Trading stocks daily can be stimulating, but it is a risky way to invest. The markets can turn in a penny and very few investors have generated a long-term competitive advantage in day trading.
Instead, buying and maintaining large companies over the years and decades is the best way to beat the market and generate wealth. Three actions that can provide great returns (and allow you to sleep well at night) are Apple (NASDAQ: AAPL), Zillow (NASDAQ: Z), and Square (NYSE: SQ).
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The cash flow machine
Apple can be a fundamental company for any portfolio. Its products sell in large volumes and with a high margin, and the company releases a lot of free cash flow. Despite being one of the largest companies in the world, Apple has continued to increase revenue and free cash flow over the past five years.
AAPL revenue data (TTM) by YCharts
What’s great about Apple’s business is how persistent it is and how the company is gradually expanding into new hardware, software and services. The iPhone is still the center of the ecosystem, but iPads, Macs, Apple Watch and Airpods continue to expand Apple’s reach. And with new hardware in virtual and / or augmented reality expected in the coming years, we can see a new generation of Apple’s product line appear before our eyes.
Apple’s shares are not cheap by most historical standards, with shares trading at 34 times earnings and 27 times free cash flow. But Apple has also shown that it is worth paying a premium for its stability, but slow but steady growth. And in today’s market, it is still a great stock.
Disturbing the real estate sector
Zillow is known as a place where buyers can find information about real estate and even connect with a realtor. In fact, it is in real estate listings that Zillow earns most of its money today. However, this is not really the company’s future.
Zillow Offers is now a major player in the real estate market, generating $ 304 million in revenue in the fourth quarter of 2020 alone. The company buys houses directly from sellers and then sells them to a new buyer. In the last quarter, Zillow generated a gross profit of $ 29,547 per home on 923 homes sold. When you consider that about 6 million homes are sold each year, this is an incredibly large growth market for Zillow to enter.
Market capitalization data Z by YCharts
Zillow is not a cheap stock, being traded at 10 times sales and more than 100 times behind free cash flow. However, the business has incredible opportunities to grow and dominate the huge real estate market. Investment is not risk-free today, but it is a much better investment of time and money than day trading.
The future of financial services
Square is no longer just a payment processing company for food trucks and breweries. It is becoming a major financial services company for consumers and businesses.
Square is expanding the number of locations it serves and the products it offers, such as scheduling customer appointments, tracking employee time, inventory and capital for its business customers. But its fastest growing product is the Cash App, the company’s brokerage and funds transfer application. Make transfer Bitcoin (CRYPT: BTC) and invest in easy stocks, and just expand the products you offer.
SQ revenue data (TTM) by YCharts
Now we are starting to see the potential of a world where Square is at the center of our payment universe. It will provide infrastructure for businesses, process payments, receive deposits for retail customers, and handle loans and asset management. And the company could do all of this without friction through its own systems. This could be a truly revolutionary business in the long run.
Don’t negotiate. Buy and insure.
The common point between Apple, Zillow and Square is that they have very bright futures and that should translate into much higher share prices. I don’t know if that will happen today, next week or five years from now, but I plan to keep the long term to ensure that I don’t miss the day when stocks rise.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even our own – helps all of us to think critically about investing and making decisions that help us become smarter, happier and wealthier.