach $ 50 billion in annual sales by fiscal 2026. In some context, it generated $ 21.3 billion in full-year sales in the fiscal year. 2021. If Salesforce can maintain a compound annual growth rate of 18% to 19% for the rest of the decade, it should have a real chance of quadruple its value and reach a valuation of $ 1,000 billion.
A fourth and final stock with a very good chance of reaching a market cap of $ 1,000 billion by 2030 is the backbone of payment processing. Visa (NYSE: V). At a current market cap of $ 501 billion, the company’s shares are expected to simply double.
Similar to Berkshire Hathaway, one of Visa’s biggest enablers is that it’s cyclical. Although recessions tend to reduce spending, and therefore negatively affect the income of Visa merchants, these economic downturns rarely last more than a few months to a few quarters. Meanwhile, the last economic expansion lasted for more than a decade. Visa is simply playing the odds, which strongly favors the optimists.
It certainly doesn’t hurt that Visa is the clear leader in the payments market in the United States, the world’s largest consumer market. In 2018, Visa was responsible for 53% of the entire credit card network purchasing volume, more than 30 percentage points higher than its closest competitor. Additionally, Visa’s share grew faster in the United States after the Great Recession than any other major payment processor.
Another factor that works in the company’s favor is its lack of credit. Although it forgoes the ability to generate interest income and fees by lending, Visa also escapes the inevitable increase in credit defaults that occurs during economic contractions and recessions. With no outstanding loans, Visa is not required to set aside capital for delinquencies, which allows it to bounce back so quickly from recessions.
With plenty of opportunities to expand its payments infrastructure to underbanked emerging markets and the company unafraid to make acquisitions to strengthen its reach, Visa seems like a no-brainer to reach a $ 1,000 billion valuation this decade.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.