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All Contents © 2017The Kiplinger Washington Editors
By Dan Burrows, Contributing Writer
| June 2017
The investing habits of the rich aren't all that different from the investing habits of the rest of us. Sure, millionaires have the means to access exotic investments -- and some certainly do -- but it turns out the favorite place to put their money to work is a familiar one: the U.S. stock market. When Tiger 21, a private investing club, surveyed its high-net-worth members in 2016, publicly traded stocks topped the list of favored investments. Real estate came in second, followed by private equity and hedge funds. Fixed income rounded out the top five.
In particular, members of Tiger 21, who must have at least $10 million in investable assets to join, prefer stocks in the financial, technology and energy sectors. Looking ahead, members see the most growth opportunity over the next three years in the tech sector. Wondering which stocks Tiger 21's members like the most? Wonder no more. Here are the five favorite stocks of millionaire investors.
Securities are listed alphabetically. Prices and other data are as of June 1, unless otherwise indicated.
Share price: $988.29
52-week range: $672.66-$999.60
Alphabet is the parent company of Google, the world's largest search engine, and its outsized growth potential makes its stock a strong long-term bet. Alphabet is set for increased earnings of 25% this year and 18% next year, according to a survey of analysts by Thomson Reuters. That's much greater than the benchmark Standard & Poor's 500-stock index, which is projected to increase earnings by 10% in 2017 and 12% next year, according to data from FactSet. The relentless growth in digital advertising, especially for mobile devices, is driving much of the momentum. The company also has a large and expanding cloud computing business, which is another industry enjoying rapid growth.
Share price: $995.95
52-week range: $682.12-$1,003.79
Amazon is forecast to record earnings growth of 40% this year and an astonishing 71% next year, according to a survey of analysts by Zacks. Amazon's profits are driven primarily by the strength of its two main businesses: online retailing and cloud-based computing services sold to corporate customers. None other than billionaire investor Warren Buffett of Berkshire Hathaway ( BRK.B) fame is in awe of Amazon CEO Jeff Bezos and his ability to make the company thrive in such dissimilar industries at the same time. "I've never seen a guy succeed in two businesses almost simultaneously that are really quite divergent in terms of customers and all the operations," Buffett said recently in a CNBC interview.
Share price: $153.18
52-week range: $91.50-$156.65
The runaway success of the iPhone has turned Apple into a cash-printing machine. As of the quarter ended April 1, the company had $257 billion in cash and securities on its balance sheet. True, much of that cash is held overseas, but the Trump administration is talking about cutting taxes on repatriated earnings. Regardless, Apple is adding to its cash pile so fast that it can remain committed to its policy of high dividend growth, which has run at 10% annually over the past three years, according to Dividend.com. The S&P 500, by comparison, has seen its dividend growth rate fall to 6% from 13% over the same span. Apple's dividend currently yields 1.6%. Analysts expect Apple to generate annualized earnings growth of 10% over the next five years, according to Zacks.
Share price: $70.10
52-week range: $48.04-$70.88
Like Alphabet and Amazon, Microsoft is benefiting from the rise of cloud computing. An increasing number of customers now pay a recurring subscription fee to access its software via the cloud rather than purchasing it outright. It's a hot area of growth that is only expected to accelerate. Analysts say the rapid adoption of the company's Azure and Office 365 offerings should make those business segments more profitable over time. Azure is Microsoft's cloud-computing platform, and Office 365 is the subscription version of its popular Office applications. The key is that cloud-based services can have higher profit margins than traditional licensed software. Analysts figure that should allow Microsoft to deliver annualized profit growth of 8% for the next half decade. And at 2.2%, Microsoft delivers an above-average dividend yield. The yield on the S&P 500 is currently 2.0%.
Share price: $223.40
52-week range: $182.27-$223.77
Technically, the fifth and final favorite stock of millionaires isn't a stock at all. Rather, it's an exchange-traded fund that owns the stocks of 500 of the biggest and brightest publicly listed U.S. companies. The Vanguard S&P 500 ETF offers a convenient way to mimic the returns of the benchmark index, which represents about 80% on the value of the entire U.S. stock market, without buying each component stock individually. Not only is investing in the ETF easy -- it trades throughout the day on an exchange just like a stock -- it's also cheap. The Vanguard S&P 500 ETF's expense ratio of 0.04% equates to a charge of just $4 on every $10,000 invested. The millionaire investors surveyed by Tiger 21 also like the SPDR S&P 500 ETF (SPY), which is virtually identical to the Vanguard S&P 500 ETF with one notable exception: A 0.09% expense ratio means the SPDR ETF costs $9 for every $10,000 invested. Hey, even millionaires like to save money when they can.
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