Famed investor Warren Buffett has previously said his preference is to own “a wonderful business forever.” The wisdom behind his buy-and-hold approach is that it forces you to invest in better companies, which goes a long way toward building lasting wealth in the stock market.
The thing is, you don’t have to be a business expert to be successful in the stock market. Warren Buffett said that even he doesn’t understand all the technical aspects of the companies he invests in. You can build wealth by simply investing in companies that you know and have a record of consistent growth.
That said, let’s look at two companies that have strong brands and loyal customers to deliver growth for shareholders for years to come.
1. Starbucks
Starbucks (SBUX -1.83%) has been a rewarding investment for a long time, and the business continues to find plenty of areas to expand its store base and grow revenue. The stock is down 13% over the last three years, but this only means investors are getting more value for every dollar of earnings it generates. The stock’s dividend yield is up to 2.4%, which signals a great buying opportunity.
Besides the brand, a key factor that explains the company’s success is its sophisticated digital ordering capabilities. Starbucks has led the restaurant industry for years in this crucial area, and this is one reason it has a growing pool of 34 million active Rewards memberships in the U.S.
The future growth path for Starbucks is straightforward. A combination of new store growth, growth from existing stores, and expanding margins should drive an increase of 15% to 20% in annualized earnings, based on management’s target. In the most recent quarter, Starbucks posted an adjusted earnings increase of 20% year over year.
Starbucks has built a powerful brand that draws a lot of repeat purchases by its Rewards members. This is the main reason investors can be confident the company will still be around for decades, growing the value of their investment.
What’s more, this is a great time to buy the stock. The shares trade at a market-average forward price-to-earnings ratio of 23, which may undervalue the company’s prospects for above-average earnings growth.
2. Amazon
Amazon (AMZN 0.83%) stock returned 861% over the last 10 years. The stock has recovered from last year’s sell-off but still is a timely growth stock to buy for a few important reasons.
The company is still in the early innings of chasing a growing $5 trillion global e-commerce market. Amazon’s Prime membership serves as an important gateway to the brand for international members. International revenue made up only 24% of Amazon’s entire business in the fourth quarter of 2023, but it grew 13% year over year when excluding currency changes.
Another catalyst is that after years of absorbing big losses in its international segment, Amazon is starting to turn more revenue into a profit. The international business reported an operating loss of $419 million in Q4 — a major improvement over the year-ago quarter’s $2.2 billion loss.
Across all segments, Amazon generated $32 billion in free cash flow over the last year. This is the actual amount of cash left over after all expenses and is money that can be allocated to profitable new opportunities. For example, Amazon is currently investing in artificial intelligence (AI) tools that management believes will add billions in revenue over the long term.
Amazon’s leading cloud services business provides the company with a significant advantage in using AI to enhance its retail business through product recommendations and other new tools the company may release. It’s for these reasons that Amazon will continue to grow in value for long-term shareholders.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Starbucks. The Motley Fool has a disclosure policy.
