One of the most important characteristics that investors must have is patience, that is, patience to hold the stocks of large companies in good times and difficult times, and even in the face of major market fluctuations. For investors with sufficient discipline to do this, the magic of compound interest will play other roles. However, this strategy will only work if the stock you choose is indeed the stock of the winning company.
There are hundreds of options available on the market, and it is difficult to separate wheat from the chaff. Today, let’s take a look at two companies that are expected to maintain their respective industry leaders in the next few years.The company in question is a pharmaceutical giant Johnson (New York Stock Exchange: JNJ) And fintech experts square (New York Stock Exchange: SQ). Let’s see why both are worth adding to your portfolio.
1. Johnson & Johnson
Because Johnson & Johnson is committed to developing a COVID-19 vaccine, it has been attracting a lot of headlines recently. In the short term, this opportunity may bring a great boost to pharmaceutical manufacturers, but in the long term, the pharmaceutical giant will benefit more from the world’s demand for innovative drugs. Given our ageing population, this factor will become even more important.
Johnson & Johnson’s pharmaceutical business is the most profitable. In fiscal year 2020, sales of this division were 45.6 billion U.S. dollars, an increase of 8% year-on-year, accounting for approximately 55% of the company’s total revenue. Johnson & Johnson has more than six blockbuster products, with annual sales of these drugs exceeding $1 billion. Most pharmaceutical companies will consider themselves lucky to have only one.
For example, Stelara, a drug for plaque psoriasis, has revenue growth of 21% to $7.7 billion in fiscal 2020. There is also the cancer treatment drug Darzalex, which has sales of US$4.2 billion in 2020, an increase of 39.8% over the previous fiscal year. Imbruvica is another cancer treatment drug, with sales of USD 4.1 billion in 2020, an increase of 21% over 2019.
These drugs (and others) are helping the pharmaceutical giant recover some of the losses it has suffered elsewhere. For example, sales of rheumatoid arthritis treatment drug Remicade fell by 14.4% in 2020 to 3.7 billion US dollars. The reason for the decline was competition from biosimilars. But please note that Johnson & Johnson is currently conducting more than twenty late-stage clinical trials, and there are more Phase 1 or Phase 2 studies.
These candidates provide many opportunities for drug manufacturers to make up for products that have stagnated in sales. In the fourth quarter alone, the company had more than six dozen approval or regulatory documents. Johnson & Johnson’s pharmaceutical division is in a good position to continuously add new products to its product lineup (or add new indications to existing products) almost every quarter.
Johnson & Johnson’s biggest concern is the lawsuits that plagued the company. However, as a shareholder, I am not worried about these potential legal issues. When these losses can be “reasonably estimated”, the company will recognize the losses caused by these ongoing litigation in its financial statements.
Having handled thousands of such lawsuits in the past few decades, the company believes that current legal issues will not have any material impact on its financial situation. For example, during the 2020 fiscal year, the drugmaker spent $5.1 billion in litigation costs (the same as in 2019), which accounted for only 6.1% of the year’s sales.
In addition to potential disadvantages, the strength of Johnson & Johnson’s pharmaceutical business, coupled with its medical equipment and consumer healthcare sectors, makes this pharmaceutical stock worth keeping in your portfolio for decades to come.
Financial services expert Square stated on the front and center of its website: “We believe that everyone should be able to participate in the economy.” How does the company achieve this goal? First, Square attracts small and medium business owners by offering effective payment processing options. The company also provides payroll services, small business loans, e-commerce services, invoices and more.
Square’s product library is very large, and although many competitors offer alternatives to some of its solutions, few can provide as many solutions in one place. Once a company joins Square’s ecosystem, it may expand the range of solutions purchased from financial services companies. CEO Jack Dorsey once called Square’s ecosystem “extremely sticky”, which gave Square a strong competitive advantage.
Square has also expanded the field of personal financial services with its peer-to-peer mobile payment application Cash App. The app now also allows users to invest in stocks or cryptocurrencies. Cash App also offers direct deposits and debit cards with ATM withdrawal options. Square’s Cash App and its seller ecosystem continue to help it achieve strong financial performance.
In the fourth quarter of 2020 as of December 31, the company reported total net income of $3.2 billion, a year-on-year increase of 140.5%. Square’s gross profit for the quarter increased by 52% year-on-year to $804 million. At the same time, Cash App’s gross profit was US$377 million, an increase of 162% over the same period last year. Square’s seller ecosystem achieved gross profit of $427 million, an increase of 13% over the same period last year.
Square still has a lot of room for growth, making it an excellent stock that has been deposited in your portfolio for decades. Analysts believe that the company’s revenue will grow 39.6% in the next five years. Square accounts for less than 3% of the $100 billion opportunity in its seller ecosystem and less than 2% of the $60 billion opportunity for its personal financial services products.
Thanks to the “stickiness” of the seller’s ecosystem and increased brand awareness, the company is expected to continue to take advantage of these long-term opportunities for many years to come. Because of these factors, there is no doubt in my mind that within ten years-or even longer-Square’s stock will more than double.
This article represents the opinion of the author, and he may disagree with the “official” recommended position of Motley Fool’s advanced consulting services. We are variegated! Questioning investment arguments (and even our own arguments) can help all of us think critically about investment and make decisions that will help us become smarter, happier, and wealthier.