KEY POINTS

  • The luxury sector of Hermès is resilient to macro headwinds.
  • Costco’s warehouse club system is well-protected from inflation.
  • During a recession, Dollar General should have no problems.

It has been a difficult year to find stocks to beat the market, as many equities tumbled. In addition, inflation, rising interest rates, and other macro headwinds drove investors toward more conservative holdings. As a result, it’s been tough to locate equities that can consistently outperform the S&P 500 (^GSPC) and deliver positive returns.

However, if we travel further back in time ten years, several well-known firms that have repeatedly outperformed the market may still do so over the next decade. Let’s take a look at three businesses that meet this description: Hermés International (OTC:HESAY), Costco Wholesale (NASDAQ:COST), and Dollar General (NYSE:DG).

Hermès International

Hermes is both a growth opportunity and a recession-proof investment. Between 2011 and 2021, the revenue of the French luxury house rose from 2.84 billion euros to 8.98 billion euros, with a compound annual growth rate (CAGR) of 12% over that period. Its net income increased at a CAGR of 15%, from 594 million euros to 2.45 billion euros ($2.48 billion).

Even amid a global recession, Hermès has continued to grow because it mostly appeals to well-heeled customers who are well-protected from economic downturns. It also makes most of its items at small workshops in France rather than mass-producing them overseas. With a feeling of brand-building craftsmanship and scarcity, it protects it from supply chain disruptions and adds to its luxury allure by making products locally.

Over the previous decade, Hermès’ stock rose by almost 300%, while the S&P 500 increased by approximately 190%. In this scenario, Hermès’ stock will continue to be valued at a premium even if a recession starts. That’s because its core customers will continue to buy its costly leather goods, accessories, watches, perfume, and beauty products. All fo these criteria make Hermès on of the stocks to beat the market.

Costco Wholesale

Costco is another evergreen stock with long-term growth and plenty of downside protection in a recession. Costco’s strategy is straightforward: It sells cheaper goods in quantity, keeps its clients with sticky annual subscriptions, and continues to open new shops in the United States and abroad.

Costco’s revenue rose from $87.1 billion to $192.1 billion between fiscal 2011 and 2021, an increase of 8% CAGR. Its net income, made primarily of higher-margin member fees, grew at a 13% clip, from $1.46 billion to $5.01 billion over the same period.

Costco’s newest quarter ended with 830 warehouse branches worldwide, compared to 592 at the end of fiscal 2011, making it one of the few companies growing its brick-and-mortar presence over the last decade while other businesses have closed stores to save money.

Costco thrived during the pandemic as consumers stockpiled more prepackaged meals and house goods. As inflation drives customers to purchase larger volumes of products, Costco will most certainly remain a top destination for shopping. Costco’s stock has increased by 430% over the previous decade, but it is not inexpensive at 34 times forward earnings. Despite that, Costco will likely be one of the stocks to beat the market for years to come.

Dollar General

Dollar General is a major “dollar store” chain in the United States. It no longer sells everything for a dollar. However, it sells most of its items at reduced rates than Amazon (NASDAQ:AMZN) or Walmart (NYSE:WMT). In addition, Dollar General focuses on rural areas underserved by larger businesses, unlike rival Dollar Tree (NASDAQ:DLTR), which specializes in rural and suburban regions.

Dollar General’s revenue has increased at a 9% CAGR from $14.8 billion in 2011 to $34.2 billion in 2021, and the company’s business model is straightforward. Net income rose by 12%, from $767 million to $2.4 billion during this period.

Dollar General, like Costco, kept opening new stores as other brick-and-mortar businesses shrank. As a result, its fourth quarter had 18,356 shops in the US, up from 9,937 at the end of 2011.

Dollar General is also well-protected from macro headwinds, as it caters to budget-conscious customers during economic downturns. That’s why its stock has outpaced the market by over 430% over the last ten years. The share price is around 21 times forward earnings, and there may still be plenty of room to run in both bear and bull markets ahead.

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