There’s no question technology stocks are exhilarating. Last year, the ETF tracking the Nasdaq 100—the QQQ—soared 54.8%. But there’s a dark side to all that potential upside: Tech stocks are notoriously volatile. The QQQ in 2022 fell a dizzying 32.6%, far more than the market as a whole. Which got us thinking—after a year in which tech was the story, what other stocks might have gotten overlooked? Below, we found five steady bets that each enjoyed double-digit returns over the past decade, which speaks to their staying power, a characteristic that Wall Street seers call “quality.” And they’re still poised to deliver tech-like returns, while rounding out a broader portfolio.
CME Group (CME)
10-year annualized price rise: 12.6%
Market cap: $72 billion
The world’s largest derivatives exchange operator, CME Group, stands apart from the largely plodding share performance of its financial services peers. Its stock vaulted 31% last year, yet its price/earnings ratio, at 24, is still not much more expensive than the S&P 500 (with a price/earnings ratio of 21), and far cheaper than the QQQ (32).
CME’s outperformance doesn’t surprise Max Wasserman, cofounder and senior portfolio manager at asset management firm Miramar Capital. Reason: It has great growth potential. “They are very profitable,” he says, “and they have more volume in the works.”
Indeed, derivatives keep expanding in scope, adding futures and options on all manner of assets, from commodities to currencies to stocks to interest rates, per the World Federation of Exchanges. In dollar terms, derivatives enjoy double-digit annual growth.
Globally, the derivatives market is about seven times the size of the equities market. The recent boost in interest rates actually helped CME, because that increases the need for interest rate hedges, via derivatives.
CME (originally named the Chicago Mercantile Exchange) has gobbled up rivals like the Chicago Board of Trade as it pushed beyond futures for crops and livestock. As Morningstar analyst Michael Miller writes, CME “has assembled a diverse set of derivative products … Weakness in one product is often offset by strength in another.”
Nike (NKE)
10-year annualized price rise: 11%
Market cap: $155 billion
A temporary stumble on the track obscures the strength of Nike. It has had to work down bloated inventory, endure a sales slowdown in its important Chinese market, and beat back competition from upstarts like Hoka. The stock is off its 2021 high of $180, and took a new tumble starting in December after Nike tamped down sales expectations.
Still, the company, ranked as the world’s most valuable brand by consulting firm Brand Finance, hasn’t lost its cachet. Nike is embarking on $2 billion in cost cuts over three years, as well as a plan to hike its use of technology and automation to streamline operations.
“This is a turnaround story, and Nike has to take its medicine,” says Jay Woods, chief global strategist at Freedom Capital Markets. Nike is focusing on direct-to-consumer sales, hoping to increase this profitable channel from 45% up to 60% of revenue. Nike wants to return its earnings before interest, taxes, depreciation, and amortization (Ebitda) margin, lately 13.2%, to the mid-teens, where it was in 2021. And there’s good reason to believe that Nike can, you guessed it, just do it.
Visa (V)
10-year annualized price rise: 19.4%
Market cap: $533 billion
Visa introduced the world to the credit card in 1956—and has fended off competitors fiercely ever since. “A wide moat surrounds the business, and Visa’s position in the global electronic payment infrastructure is essentially unassailable,” writes Morningstar analyst Brett Horn. Small wonder that the stock has done well: Over 10 years, it beat the QQQ, and increased 26.2% in 2023. In snakebitten 2022, the stock lost just 3.4%. For the fiscal year ended last Sept. 30, Visa’s earnings jumped 15% and revenue was up 11%. In a shareholder-friendly move, during the past fiscal year, it bought back $12.4 billion in stock, and the board authorized more repurchases at double that amount. The company’s profit margin is a stunning 55%.
Visa has the most credit cards in circulation, with almost half the market, according to Bankrate. Mastercard comes in second at 36%, leaving Discover and American Express claiming small shares.
Visa’s asset-light business involves licensing its cards to banks. So it has relatively low debt, with a ratio to Ebitda of just 1.0. Return on capital over the past five years is a healthy 29%.
NextEra Energy (NEE)
10-year annualized price rise: 13.4%
Market cap: $127 billion
For decades, electric utilities have been plodders, their stocks edging up in small, single-digit increments. They are typically the lowest performers among the 11 S&P 500 equity sectors.
That’s not the picture of NextEra Energy, which owns utilities—and is the largest renewable-power generator in the U.S. NextEra stock has regularly beaten the S&P 500 index for the past 10 years. “NextEra has been a market darling, and the clear leader on clean energy,” observes Burns McKinney, a senior portfolio manager at NFJ Investment Group.
By 2030, the world will need to quadruple its spending to upgrade aging electricity infrastructure and build new capacity, a McKinsey & Co. study finds.
Electricity-hungry data centers, EVs, and household heat pumps are all thirsty for power. Enter NextEra, whose strong balance sheet and solid profitability are more than able to pay for the transformation to renewables. Dividends are healthy, sporting a 3% yield. Earnings per share have climbed at a rapid clip over the past few years, topping analysts’ forecasts. The company is divided into two parts: one an old-school cash cow making up 70% of the business called Florida Power & Light, the other the renewables unit. FPL has two nuclear power plants and a network of natural gas pipelines, and services a state with a swelling population.
Operating throughout the U.S. and Canada, this non-carbon division is one of the world’s biggest producers of solar and wind power. For forward-looking energy investors, NextEra is well positioned.
Sherwin-Williams (SHW)
10-year annualized price rise: 17.7%
Market cap: $76 billion
“A housing boom is coming, and Sherwin-Williams will piggyback onto it,” predicts Freedom Capital’s Woods.
With rates likely coming down and a growing population, young adults who have been delaying homeownership may get a chance to jump in—and that’s great news for the world’s largest paint and coatings producer. Sherwin-Williams has 4,900 stores and adds nearly 100 new ones yearly, while its products also stock the shelves of big-box stores. More than three-fourths of Sherwin-Williams’s business occurs in North America, with much of its international exposure acquired through the 2016 purchase of Minneapolis-based Valspar.
Sherwin-Williams mainly caters to professional painters. “Its strategic focus on building this segment has created a strong value proposition for contractors,” writes Morningstar analyst Spencer Liberman in a research note. “Job site delivery, in-app ordering, and a capacity for high-volume orders save time for customers and allows for premium product pricing.”
Revenue and earnings have steadily risen. The stock, while on the pricey side with a P/E of 32, gained a market-beating 32.5% in 2023 and has the second-best 10-year price history of our five picks.
With stats like those, investors could be forgiven for overlooking tech stocks in favor of steady favorites this year.
This article appears in the February/March 2024 issue of Fortune.
