First of all, there's no reliable way to get rich quickly in the stock market, and these three stocks aren't going to do it for you. On the other hand, smart long-term investing is perhaps the most reliable path to wealth. With that in mind, here are three stocks that could do extremely well in the years and decades ahead.
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The future of banking
This first stock is also the most speculative of the three. BofI Holding (NASDAQ: BOFI) is the holding company for an online-only bank (the name stands for Bank of Internet) with about $8 billion in assets.
The idea behind operating an online-only bank is simple. Since BofI doesn't have to pay for physical branches (buildings, employees, etc.), it should be able to run more efficiently than brick-and-mortar banks, and therefore produce better profitability. It appears to be working -- BofI's return on assets (ROA) and return on equity (ROE) were 1.66% and 17.49% as of the latest quarter, far greater than the industry benchmarks of 1% and 10%, respectively. And BofI's 36% efficiency ratio is unheard of among most banks.
Furthermore, BofI's growth has been nothing short of phenomenal in recent years. Since 2011, BofI's earnings per share have grown at a 32% annualized rate, and loan originations have grown at an even more breathtaking 43% rate. Even with all this growth, BofI's $8 billion in assets makes it a relatively small player in the U.S. banking industry, leaving plenty of room for growth, especially if online and mobile banking technologies continue to evolve and catch on with U.S. consumers.
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Slow and steady wins the race
Net-lease retail REIT Realty Income (NYSE: O) is a cornerstone of my own retirement portfolio, and one that I plan to hold for decades to come.
There are a few reasons I feel 100% comfortable buying Realty Income and leaving it alone. For starters, Realty Income's business model is designed for predictability, not surprises. Tenants sign long-term (15+ year initial term) net leases, which require the tenants to pay property taxes, building insurance, and maintenance expenses. Realty Income just sits back and collects a check for years. This results in high occupancy -- 98% currently -- and minimal turnover.
Also, the businesses that occupy most of Realty Income's property portfolio are rather defensive. Deeply discounted retail businesses like dollar stores and warehouse clubs actually tend to do better when the economy gets rough. Service-based businesses like gas stations and fitness centers are immune from online competition, a big fear for many retailers these days. And, non-discretionary retail businesses like drug stores sell things that people need, as opposed to things that people want. The majority of Realty Income's tenants can be classified into one or more of these business types.
As far as making you rich goes, Realty Income won't get you there overnight. As I mentioned, the company's business model is designed to produce steady and predictable gains, not blowout quarters and big surprises. However, it's tough to argue with a winning formula that's produced 17.9% annualized total returns for investors since Realty Income's 1994 NYSE listing. Returns like this, sustained over a few decades, can certainly make investors rich.
The Oracle of Omaha could still make you rich
Early investors in Warren Buffett-run Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) know firsthand that smart buy-and-hold investing is the most certain path to long-term wealth. In fact, a $10,000 investment in Berkshire Hathaway in 1965 would be worth nearly $160 million today.
Now, Buffett has told Berkshire's investors that the returns of the next 50 years won't come close to those of the past half-century. The company has simply gotten too big to produce those kinds of gains on a sustainable basis. However, Buffett is confident that the company will still produce market-beating performance over the long term for his investors.
Ironically, Donald Trump's presidency could be a big positive catalyst for shareholders over the next few years. Buffett was an outspoken Hillary Clinton supporter, but Donald Trump's policies could certainly help many of Berkshire's businesses and stock investments. In fact, just a couple of hours before I wrote this, President Trump signed an executive order designed to start rolling back banking regulations such as Dodd-Frank, which could certainly help Berkshire's bank-heavy stock portfolio.
This is just one intermediate-term example, but I believe Buffett's willingness and ability to adapt to any market environment, and the company's financial flexibility to pounce on opportunities as they come up are the reasons that new Berkshire shareholders will do very well over the long-term. For example, Buffett recently announced that Berkshire has bought about $12 billion worth of common stocks since the election -- and Berkshire still has more than $70 billion left in its war chest.
As a final thought, it's important to point out that while I think these stocks could make you rich, there are no guarantees in investing -- even when it comes to stocks like Realty Income and Berkshire Hathaway with amazing track records of strong performance. Use smart long-term investing principles such as proper diversification, and be sure to research each company thoroughly before you add it to your portfolio.
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Matthew Frankel owns shares of Berkshire Hathaway (B shares) and Realty Income. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and BofI Holding. The Motley Fool has a disclosure policy.