The final days of 2019 are winding down, as are the final days of the past decade. When it comes to the S&P 500 stocks over the past decade, the 20 best performers delivered cumulative returns, including dividends, between 1,053% and 3,767%.
Cintas (NASDAQ:CTAS) generated a total return of 1,053% between the end of 2009 through Dec. 5, 2019. The top performer at 3,767% was none other than Netflix (NASDAQ:NFLX), the company that famously pivoted from DVD rentals through the mail to online video streaming.
Given the S&P 500 has averaged an annual return of 10% between June 30, 1927, and Sept. 30, 2019, these top performers certainly delivered for long-time shareholders.
Who will be the big performers of the next decade?
From a list of the 20 best-performing S&P 500 stocks of the past decade, I have selected seven that I feel can deliver a repeat performance.
MarketAxess Holdings (MKTX)
Bonds might have a bad reputation with today’s investors, but MarketAxess Holdings (NASDAQ:MKTX) did alright for investors who owned the stock over the past decade, delivering a cumulative return of 3,182%, the second-best return behind Netflix. All of these gains came from creating the largest institutional marketplace for trading bonds.
MarketAxess reported Q3 2019 results that included 30% revenue growth with just a 19% increase in operating expenses. This led to a 42% jump in operating income.
With decent expense controls in place, it’s no wonder that MarketAxess is growing its earnings per share by 25% on an annualized basis. For the trailing 12 months ended Sept. 30, MarketAxess had free cash flow of $209.8 million, converting every dollar of net income into $1.05 in free cash flow.
It’s no surprise given its free cash flow generation that the company also has a pristine balance sheet with just $92 million in operating lease liabilities, no long-term debt, and $556 million in cash, cash equivalents, and investments.
It might not be a sexy business, but I see MarketAxess continuing to grow its market share over the next decade.
It’s hard to imagine that Abiomed (NASDAQ:ABMD), the people behind Impella, the world’s smallest heart pump, could have delivered a better 10-year cumulative return than the 2,121% return it posted over the past decade.
However, if not for a 44% year-to-date decline in its stock price, that’s exactly what it would have done over the past decade. It wouldn’t have surpassed Netflix, but it would have cemented its second-place showing. Heading into the next 10 years, Abiomed’s Impella heart pumps ought to continue to grab a significant piece of the global heart pump market.
In November, ABMD stock took a 20% dive after two studies were critical of the company’s product, suggesting that there were serious complications associated with Impella. The company argued that the studies involved Impella patients who were sicker than the rest of the cohort and naturally affected the outcome of the studies.
In the past three years, Abiomed grew its revenue and operating income by 33% and 51% respectively. I don’t see why it can’t continue to grow its business at double-digit rates. An aging population should only help, not hinder, Abiomed’s Impella business.
United Rentals (URI)
United Rentals (NYSE:URI) has generated a total return of 52% year-to-date, almost double the U.S. total market over the same period. That’s a nice way to finish a decade in which they delivered a cumulative total return of 1,434% to owners of URI stock, the seventh-highest performance by an S&P 500 stock.
That’s pretty darn good for a company that merely rents out heavy equipment to businesses needing to get a project completed. Growing organically and through acquisitions, United Rentals had more than $14 billion in equipment for rent in 2018, generating approximately $8 billion in sales.
Despite all this growth, it still only controls about 13% of the heavy equipment rental market in the U.S. There are definitely more acquisitions in the offing.
To be a good consolidator, a company has to be good at quickly evaluating another business’s prospects, making a reasonable offer, and then integrating the acquired business into the company fold. United Rentals does this flawlessly.
Between 1998 and 2001, United Rentals made approximately 250 acquisitions, as it rolled up the mom and pop equipment rental shops across the U.S. In recent years, its acquisitions might have gotten bigger, but they all carry a certain amount of integration risk.
Since 2009, URI has grown the top line by 14.4% compounded annually and the bottom line (adjusted EBITDA) by 22.3% annually over the same period.
Another boring but much-needed service business that won’t go away anytime soon.
Constellation Brands (STZ)
You wouldn’t know it by Constellation Brands’ (NYSE:STZ) recent returns — the stock’s total return over the past 52 weeks is -2.3% — but over the past decade, the company has a cumulative total return of 1,124%, making it the only alcoholic beverage company in the S&P to make the top 20.
Constellation’s current problems revolve around its desire to create a fourth revenue stream for its overall business. I’m speaking about the company’s multi-billion dollar investment in Canopy Growth (NYSE:CGC), Canada’s largest cannabis company and one of many businesses positioning itself for global domination.
Although things haven’t gone nearly as smoothly as Executive Chairman Rob Sands would have liked, the fact that Canopy hired David Klein, Constellation’s current CFO, as CEO to replace Bruce Linton, who was let go in July, suggests it’s anxious to see its investment pan out in the long run. Some have even speculated that Klein was the one who brought the Canopy investment to Rob Sands.
“[Klein] could have been the one that actually brought this deal to them … so maybe he has to go in and clean up the mess that he’s responsible for,” Purpose Investments Chief Investment Officer Greg Taylor told BNN Bloomberg.
Although that’s an interesting theory, I believe the fact Klein has been chair of its board since October has given him a good appreciation of what controls need to be put in place at Canopy so that it doesn’t spend like a drunken sailor. Rob Sands fourth-leg will ultimately prove to be a smart idea.
Whatever happens over the next decade, you can be sure that Mastercard (NYSE:MA) is going to be in the thick of things when it comes to fintech. Over the past decade, MA stock generated a cumulative total return of 1,078%, which might not seem like a lot compared to Netflix’s returns, but when compared to Visa (NYSE:V), its biggest rival, it has outperformed by 350 basis points.
On Dec. 4, Mastercard announced a 21% hike in its dividend to 40 cents a share, while it also announced that once it repurchases the remaining $300 million on its $6.5 billion buyback authorization, it will institute an $8 billion buyback.
Although payment stocks, in general, have performed well in recent years, the fact that Mastercard is returning so much cash to shareholders suggests it’s confident about growing its cash flow over the next few years.
I’d be shocked if Mastercard wasn’t one of the better-performing S&P 500 stocks over the next decade.
InvestorPlace contributor Luke Lango recently highlighted the “Top 5 Tech Stocks of the 2010s Decade.” Sitting in fifth place was Nvidia (NASDAQ:NVDA), the California maker of graphics processing units, whose chips have been used for everything from self-driving cars, data centers, artificial intelligence, and other next-gen technologies.
Lango is confident that NVDA has plenty of gas left in the tank to do well in the 2020s and beyond. I couldn’t agree more.
In the last three years, NVDA has grown its top-line sales by 33% a year, and its operating income by an impressive 63% per year. It’s no wonder, then, that Nvidia has grown its free cash flow by 109% over the same period.
In June, I suggested that Nvidia was a great buy given the correction in the price of its stock. Now, as we enter the last days of December, it’s up 40% from its June lows.
For me, I love the fact that Nvidia generates lots of free cash flow. The same thing can’t be said about another chip darling, Advanced Micro Devices (NASDAQ:AMD). While I think AMD CEO Lisa Su is one of the best chief executives in tech, Nvidia’s cash-flow generation gives me a much more comfortable feeling. With a recession likely to hit sometime in the next 2-3 years, cash will be king.
Ulta Beauty (ULTA)
Of all the S&P 500 stocks on this list, Ulta Beauty (NASDAQ:ULTA) is arguably the most difficult of my selections.
Ulta is barely in positive territory in 2019, up 4.3% year to date, and even worse over the past 52 weeks, down 0.7%. For a stock that routinely crushed the S&P 500 over the past decade — it’s got a cumulative total return of 1,233%, good enough for 9th place out of the top 20 — it has failed to gain any momentum over the past three years, putting a significant cloud over its long-term performance.
Worse still, given the state of cosmetics sales, it doesn’t look like Ulta’s business is going to get any stronger in 2020. Company CEO Mary Dillon, who I consider one of the best in retail, admitted in the Q3 2019 conference call that makeup was in a “down cycle” and might stay there for some time. Cosmetics account for 51% of the company’s sales, which means a prolonged down cycle won’t help push ULTA stock higher.
What I do know is that the company’s expansion into Canada in 2020 and beyond should help cover up some of the blemishes created by a weakened makeup business.
By this time, 2029, I expect Ulta to make the top 20 list of S&P 500 stocks.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.