If you're wondering what stocks will be incredible performers in the future, I have a method for getting some good ideas: Look backward. Before you tell me that the past is no guarantee of future results, I'll remind you that winners tend to keep on winning and that you should never rely on past performance to make decisions.
When I say to look backward, it's a recommendation for where to find inspiration and choose from the vast market full of stocks, from bright and growing to total dud. Once you've shrunk your pool, you can do your due diligence and determine whether said stock still has what it takes to outperform going forward.
With that in mind, I'll tell you why I think perennial market-beaters Visa (V +0.71%) and Progressive (PGR 0.35%) could be two of the best value stocks over the next few years.
1. Visa: It powers the economy
Visa is one of the companies most directly connected to the state of the economy. It's the largest credit card processing network in the world, with more than $15 trillion in trailing-12-month processing volume. As more people use its network to process payments, it gains an even bigger place in the global economy. It's also been developing its alternative payment types, tapping into an even larger market.
Visa's performance usually mirrors the economy, and economic challenges typically slow it down. However, it's been quite resilient despite high inflation. That's partially because it's still rebounding from pandemic declines.
As a global company, it's susceptible to more factors than the standard U.S.-based company. Cross-border payments are still picking up as people return to intra-country travel, driving higher payment volume and revenue.
NYSE: V
Key Data Points
In the 2024 fiscal first quarter (ended Dec. 31), revenue increased 9% year over year. Profitability was extremely strong, with adjusted earnings per share (EPS) of $2.41, a 20% year-over-year increase and well ahead of Wall Street's expectations. With its asset-light model, Visa enjoys unusually high profit margins, 54% in the first quarter, and it's flush with cash.
It uses that money to acquire companies and build out its business, staying innovative and competitive and padding its moat. It's not surprising that Visa is a Buffett stock, and there's every reason to envision Visa continuing to grow and outperform the market for the foreseeable future.
2. Progressive: The boring insurance giant
Insurance doesn't make a lot of waves in the market unless it's one of the newer disruptive insurance technology companies. But you should cross the word "exciting" off your perfect-stock description list. Insurance companies have reliable, recurring revenue streams, are stable and established (the non-digital kind, at least), and produce high profits. Unsurprisingly, it's Warren Buffett's favorite industry, and Berkshire Hathaway owns several insurance companies.
NYSE: PGR
Key Data Points
Despite the preponderance of newer rivals, Progressive continues to attract new customers and generate higher sales and profits. Not only is it growing in the current environment ahead of industry averages, but it has also done so over the past five- and 10-year periods. Further, it has industry-leading combined ratios and underwriting margins.
The combined ratio was impacted early last year by inflation, the lag for regulatory approval, and extreme weather conditions that impacted the entire insurance industry. But Progressive ended 2023 with a combined ratio of 88.7%, 5.2 points lower than last year's fourth quarter. Also, in the fourth quarter, earned premiums jumped 22% year over year, and net income soared 140%.
Progressive stock has absolutely crushed the market over pretty much every time period. As it continues to operate a stellar insurance model, it's likely to keep beating the market and offer value creation for shareholders.
