Long-term investors generally aim to buy stocks that can not only beat the S&P500, but also bear markets that tend to appear every few years. While investors should never “set it and forget it,” they can often find stocks that have survived bear markets and come out stronger when stocks rally.
Many of these stocks will provide such returns by offering goods and services that remain in demand regardless of economic conditions. Two examples of this approach are Chipotle Mexican Grill (GCM -0.31%) and Broadcom (AVGO 2.57%).
Chipotle has successfully addressed a key customer demand that has eluded most of its competitors: healthy fast food. He has built an international chain of over 3,100 restaurants on the philosophy that real food is better for the planet and the customer. It does not serve foods with artificial flavors, colors or preservatives and prohibits the use of freezers and can openers.
As the company plans to add between 235 and 250 new locations this year, its market continues to expand. He now thinks the United States can support 7,000 national sites.
Moreover, it still has to develop its potential internationally. It operates only 29 restaurants in Canada and 21 in Europe. Considering that both Starbucks and McDonald’s have opened thousands of locations across Europe and Canada, Chipotle could generate massive growth for years to come as it expands its reach more broadly around the world.
But for now, the continued focus on the United States has served the company well. Chipotle’s revenue of nearly $6.5 billion in the first three quarters of 2022 jumped 16% from the same period last year. This led to a profit of $675 million for the same period, 30% higher than in the first three quarters of 2021. Controlling expense growth amid rising inflation helped boost Chipotle’s bottom line.
The stock held steady amid the bear market, helping to reduce the price-to-earnings (P/E) ratio to 54. While that’s rich relative to its peers, Chipotle has long traded at a premium . As its approach to fast and natural food expands to more markets, this market grinding stock could go on for a long time.
As a company that provides custom semiconductors and enterprise software to enterprises, Broadcom is not well known to consumers. However, given its competitive advantages and growth, investors should pay more attention.
Specifically, potential shareholders should take note of its approach to its clients. Broadcom locates engineers near its largest customers, enabling it to better understand customer needs and create products to solve those problems. It then spends heavily on research and development (R&D), spending about $4.9 billion on R&D in the last four quarters alone.
A few Broadcom products are even directly exposed to the public. One of the most notable examples is the Wi-Fi hotspot built into Applethe Iphone. This allows internet coverage when it is not otherwise available.
Broadcom is also diversifying. It focused exclusively on semiconductors until acquisitions brought it into the enterprise software market from 2018. Assuming it completes its proposed merger with VMWarethe enterprise software segment will account for nearly half of the company’s revenue.
These revenues continue to grow. Broadcom reported more than $33 billion in fiscal year 2022 (which ended October 30), 21% more than in fiscal year 2021. This resulted in a 75% increase in net income during the period to reach approximately $11.5 billion, as the company reduced operating expenses by 5% during this period.
Investors should also take note of the 2023 tax dividend. At $18.40 per share, it yields 3.3%. It’s also up 12% from FY2022 and has grown at least once a year since Broadcom (then known as Avago) introduced payments in FY2011. , the $16 billion in free cash flow in fiscal 2022 covered the $7 billion in dividend costs during that time, making the recent increase sustainable.
It may also have helped Broadcom stock hold its value well over the past year. And at a 24 P/E ratio, the valuation just hit a multi-year low, which likely signals an opportune time to buy the semiconductor inventory.
will heal has no position in the stocks mentioned. The Motley Fool has positions and recommends Apple, Chipotle Mexican Grill and Starbucks. The Motley Fool recommends Broadcom and VMware and recommends the following options: $120 long calls in March 2023 on Apple, $92.50 short calls in January 2023 on Starbucks, and $130 short calls in March 2023 on Apple. The Motley Fool has a disclosure policy.