Don’t be intimidated by their extreme bullishness and high valuations. For long-term investors, they are worth every penny.
In most cases, investors should aim to buy stocks when they are on the decline. Why pay more when you can earn more with a little patience (and short-term market fluctuations)?
However, there are times when it makes sense to step into a ticker that’s not just at its all-time high, but is completely surging. While a pullback may be possible at some point in the foreseeable future, the greater risk lies in simply seeing the ticker continue to record profits. Of course, the key is to know when such opportunities arise.
With this as background, here we take a closer look at three stocks near rally-driven highs that still make good long-term investments at their current prices.
1. Home Depot
The situation in the real estate industry is probably bleak. New home sales remain at roughly the same level as pre-pandemic levels, with existing home sales remaining just above the multi-year low reached late last year. There is. Owners aren’t forgoing low-interest mortgages, but cash-strapped consumers aren’t interested in shelling out big bucks for homes that might not maintain their value. Renovation costs are also decreasing.
So why did home improvement retailer Home Depot (HD -0.78%) stock hit a 52-week high, matching its peak in late 2021 (when spending on homes and home improvement projects was surging)? I wonder if it’s updated? That’s because investors are forward-looking, not backward-looking.
Reality: Real Estate Sales Platform Crunching the Numbers Zillow reports that the current U.S. housing shortage is 4.5 million units, higher than last year’s 4.3 million units. Between the country’s continued population growth and the limited number of homes the homebuilding industry can build each year (approximately 1.5 million), closing the gap could take years. And many prospective buyers are sitting on the sidelines as interest rates and home prices fall, just waiting for the pent-up of home purchases to be released…which they are now.
Home Depot is the largest company in the industry and is well positioned to take full advantage of this demand.
Investors who closely monitor Home Depot will point out that its performance doesn’t match this story. Sales were flat last quarter, but same-store sales in the U.S. were down 3.6% year-over-year. The company also lowered its full-year profit outlook in its latest quarterly results.
But the underlying headwinds appear to be abating, and Home Depot is back in a position to dominate the growing home improvement market. Indeed, the analyst community believes that Home Depot’s sales will start growing again next fiscal year, and that profits will resume the year after that as interest rates fall and supply and demand stabilize. That’s what buyers of the stock have been paying attention to lately.
2. Coca Cola
Coca-Cola (KO -0.50%) is such a commonly recommended stock that it’s almost become a cliché. Indeed, the reason the stock is still eyeing last month’s all-time high is because it’s one of the few tickers that investors know is safe and reliable enough to own in these uncertain times. That is debatable.
The thing is, the crowd is right. Coca-Cola is one of the best all-around brands on the market, regardless of the environment.
That doesn’t mean the beverage giant has a great growth engine to spin. Admittedly, this is a slow business. This year’s projected sales growth of just over 8% is something of an outlier, and is actually exaggerated by last year’s anemic comparison. Expected sales growth for next year is just under 5%, consistent with the company’s long-term metrics. The same goes for profits, which are only growing at a slightly faster pace and should continue to improve as well.
But what Coca-Cola lacks in growth momentum, it more than makes up for in consistency. The company has raised its dividend every year for the past 62 years, and there’s no question about its ability to pay.
KO Normalized Diluted EPS (Quarterly) Data by YCharts
That’s the result of being one of the biggest companies in the industry and controlling a wide range of major beverages that extend far beyond its namesake Coke. The company also owns Gold Peak Tea, Minute Maid Juice, Powerade Sports Drink, and Dasani Water, just to name a few. Not only does it have something to satisfy the world’s ever-evolving tastes, but it also has great influence in sales and marketing.
The bottom line? As long as consumers stay thirsty, The Coca-Cola Company should be able to generate at least some sales growth.
3.Microsoft
Finally, add software giant Microsoft (MSFT -0.11%) to your list of high-flying stocks to buy and hold for the next 20 years.
The usual bullish arguments apply. That means the world still relies heavily on Microsoft’s software. Approximately one-third of the world’s students, businesses, and individual consumers still choose Microsoft productivity tools such as Word and Excel, and Global Stats’ Statcounter figures show that Microsoft’s Windows is the world’s largest computer almost three-quarters of users have installed it.
Next is cloud computing. Amazon Web Services remains the single largest cloud computing service provider on the planet, but there’s more than enough business here. In fact, Microsoft is the fastest growing company in cloud computing, according to data collected by Synergy Research Group and market research firm Canalys.
Considering that much of the company’s software and services are rented rather than purchased outright, it’s no surprise that Microsoft’s revenue and bottom line have grown fairly steadily over the years.
KO Normalized Diluted EPS (Quarterly) Data by YCharts
But none of this strength is at the heart of why you’d want to dive into Microsoft stock, even though it’s up 86% from its early 2023 lows. What makes this company attractive as a 20-year investment is its proven drive and ability to address new opportunities as they arise.
Think about it. Twenty years ago, cloud computing didn’t even exist. 25 years ago, Xbox video game consoles didn’t exist. Even just five years ago, Microsoft wouldn’t have thought its artificial intelligence platform could be monetized, but its Copilot Pro is now available to paying subscribers who want to get more out of their computers.
We don’t know what Microsoft’s next big development will be. However, given its track record of innovation and the world’s heavy reliance on existing technology, there is little doubt that the company will be able to continue to grow its revenue and earnings.
