The millennial generation might not have it easy – they are the ones stuck with the bill for student loans, and they are the first generation to believe they won’t have it better than their parents – but who wouldn’t want to be 25 today, and ready to invest? The market is positively bursting with options for long-term returns.
Because investing is a long-term game, of course. You get in it to make money, for the future, and as Warren Buffett likes to remind people, the best holding period is forever. Here, we will examine four stocks offering the return potential that twenty-somethings will need for a lifetime portfolio.
<h4 class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Alibaba Group Holdings, Ltd. (BABA)” data-reactid=”13″>Alibaba Group Holdings, Ltd. (BABA)
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="China’s answer to Amazon.com (AMZN), Alibaba is the largest online retail platform in the world’s second-largest economy. Chinese government policies discourage foreign online access to the country, the population of 1.4 billion is rapidly urbanizing, modernizing, and digitizing. Even though only half of China’s people have regular internet access, that still gives Alibaba a potential domestic customer base over 700 million strong – double the population of the US. The company’s Ali Express platform has a growing audience worldwide.” data-reactid=”14″>China’s answer to Amazon.com (AMZN), Alibaba is the largest online retail platform in the world’s second-largest economy. Chinese government policies discourage foreign online access to the country, the population of 1.4 billion is rapidly urbanizing, modernizing, and digitizing. Even though only half of China’s people have regular internet access, that still gives Alibaba a potential domestic customer base over 700 million strong – double the population of the US. The company’s Ali Express platform has a growing audience worldwide.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Wall Street’s top analysts agree that BABA is buying proposition. Susquehanna’s five-star analyst Shyam Patil takes a bullish stance on the company, saying, “In addition to targeting sales in lower-tier cities, Alibaba has been expanding its service businesses in those places, but investment has been fairly disciplined. The company is trying to take advantage of its existing ecosystem to keep customers from defecting, without spending too much on marketing.” He gives Alibaba a price target of $205, an upside of 14% from current levels.” data-reactid=”15″>Wall Street’s top analysts agree that BABA is buying proposition. Susquehanna’s five-star analyst Shyam Patil takes a bullish stance on the company, saying, “In addition to targeting sales in lower-tier cities, Alibaba has been expanding its service businesses in those places, but investment has been fairly disciplined. The company is trying to take advantage of its existing ecosystem to keep customers from defecting, without spending too much on marketing.” He gives Alibaba a price target of $205, an upside of 14% from current levels.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="From Raymond James, Aaron Kessler is also bullish on BABA. Looking toward next year, he writes, “Alibaba remains our top large cap pick given: 1) we expect continued solid China ecommerce growth with Alibaba as the biggest winner; 2) we believe take rate upside is underappreciated; 3) options value in newer initiatives and strategic investments; and 4) we believe valuation is attractive…” Kessler’s price target, at $280, is more aggressive than Patil’s, and suggests a 56% upside.” data-reactid=”16″>From Raymond James, Aaron Kessler is also bullish on BABA. Looking toward next year, he writes, “Alibaba remains our top large cap pick given: 1) we expect continued solid China ecommerce growth with Alibaba as the biggest winner; 2) we believe take rate upside is underappreciated; 3) options value in newer initiatives and strategic investments; and 4) we believe valuation is attractive…” Kessler’s price target, at $280, is more aggressive than Patil’s, and suggests a 56% upside.
Alibaba is smaller and leaner than Amazon. BABA’s total market cap is around $460 billion, and the last fiscal year’s revenue was reported at $56 billion. Alibaba keeps its overhead down by outsourcing the warehousing and shipping segments, while Amazon famously keeps those in-house.
But the most important point for young investors is probably the price. Where Amazon stock is notoriously pricey, now at $2,000 per share, BABA offers a steep discount at $178. And despite the company’s growth potential, that share price is almost certain to drop in near- to mid-term. Management has proposed, and shareholders have approved, a 1:8 stock split as way to raise fresh capital. The split will have to be initiated by July 15, 2020, so investors who buy in now will see their holdings increase by a factor of 8. For a stock with BABA’s high upside, that’s a potential gold mine.
Alibaba has a strong buy rating from the analyst consensus, based on 16 buys given in the past three months. Shares are selling for $178, and the average price target of $219 indicates an upside of 22%.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="We all know Alphabet’s (GOOGL) Google search engine, but in China, it’s all about Baidu. It’s the world’s largest search platform for the world’s largest spoken language – that is the sort of potential userbase that even a trade war can’t derail. And like BABA, shares in BIDU can be purchased for a fraction of the American equivalent; where GOOGL trades at $1,139, one share of BIDU runs $116.” data-reactid=”33″>We all know Alphabet’s (GOOGL) Google search engine, but in China, it’s all about Baidu. It’s the world’s largest search platform for the world’s largest spoken language – that is the sort of potential userbase that even a trade war can’t derail. And like BABA, shares in BIDU can be purchased for a fraction of the American equivalent; where GOOGL trades at $1,139, one share of BIDU runs $116.
More importantly, however, is that Chinese customers love to search and shop online, and like Google, Baidu gains on the advertising end. Also like Google, the company is branching out. Baidu has cloud computing initiatives, an AI platform, and an autonomous car program that recently was licensed for large-scale testing on the streets of Beijing.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="With all of that behind it, it’s no wonder that Merrill Lynch’s Eddie Leung likes BIDU. Looking across BIDU’s product offerings, Leung says, “Baidu is ready to move off the drawing board with its Internet of Things business, with the Duer operating system for smart devices and in-car internet. Expect the system to generate material post-sales revenue in the next one to three years. The cloud computing business is also now in the execution phase, and could be approaching a self-sustaining status in three to five years. Baidu presents multiple applications based on its free AI platform, with uses from finance to transportation to meteorology.”” data-reactid=”35″>With all of that behind it, it’s no wonder that Merrill Lynch’s Eddie Leung likes BIDU. Looking across BIDU’s product offerings, Leung says, “Baidu is ready to move off the drawing board with its Internet of Things business, with the Duer operating system for smart devices and in-car internet. Expect the system to generate material post-sales revenue in the next one to three years. The cloud computing business is also now in the execution phase, and could be approaching a self-sustaining status in three to five years. Baidu presents multiple applications based on its free AI platform, with uses from finance to transportation to meteorology.”
Leung puts a $213 price target on BIDU shares, for an eye-opening 83% upside potential.
Compare that to BIDU’s composite upside of 34%, based on the current share price of $116 and the average price target of $157. BIDU may have more potential than the moderate buy consensus rating would indicate.
<h4 class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Microsoft Corporation (MSFT)” data-reactid=”46″>Microsoft Corporation (MSFT)
Now, we move away from China and into a traditional blue-chip investment. BABA and BIDU are exciting growth possibilities, the sort that young investors need to kickstart a portfolio. Microsoft is the steady return engine that provides a reliable income.
Like BABA and BIDU, shares in Microsoft, at $140, are not priced out of reach for young investors. And after the company’s blockbuster Q4 earnings report, released this past July 18, investors have plenty of reason to move into MSFT. Company CEO Satya Nadella summed it up in her intro to the earnings call: “We delivered more than $125 billion in revenue for the full year with double-digit top-line and bottom-line growth. Our Commercial Cloud business is the largest in the world, surpassing $38 billion in revenue for the year, with gross margin expanding to 63%.”
The quarterly revenue and EPS simply underline Nadella’s bubbly optimism. MSFT posted $33.72 billion in fiscal Q4, beating the estimate by 3%. EPS came in at $1.37, 13% over the $1.21 forecast. It was the fourth quarter in a row that Microsoft has beaten the earnings forecast.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Microsoft picked up four strong buy ratings in the wake of the earnings report. The case for the company is summed up the Canaccord Genuity’s Richard Davis, the top rated analyst in TipRanks’ database. In giving his buy rating, Davis said of the company, “Microsoft under Nadella deserves credit for transforming itself from a firm difficult to partner with and rapacious in competition to one that is still a very tough competitor but also a company that will partner with other vendors if it makes its customers’ work lives better.”” data-reactid=”58″>Microsoft picked up four strong buy ratings in the wake of the earnings report. The case for the company is summed up the Canaccord Genuity’s Richard Davis, the top rated analyst in TipRanks’ database. In giving his buy rating, Davis said of the company, “Microsoft under Nadella deserves credit for transforming itself from a firm difficult to partner with and rapacious in competition to one that is still a very tough competitor but also a company that will partner with other vendors if it makes its customers’ work lives better.”
Davis backed his positive rating of Microsoft with a price target of $155, indicating his confidence in an 11% upside for the stock.
Overall, Microsoft holds a strong buy analyst consensus rating, based on 22 buy reviews, 1 hold, and 1 sell set in the past three months. Shares in MSFT are selling for $140 at this writing, and have and average upside of $153; this gives the stock an upside potential of 9%.
While Microsoft may not have the high potential upside that BABA and BIDU offer, it brings other assets to a long-term portfolio, including a reliable dividend and rock-solid longevity. The dividend is modest – the 1.31% yield gives an annualized payout of $1.81 per share. Reinvested over time, however, that dividend can pile up, and with a market cap of $1.08 trillion, Microsoft is clearly going to be around for the long haul.
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