Given the inflationary forces at play in recent decades, achieving a seven-digit portfolio isn’t what it once used to be. In fact, most personal finance experts recommend that baby boomers have, on average, around $900,000 saved for retirement in order to maintain most individual’s lifestyles over the course of retirement. Of course, those planning some fancy vacations or spending money at a greater rate will need well over $1 million to fulfill these goals.
Google (GOOG) cloud operations grew 35% year-over-year last quarter.
Fortis announced a $28.8B capital spending plan over the next five years.
Coca-Cola targets $12B in cash flow within the next year or so.
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That said, for every investor out there with a seven-figure portfolio (or aspiring to one), here are three stocks I think need to be included in such a portfolio to generate the kinds of returns that will negate the negative impacts inflation will undoubtedly have over time.
The Magnificent 7 stock I’ve been most bullish on of late is Alphabet (NASDAQ:GOOG). Long-term investors who require significant capital appreciation to offset the impacts inflation have benefited from holding stocks like Alphabet in their portfolio over the long-term. In my view, nothing has notably changed about Alphabet’s long-term growth trajectory, and in fact, recent headlines suggest that Alphabet could be moving toward growth reaccelerating in the coming quarters.
The company’s substantial investment in artificial intelligence (AI) via the company’s Gemini model has led to a market leadership position in the highly-sought after LLM space. The thing is, for Alphabet’s core search business, AI has posed a unique threat that few other technologies have in recent history. Thus, the company’s ability to maintain a market leadership position in the world of AI is more important than with other companies.
That said, strength in other core businesses such as the company’s cloud operations (which grew 35% year-over-year this past quarter) continue to be a more prescient selling point for investors. And with Warren Buffett’s Berkshire Hathaway (NYSE:BRK-B) recently jumping aboard as a big investor in Alphabet, I think this cements the company’s thesis as a world-class growth stock trading at a reasonable valuation today.
In terms of portfolio stability and strong long-term total returns (driven by world-class dividend growth), Fortis (NYSE:FTS) has few competitors that can match this company’s profile.
The company’s status as a Canada-based utilities company is what has Fortis continuing to top my list of the most overlooked and undervalued options in this sector. With a current dividend yield of 3.5%, and one of the best track records of Canadian dividend stocks in terms of dividend growth over time (51 consecutive years of such increases, and counting), there’s a lot to like about the fundamental case to be made that Fortis can provide consistent total returns over time.
The company’s recently-announced $28.8 billion capital spending plan over the next five years should shore up its cash flow generation profile over this time frame. And with earnings per share rising 42% year-over-year driven by improving operational efficiency and price increases, there’s ample balance sheet room for Fortis to make these investments and pay rising dividends over time.
I continue to think that the utility sector is the best way to play rising electricity usage as a result of the AI revolution. For those looking for a stock that many haven’t caught onto yet, Fortis is an excellent option to explore in my view.
In terms of the most recognizable brands in the world, Coca-Cola (NYSE:KO) undoubtedly tops most lists as the brand that 9 out of 10 people can recognize from a mile away.
Another top Warren Buffett holding (for decades, I might add), Coca-Cola continues to produce strong total returns in a very similar way to Fortis listed above.
That said, Coca-Cola’s brand dominance in a high-margin industry driven by volume requires the company to push for additional innovation to keep consumers coming back for more. As we’ve seen with inflationary price increases in other sectors (and consumers rebelling and slowing purchases of key brand name items), the question will be how much pricing power Coca-Cola truly has moving forward.
I think the answer to that question is “quite a bit,” though I’m not entirely sure where the rubber will meet the road if the company continues to raise prices from here. But so long as Coca-Cola’s management team can continue to deliver on efficiency goals, hitting the company’s $12 billion cash flow target in the next year or so should be possible. If that’s the case, I think most investors will kick themselves for not buying KO stock on the dip here.
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