If you're looking for the stock market's next big gainers, a quick history lesson could be helpful. Though successful industries tend to change over time, the characteristics of the most successful companies are often the same. These companies are often profitable, regularly outperform the S&P 500, and have other unique strengths that have made them among the highest-returning stocks ever.
Brand power and a desirable product or service are among the qualities that ties together the three companies we're going to look at. While there is no definitive list of the best-performing stocks of all-time -- Coca-Cola (NYSE: KO), Altria (NYSE: MO), and Amazon.com (NASDAQ: AMZN) -- have all delivered massive returns over their history.
|Company||IPO Year||Share Appreciation|
|Altria||1938||28,970% (since 1970)|
Data source: Company websites, Ycharts.com.
Let's look at each stock's history to see why they've been among the best performers in stock market history.
Coca-Cola was one of the best-performing stocks over the 20th century as the company built up a number of competitive advantages in beverages. First, the namesake brand itself has become one of the most valuable in the world. Coca-Cola is the first beverage many people around the world think of when they reach for something to drink, thanks to decades of successful advertising and the popularity of its original formula. Coca-Cola has used the same strategy to build up similar brands, such as Sprite and Fanta, as well as younger brands it's recently acquired, including Vitamin Water.
Arguably as important as the company's brand portfolio is its distribution chain and marketing muscle, which has enabled it to create a global supply chain that helps it ramp up smaller beverage brands as it acquires them. Warren Buffett, Coke's largest investor through Berkshire Hathaway, once said, "If you give me $100 billion and said take away the soft-drink leadership of Coca-Cola, I'd give it back to you and said it couldn't be done." That's a testament to Coca-Cola's unique brand power.
More recently, the stock has struggled as the company has reached maturity and soda has fallen out of fashion in the U.S. and elsewhere over health concerns, but its lessons from the 20th century remain potent for investors.
The Marlboro parent, which was spun off from Philip Morris International (NYSE: PM) has ridden a similar formula to success as Coca-Cola. Like Coke in its niche, Marlboro is by far the most popular cigarette brand in the world, with 472 trillion cigarettes sold last year, compared with 107 trillion for the No. 2 brand, Lucky Strike. In the U.S., Marlboro's sales are greater than the next eight brands combined.
Not surprisingly, that popularity, along with the company's distribution and marketing reach, made the stock the best on the market over the past 50 years when including reinvested dividends. A dollar invested in Altria in 1968 turned into $6,638 by 2015 with dividends reinvested, good for a 663,700% total return, or 20.6% annually.
The addictive nature of tobacco and the lack of innovation necessary has helped make Altria so profitable, and even with declining smoking rates, the company has managed to grow, as it has easily been able to raise prices.
Unlike Altria or Coca-Cola, Amazon.com is not a consumer-goods company. The tech giant has capitalized on being a pioneer in a wave of new technologies, including e-commerce, cloud computing, Kindle e-books and e-readers, and voice-activated technology with Alexa and Echo. Like Altria and Coca-Cola, Amazon has built a global brand and a strong reputation on low prices, excellent customer service, and innovation with initiatives such as its Prime loyalty program.
Amazon is evidence of how a disruptive company with smart leadership operating in a fast-growing market can deliver whopping returns for shareholders. There are several similar companies in tech, including Netflix, Apple, Alphabet, and Facebook, but Amazon, which had its as a small company in 1997, has the best returns of the bunch. What's also notable about Amazon is that the company is barely profitable. But investors have given it a pass on profits as its competitive advantages are so strong, its revenue is growing so fast, and it keeps breaking into new markets -- as it did with its Whole Foods acquisition.
It won't be easy to find the next blockbuster stock like one of these three, but focusing on brand strength and competitive advantages -- which Coke, Altria, and Amazon have in spades -- is a good start.
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