Many investors believe that buying high-growth, speculative companies is the only way to achieve excellent long-term returns. While that view has some validity, it also takes an investor who can tolerate the volatility that comes with owning fledgling, disruptive companies.
But there are also stable companies with stable revenues and improvements in free cash flow that have proven to be worth investing in. These unsung heroes suppress stock price volatility by generating consistently high returns, helping you sleep better at night and stay invested. Both Apple (AAPL -1.51%) and Veeva Systems (VEEV -2.31%) fit this latter description, and each has outperformed the Nasdaq composite index so far this year and also beat the index every year since 2014.
Let’s take a closer look at these two solid technology stocks with relatively low volatility and see if they’re worth considering for your portfolio.
Apple is down just 2.5% so far in 2022, outperforming most indices. That’s because Apple is one of the largest companies in the world with one of the most powerful brand names. By some estimates, Apple’s share of the U.S. smartphone market is as high as 50%, with no competitor coming close to Apple’s dominance. This allows the business to thrive in any environment.
AAPL data by YCharts
Even now, Apple continues to publish robust results. In the company’s third fiscal quarter (ending June 25, 2022), revenue reached a Q3 record $83 billion, up 2% year over year. While that may not be the most impressive growth rate, in an environment where demand for discretionary goods (like expensive phones or computers) is falling dramatically, it shows that Apple’s brand reputation still holds up.
However, Apple also has some opportunities ahead that could help this company expand and deliver strong returns for shareholders in the long run. Apple is rumored to be moving into augmented reality (AR) and virtual reality (VR) in the coming years, with products potentially coming in 2023 and 2025. The company has hundreds of people working on AR and VR, showing that Apple serious about succeeding in this emerging industry.
Considering the combined AR, VR, and mixed-reality spaces could be worth more than $250 billion by 2028, Apple could see significant growth if it can capture some of this emerging industry. Importantly, Apple has generated more than $107.5 billion in free cash flow and nearly $100 billion in net income in the past 12 months, which may help fuel its success in this emerging space.
Apple has the right combination of business stability and speculation, which can result in attractive long-term returns for shareholders. Therefore, owning Apple may help some investors sleep better at night.
2. Veeva Systems
Veeva is much smaller than Apple, but has delivered the same stock price solidity so far this year, with the stock down just 13.9% so far, beating the Nasdaq.
^IXIC data by YCharts
Most investors may not know Veeva as well as Apple because Veeva provides cloud-based tools for life sciences companies. The company is the leader in the space, helping life sciences companies improve the efficiency of everything from drug testing to marketing, all while maintaining regulatory compliance.
Veeva’s tools are critical to its clients’ operations, which is why the company has reported stable results this year, despite the challenging macroeconomic environment. Revenue in the company’s first fiscal quarter (ending April 30, 2022) grew 16% year over year to $505 million. It also expects revenue of $2.17 billion for the full fiscal year – a steady growth of 17% compared to the same period a year ago. This is an indication of the company’s criticality and shows that Veeva expects further adoption even as company budgets tighten.
Veeva also believes it has a $13 billion industry ahead of it, leaving plenty of room to thrive. As the best dog with a must-have product package, Veeva looks poised to be the primary beneficiary of this immense potential. Importantly, it has the cash flow to invest to capture this. Veeva has a free cash flow margin of 40% over a 12-month period, so it generates – and will likely continue to generate – tons of cash to make the most of this opportunity.
Stocks are expensive with 50 times free cash flow, but if you’re looking for high-quality companies with the right balance of stability and potential, there’s not much better than Veeva. Therefore, you might consider paying a premium for this top company.
Jamie Louko has positions in Apple and Veeva Systems. The Motley Fool holds positions in and recommends Apple and Veeva Systems. The Motley Fool recommends the following options: Call $120 long on Apple in March 2023 and call $130 on Apple short in March 2023. The Motley Fool has a disclosure policy.