Wall Street history shows that long-term stock investing is one of the key ingredients for lasting financial success. The S&P 500 index, regarded as the benchmark for U.S. stocks, has shown a historical average annualized return of around 10% since its inception in 1928 through the end of 2023. Similarly, from 1996 to mid-June 2022, the mean total yearly returns (including dividends) of the S&P 500 were 9% in nominal terms, or 6.8% in real terms
Research suggests that while U.S. stocks have shown strong performance, not all perform equally. A small percentage of top-performing stocks account for the majority of wealth creation in the market. For example, less than 100 stocks have accounted for $16 trillion in wealth creation over the past 90 years, representing about a third of S&P’s total value.
However, diversification, risk management and awareness of market conditions are crucial for optimizing returns and managing risks. Choosing companies poised for long-term growth requires careful evaluation of their fundamentals and potential resilience against economic downturns. With that in mind, three of the best long-term wealth-building stocks could grow significantly.
DocuSign (DOCU)
DocuSign (NASDAQ:DOCU) leads today’s lineup of long-term wealth-building stocks. As a frontrunner in cloud-based software for e-signatures and digital transaction management, DocuSign helps businesses manage agreements from creation to management. In other words, DOCU stock is a compelling choice for investors aiming to build wealth over time as the company capitalizes on the growing adoption of digital workflows.
In the first quarter of fiscal 2025, DocuSign reported robust financial performance, achieving $710 million in revenue, a 7% year-over-year (YOY) increase. The company’s dollar net retention rate improved to 99%, highlighting robust customer loyalty. Adjusted net income per diluted share rose to $0.82, up from $0.72 in the previous year.
DocuSign recently bolstered its capabilities by acquiring Lexion and enhancing its AI-driven agreement management software. This strategic move targets a growing market segment, potentially accelerating DocuSign’s growth trajectory. Additionally, the Intelligent Agreement Management (IAM) platform launch in April integrates advanced AI features, promising collaborative and automated agreement processes.
Nonetheless, DOCU stock has faced challenges, declining over 12% year-to-date (YTD) due to slowing sales growth and economic uncertainties. Currently trading at 16.3 times forward earnings and four times sales, analysts foresee a potential 15% upside for DocuSign with a 12-month median price forecast of $60.00.
Duolingo (DUOL)
We continue our exploration of long-term wealth building stocks with Duolingo (NASDAQ:DUOL), a language-learning platform serving 98 million monthly active users across dozens of languages globally. In 2023, the company expanded into Mathematics and Music offerings to broaden its market appeal.
In May, Duolingo reported strong first quarter 2024 earnings. Revenue surged 45% year over year, driven by a 54% increase in daily active users (DAUs) and a 41% rise in bookings. Net income per diluted share jumped to 57 cents from a loss of 6 cents per share last year. Free cash flow rose significantly to $79.6 million, up from $28.8 million year over year.
Looking ahead, Duolingo targets DAU growth through product innovation and marketing, boosting conversions from freemium to paid subscriptions. It aims to expand its Duolingo Max and Family Plan, with Max available to under 10% of active DAUs. Management also eyes growth in the English learning market, engaging less than half of total DAUs. The fiscal year 2024 guidance predicts a 38% revenue and an 83% earnings increase.
Despite robust financials, DUOL stock has declined over 18% since January. The shares are still richly valued, changing hands at 104 times forward earnings and 16.3 times trailing sales. Analysts have set a 12-month median price target of $257.50, suggesting a potential 38% upside from current levels.
Home Depot (HD)
The world’s largest home improvement retailer Home Depot (NYSE:HD) is the next name among our wealth building stocks. Its extensive network stateside allows Home Depot to facilitate around 60% of the nation’s total retail spending on home improvement.
In the first quarter of fiscal 2024, Home Depot reported a 2.3% YOY decline in sales of $36.4 billion. The decline was attributed to macroeconomic headwinds, shifts in consumer spending and a challenging housing market. Comparable sales also decreased by 2.8%, with U.S. stores experiencing a 3.2% drop. Diluted EPS for the quarter was $3.63, down from $3.82 for the year-ago quarter.
Nevertheless, Home Depot’s consistent profitability, dominant market position and strategic growth initiatives position it strongly for long-term wealth building. The recent acquisition of SRS Distribution, a residential specialty trade distribution leader, enhances Home Depot’s capabilities in serving specialty trade professionals.
HD stock is down around 2.7% YTD but offers a solid 2.7% dividend yield. The shares are trading at 22 times forward earnings and 2.2 times sales. Finally, analysts project a 12-month median price forecast of $388.85 for HD stock, with upside of more than 15% from current levels.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.