In this article we will take a look at the 10 best stocks to buy for financial independence.
One of the biggest takeaways from the devastation caused by the COVID-19 pandemic for ordinary working people was the importance of financial independence. As unemployment hit record highs and stimulus payments were delayed, many were caught under great financial stress as business was halted and even large corporations shut for months. For smart investors who had prepared themselves for such a scenario by putting their money into stocks that afforded them either great short-term returns or healthy dividend payments, life was easier.
The dawn of the new year and the vaccine rollout has allowed for a semblance of normality to return to the business world, but the stock market remains in a volatile and uncertain state. Inflation fears continue to cloud the broader dynamics at play and panicked selling has returned. Even amid the chaos, some stocks have outperformed the wider market. NVIDIA Corporation (NASDAQ: NVDA), the Californian visual computing company, has rallied on the back of increasing semiconductor chip prices amid supply chain strains.
NVIDIA Corporation (NASDAQ: NVDA) is not the only stock that has offered investors handsome returns in the past few months. Mastercard Incorporated (NYSE: MA), the renowned financial services firm, also took advantage of the record rally in crypto-related stocks earlier this year by partnering with crypto trading platform Cryptan. The partnership led to Mastercard Incorporated (NYSE: MA) announcing CriptanCard, the first crypto payment card, in Western Europe. The card allows users to make payments using the cryptocurrency of their choice.
Industry experts believe the recent fall in crypto prices is only a temporary setback and the new technology is set to rise to record highs in the coming months. Another industry giant with a long history of financial stability and wise investments, The Goldman Sachs Group, Inc. (NYSE: GS), has jumped on the crypto bandwagon as well. The Goldman Sachs Group, Inc. (NYSE: GS) has opened a cryptocurrency trading platform recently. The group has a strong dividend payment history and tremendous growth potential.
Finding the right balance between growth and value stocks is one of the most important aspects of a strong investment portfolio that has the potential to offer financial independence. Dividend payments are great, but short-term investments in growth stocks can also offer explosive returns that can be reinvested for even bigger rewards. It is also prudent to consider that the stock market offers better and quicker returns than other investment choices. However, there is reason to be cautious of larger market trends that are shaping the future of finance.
The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
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With this context in mind, here is our list of the 10 best stocks to buy for financial independence. We chose the companies that either offer steady dividends with decent yields or have strong growth potential in terms of their share price appreciation.
Best Stocks to Buy for Financial Independence
10. Intuitive Surgical, Inc. (NASDAQ: ISRG)
Number of Hedge Fund Holders: 49
Intuitive Surgical, Inc. (NASDAQ: ISRG) is a California-based medical robotics firm founded in 1995. It is ranked tenth on our list of 10 best stocks to buy for financial independence. Intuitive stock has offered investors returns exceeding 48% in the past twelve months. The company is one of the biggest robotics firms and is part of the NASDAQ-100 and the S&P 500. The firm is most famous for the da Vinci surgical system that includes products such as consoles, patient-side carts, 3-D HD vision systems, and skills simulators, among others.
Intuitive Surgical, Inc. (NASDAQ: ISRG) posted earnings for the first quarter of 2021 on April 20, reporting earnings per share of $3.52 that beat market estimates by $0.89. The revenue over the period was $1.29 billion, up more than 17% year-on-year.
Just like NVIDIA Corporation (NASDAQ: NVDA), Mastercard Incorporated (NYSE: MA), and The Goldman Sachs Group, Inc. (NYSE: GS), Intuitive Surgical, Inc. (NASDAQ: ISRG) is one of the best stocks to buy for early retirement.
In its Q1 2021 investor letter, Ensemble Capital, an asset management firm, highlighted a few stocks and Intuitive Surgical, Inc. (ISRG) was one of them. Here is what the fund said:
“Notable detractors to the Fund’s returns this quarter (included) Intuitive Surgical. Intuitive Surgical’s (6.3% weight in the Fund) growth slowed in 2020 as COVID hit the brakes on many elective surgeries. Given continued COVID-related risks in the US and Europe in 2021, it’s still unclear as to when elective surgeries recover to more normal levels. As such, hospitals may be holding off on planned surgical robot investments until demand rebounds. That said, in Asia, where COVID has been well contained, Intuitive Surgical’s procedures and systems utilizations improved, which bodes well for recovery in the US and EU. Most procedures can’t be delayed indefinitely or canceled, so we continue to expect a resumption of strong, durable growth as the pandemic recedes.”
9. Square, Inc. (NYSE: SQ)
Number of Hedge Fund Holders: 89
Square, Inc. (NYSE: SQ) is a California-based digital payments firm founded in 2009. It is placed ninth on our list of 10 best stocks to buy for financial independence. Square stock has returned more than 150% to investors over the course of the past year. The company markets several products that facilitate digital and electronic payments, including Square Point of Sale, Square Appointments, Square for Retail, Square for Restaurants, Square Online and Square Online Checkout, and Square Invoices, among others.
Square, Inc. (NYSE: SQ) is among the stocks that has recently suffered from the recent fall in price of cryptocurrencies. On May 19, the share price fell more than 3% along with other crypto-related stocks before recovering a little later in the week.
Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm ARK Investment Management is a leading shareholder in Square, Inc. (NYSE: SQ) with 10 million shares worth more than $2.4 billion.
8. Amazon.com, Inc. (NASDAQ: AMZN)
Number of Hedge Fund Holders: 273
Amazon.com, Inc. (NASDAQ: AMZN) is a Washington-based technology firm founded in 1994. It is ranked eighth on our list of 10 best stocks to buy for financial independence. Amazon stock has returned more than 33% to investors over the past year. The firm is one of the largest technology corporations in the world in terms of market capitalization and revenue, and has stakes in a wide variety of businesses including ecommerce, publishing, food delivery, and has recently announced plans for an entry into the medical diagnostics sector.
On May 18, Amazon.com, Inc. (NASDAQ: AMZN) announced that it was extending an earlier moratorium on the use of the Rekognition facial recognition software, owned by the retail giant, by police departments in the US following civil rights protests in the country.
Just like NVIDIA Corporation (NASDAQ: NVDA), Mastercard Incorporated (NYSE: MA), and The Goldman Sachs Group, Inc. (NYSE: GS), Amazon.com, Inc. (NASDAQ: AMZN) is one of the best stocks to buy for early retirement.
In its Q1 2021 investor letter, Polen Capital, an investment management firm, highlighted a few stocks and Amazon.com, Inc. (NASDAQ: AMZN) was one of them. Here is what the fund said:
“We purchased Amazon in February 2021, which accounts for 5% of the Portfolio’s weighting. For most of the last decade, Amazon did not meet our guardrails. We also did not have enough visibility into future free cash flow margins to indicate that the company would sustainably meet our guardrails and, relatedly, if valuation supported the double-digit annualized returns we seek. We now believe we have that visibility.
In 2008, almost all of Amazon’s revenue and operating profits came from its e-commerce business. Amazon Prime and Amazon Web Services (AWS) were new and relatively small back then. The company had roughly 5% operating profit margins overall, entirely from the e-commerce business. In 2009, the company began harvesting its retail business profits to accelerate investment in its distribution and logistics infrastructure globally and very heavily build out and scale AWS data centers. The company’s return on equity began to decline at that time and turned negative for three full years from mid-2012 to mid-2015 (margins and free cash flow declined similarly). So, beginning in 2010 and continuing to mid-2018, Amazon’s business was outside our guardrails. We chose to stick to our guardrails and not own Amazon.
Amazon’s profit drivers have changed quite dramatically over the years. Starting in the back half of 2018, Amazon came back above our hurdles. Revenue generation overcame ongoing heavy investments in areas such as delivery infrastructure, data center infrastructure, and shipping.
Our research suggests that today, after considering cost allocation, Amazon’s underlying profit drivers from higher-margin AWS and Advertising could grow much faster than its low-margin e-commerce business (excluding Prime), its historical driver of revenues and operating profits.
Amazon Prime, AWS, and Advertising together account for only about 20% of revenue today, but we believe over 150% of operating profits. Looking forward, growth higher-margin businesses means Amazon’s total margins and profit dollars could rise quite dramatically.
It is important to note that Amazon proved to be an exception to our guardrails. Based on our experience, very few companies that remain outside our guardrails for an extended period operate from a position of competitive strength but rather, from a position of competitive pressure. Today, we feel we have better visibility into the future earnings growth and margins from AWS and Advertising and believe these could drive 30%+ annual earnings growth for the next five years. Even with significant P/E multiple compression, we would still expect double-digit investment returns.”
7. Microsoft Corporation (NASDAQ: MSFT)
Number of Hedge Fund Holders: 258
Microsoft Corporation (NASDAQ: MSFT) is a Washington-based technology company founded in 1975. It is placed seventh on our list of 10 best stocks to buy for financial independence. The company primarily markets software used in laptops and computers, but has interests in other technology sectors like cloud computing and artificial intelligence. Microsoft stock has returned more than 36% to investors over the course of the past twelve months. The firm is also one of the few big tech stocks that pay regular dividends.
On May 20, Microsoft Corporation (NASDAQ: MSFT) announced that it would be retiring the Internet Explorer from Windows 10, the iconic web browser that has been usurped by competitors from other brands in the online universe in recent years.
Out of the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Microsoft Corporation (NASDAQ: MSFT) with 23.3 million shares worth more than $5.2 billion.
In its Q1 2021 investor letter, Polen Capital, an investment management firm, highlighted a few stocks and Microsoft Corporation (NASDAQ: MSFT) was one of them. Here is what the fund said:
“We have written extensively about Microsoft in recent commentaries. It was our leading contributor last year and one of our largest weightings within the Portfolio. It continues to experience business momentum through several dominant, essential, and competitively advantaged businesses, like Office 365 and Azure. The markets it competes for are enormous, which gives the company the ability to compound at scale. In the past quarter alone, the company generated over $40 billion in revenue, representing a 17% growth rate. The inherent operating leverage in Microsoft’s business model continues and led to 34% earnings growth this past quarter. Despite the broad rotation we saw in the first quarter and Microsoft’s robust performance in 2020, we think its business fundamentals continue to exhibit strength, and the stock continues to reflect the fundamentals.”
6. Teladoc Health, Inc. (NYSE: TDOC)
Number of Hedge Fund Holders: 50
Teladoc Health, Inc. (NYSE: TDOC) is a New York-based telehealth firm founded in 2002. It is placed sixth on our list of 10 best stocks to buy for financial independence. The company stock has offered investors returns exceeding 4.6% in the past week. The share price of the firm has been soaring in recent months as pandemic-related worries keep people at home and more inclined towards telehealth consultations. The firm believes that the gains of the pandemic will outlast the event itself as the digital health marketplace grows.
On April 28, Teladoc Health, Inc. (NYSE: TDOC) posted a revenue of more than $450 million for the first three months of 2021, up more than 150% compared to the same period last year. The earnings per share over the period missed market estimates by $0.72.
Just like NVIDIA Corporation (NASDAQ: NVDA), Mastercard Incorporated (NYSE: MA), and The Goldman Sachs Group, Inc. (NYSE: GS), Teladoc Health, Inc. (NYSE: TDOC) is one of the best stocks to buy for early retirement.
In its Q4 2020 investor letter, Carillon Tower Advisers, an asset management firm, highlighted a few stocks and Teladoc Health, Inc. (NYSE: TDOC) was one of them. Here is what the fund said:
“Teladoc Health offers remote physician access to patients at home. After experiencing incredible levels of growth throughout the early stages of the pandemic as its unique value proposition rose to the forefront of the healthcare industry, the firm’s shares cooled off a bit as optimistic vaccine data slightly curtailed investor expectations for the firm’s future growth potential. We sold the stock.”
5. Mastercard Incorporated (NYSE: MA)
Number of Hedge Fund Holders: 154
Mastercard Incorporated (NYSE: MA) is a New York-based financial services company founded in 1966. It is ranked fifth on our list of 10 best stocks to buy for financial independence. Mastercard stock has returned more than 26% to investors over the course of the past twelve months. The firm is most famous for payment-related products but also markets services such as cyber and intelligence solutions, information and analytics services, consulting services, loyalty and reward programs, as well as open banking services, among others.
On April 29, Mastercard Incorporated (NYSE: MA) posted earnings for the first quarter of 2021, reporting a revenue of more than $4.2 billion and earnings per share of $.174. The EPS beat market predictions by $0.18.
Out of the hedge funds being tracked by Insider Monkey, Virginia-based investment firm Akre Capital Management is a leading shareholder in Mastercard Incorporated (NYSE: MA) with 5.8 million shares worth more than $2 billion.
In its Q4 2020 investor letter, Bretton Fund, an asset management firm, highlighted a few stocks and Mastercard Incorporated (NYSE: MA) was one of them. Here is what the fund said:
“While consumers resumed much of their spending by summer, what and how they used their Visas and Mastercards changed. For obvious reasons, people shifted to contactless payments—one of the Covid-era changes we think is permanent—and replaced travel purchases with online shopping and food delivery. Consumers spent more on their debit cards and less on their credit cards; Visa and Mastercard make more per transaction on the latter. They also make more on cross-border transactions that come mostly from international travel, which ground to a halt early in the pandemic. Visa’s and Mastercard’s earnings per share fell by 7% and 16%, respectively, compared to their usual mid-teens growth. We’re not too worried, and we think they’ll catch up nicely in the post-vaccine world. Visa’s stock returned 17.1% and Mastercard’s 20.2%.”
4. CVS Health Corporation (NYSE: CVS)
Number of Hedge Fund Holders: 56
CVS Health Corporation (NYSE: CVS) is a Rhode Island-based healthcare firm founded in 1963. It is placed fourth on our list of 10 best stocks to buy for financial independence. CVS stock has offered investors returns exceeding 42% in the past year. The firm has diverse interests within the health sector, with major stakes in big pharmacy brands and health insurance providers. The firm operates at close to 10,000 retail locations across the US and also runs more than 1,000 clinical facilities.
On May 4, CVS Health Corporation (NYSE: CVS) stock gained more than 3% on the back of strong quarterly results and an improved guidance for the rest of the fiscal year. In the results posted earlier, total revenues for the company had increased 3.5% year-on-year to $69.1 billion.
3. The Goldman Sachs Group, Inc. (NYSE: GS)
Number of Hedge Fund Holders: 76
The Goldman Sachs Group, Inc. (NYSE: GS) is a New York-based investment bank and financial services company founded in 1869. It is ranked third on our list of 10 best stocks to buy for financial independence. Goldman stock has returned more than 104% to investors in the past year. The company also pays a regular dividend. The company provides several investment banking services such as strategic advisory assignments related to mergers and acquisitions, divestitures, corporate defense activities, restructurings, and spin-offs.
The Goldman Sachs Group, Inc. (NYSE: GS) recently set up a cryptocurrency trading desk and also invested in a $15 million Series B funding round for Coin Metrics, a firm that provides crypto asset-related financial data.
Out of the hedge funds being tracked by Insider Monkey, London-based investment firm Crake Asset Management is a leading shareholder in The Goldman Sachs Group, Inc. (NYSE: GS) with 158,014 shares worth more than $51 billion.
Just like NVIDIA Corporation (NASDAQ: NVDA) and Mastercard Incorporated (NYSE: MA), The Goldman Sachs Group, Inc. (NYSE: GS) is one of the best stocks to buy for early retirement.
2. NVIDIA Corporation (NASDAQ: NVDA)
Number of Hedge Fund Holders: 88
NVIDIA Corporation (NASDAQ: NVDA) is a California-based technology company that markets high-powered hardware for computers, laptops, and other devices. It is placed second on our list of 10 best stocks to buy for financial independence. NVIDIA stock has offered investors returns exceeding 72% over the past year. The company has explosive growth potential as online games increase in popularity, handheld devices become more powerful, and a chip shortage in the industry drives up the prices of the products the firm markets.
NVIDIA Corporation (NASDAQ: NVDA) stock was given an Outperform rating by investment advisory Baird on May 5 with a price target of $800. The advisory claimed that the company was well placed to dominate the data centre space in the artificial intelligence market.
In its Q1 2021 investor letter, Vulcan Value Partners, an asset management firm, highlighted a few stocks and NVIDIA Corporation (NASDAQ: NVDA) was one of them. Here is what the fund said:
“NVIDIA Corp. is the dominant supplier of Graphics Processing Units (GPUs) worldwide. NVIDIA’s GPUs are at the intersection of a number of important computing trends including the movement to the Cloud, artificial intelligence, autonomous vehicles, edge computing, gaming, and more. We previously owned NVIDIA and sold it in the third quarter of 2020 as the price to value gap closed and our margin of safety was reduced. As with all our MVP companies, we continued to follow NVIDIA closely. Since that time, NVIDIA reported excellent results and its value has compounded rapidly. The technology selloff at the beginning of the year negatively affected the stock price while our estimate of NVIDIA’s value per share increased. This happy combination of events created a margin of safety and an opportunity to once again add NVIDIA to the portfolio.”
1. Fidelity National Financial, Inc. (NYSE: FNF)
Number of Hedge Fund Holders: 40
Fidelity National Financial, Inc. (NYSE: FNF) is a Florida-based insurance and settlement services company founded in 1847. It is ranked first on our list of 10 best stocks to buy for financial independence. Fidelity stock has returned more than 70% to investors over the past year. The company serves the real estate and mortgage industries and has a market cap of over $13 billion. Some of the services the company offers include trust activities, trustee sales guarantees, recordings and reconveyances, and home warranty insurance, among others.
Fidelity National Financial, Inc. (NYSE: FNF) is a solid bet for income investors as the firm has a good dividend history. On May 6, the company declared a quarterly dividend of $0.36 per share, in line with previous. The forward yield was 3.11%.
Out of the hedge funds being tracked by Insider Monkey, Houston-based investment firm Windacre Partnership is a leading shareholder in Fidelity National Financial, Inc. (NYSE: FNF) with 11 million shares worth more than $455 million.
In its Q1 2021 investor letter, Merion Road Capital Management, an asset management firm, highlighted a few stocks and Fidelity National Financial, Inc. (NYSE: FNF) was one of them. Here is what the fund said:
“During the period I added to our position in Fidelity National Financial (“FNF”). FNF is the nation’s largest title insurer with 33% market share. It was built over the last 30 years by Bill Foley, who revolutionized the industry with his emphasis on eliminating bureaucracy, utilizing technology to streamline operations, and maximizing customer service. He is well-regarded as a savvy investor and consummate deal-maker having acquired and divested multiple entities both in title and ancillary fields. He continues to serve as the chairman of FNF with a personal stake in the company worth hundreds of millions.
While title insurance is technically insurance, it is a bit of a unique animal. Being that the insurer writes a policy based on past events, not unknowns in the future, losses are relatively small and predictable. The more data an insurer can analyze, the less likely they are to experience a claim; and the more efficiently they can analyze the data and process the application, the lower their costs will be. FNF has invested in automating its work stream through their ownership of NextAce (automated search), SoftPro (document production and closing), and multiple other cloud-based platforms. Due to these investments, FNF boasts industry leading margins and is able to attract more third party agents who can leverage their service offering.
Last year FNF acquired the outstanding interest in FGL Holdings (“F&G”), a fixed indexed and fixed rate annuity provider. Though this appears to be a financial rather than strategic acquisition, there should be some opportunities to grow the combined business. Notably, the acquisition afforded F&G an improved credit profile which has led to ratings upgrades. These upgrades allow F&G to address new distribution lines, such as in the bank market where FNF has strong relationships through their title and escrow business. The company announced that since launching in July 1st it had already achieved $500mm of sales in this channel (vs. full year sales of ~$4bn).
FNF is likely over-earning right now based on the recent spike in mortgage activity. Looking out to 2022 I estimate that earnings should step down to something a little shy of $5.00/sh. At current prices we are collecting a double digit earnings yield for a business with strong market positioning and a superb capital allocator. Last year they repurchased a bunch of stock in Q1 at depressed prices and have announced their intent to acquire another $500mm over the next 12 months.”
You can also take a peek at Billionaire Izzy Englander’s Top 10 Stock Picks and Billionaire David Abrams’ Top Stock Picks.
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Disclosure: None. 10 Best Stocks to Buy for Financial Independence is originally published on Insider Monkey.
