You don’t have to be a daredevil to score big gains in the stock market. Sure, high-risk, high-reward plays can supercharge your portfolio if you nail the timing just right on these plays. But for investors who prefer to keep their blood pressure in check, there’s an underrated strategy that lets you have your cake and eat it too.
I’m talking about buying into low-beta, high-reward stocks. These companies are essentially the best of both worlds. They provide plenty of long-term upside potential, but also are limited in terms of their downside risk. With low-beta stocks, the heavy lifting is already done by the company’s solid fundamentals. You can kick back and let compounding work its magic year after year.
Of course, you’ll still want to keep some truly low-risk ballast like bonds or cash in your portfolio for balance. But why resign yourself to low single-digit returns across the board? By sprinkling in a few of these low-beta growth darlings, you can have your portfolio deliver much higher returns over the long-run.
Berkshire Hathaway (BRK-A, BRK-B)
Frankly, Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) is one of the most obvious picks if you’re hunting for a compounder with muted downside risk compared to the broader market, alongside the potential to deliver market-thumping returns over the long-haul. This conglomerate has both an impeccable reputation and a stellar historical track record of execution. These are two essential ingredients for keeping a stock afloat during periods of turbulence, while allowing a given stock to soar when tailwinds are blowing.
What’s not to love about Berkshire? The company has the flexibility to nimbly reallocate capital as trends and opportunities shift. Rigid index funds lack that maneuverability. Moreover, Berkshire is invested in a bevy of stalwart blue chips with incredible staying power – companies that will still be thriving decades from now.
Its largest holding, Apple (NASDAQ:AAPL), has admittedly come under fire recently for missing the AI train. But recent leaks point to the tech titan working on a robust on-device AI solution for Siri that could deliver solid performance. And let’s not forget that Apple continues to beat Wall Street’s expectations and remains a fan favorite among Gen Z. The company’s hardware products, which include iPhones and Macs continues to see impressive growth. And Apple’s software ecosystem is still gaining market share hand over fist.
But Apple is just the tip of the iceberg for Berkshire’s portfolio. The company also owns BNSF Railway, a railroad operator that would command a king’s ransom if it were a publicly-traded entity on its own. With such an incredible mix of cash-gushing businesses powered by the investment prowess of the Oracle of Omaha himself, it’s no wonder Berkshire has so consistently beaten the market.
O’Reilly (ORLY)
O’Reilly (NASDAQ:ORLY) is an automotive parts retailer, and I’ve been pounding the table on the auto parts sector for a while now. Why? Well, the civilian vehicle fleet has been aging at a rapid clip. The average car on the road is already a staggering 13.7 years old in 2024, and that number will likely only continue climbing.
High interest rates are dissuading consumers from making big-ticket purchases that come with hefty monthly payments. That dynamic bodes very well for companies like O’Reilly, since folks are more inclined to repair and maintain their existing vehicles rather than buy new ones.
O’Reilly’s financials back up this bullish thesis too. Analysts see O’Reilly’s earnings per share rocketing from around $42 in 2024 to $111 by 2033. Revenues are projected to swell from $17 billion to $27 billion over that same stretch. With growth like that, I’d argue the stock has a lot more gas left in the tank to continue delivering stellar market-beating returns.
Don’t just take my word for it though. O’Reilly has an impressive historical track record, having compounded shareholder wealth by 179% over the past five years. For a mature company operating in the decidedly un-sexy auto parts sector, that’s an astounding feat.
Brown & Brown (BRO)
Brown & Brown (NYSE:BRO) is an insurance broker experiencing robust growth thanks to a potent one-two punch of rising rates and an aggressive acquisition strategy. On the pricing front, the company has been able to capitalize on firming insurance premiums. That has been a boon for its business, since Brown & Brown receives commissions based on the policies its clients purchase.
Plus, Brown & Brown has been actively strengthening its core business and expanding its international footprint through strategic M&A. The company’s acquisitions have allowed it to widen its moat and provide more services to its clientele base consisting mainly of small businesses.
A recent peek under the hood reveals just how well this growth strategy is paying off. Brown & Brown’s organic revenue growth remains in the double-digits. Meanwhile, the company’s balance sheet is solid, with ample capital to fuel future growth.
Brown & Brown’s revenues tend to be remarkably steady, since clients need to maintain coverage through thick and thin. That quality makes it one of the low-beta, high-reward stocks that can garner market-beating returns.
On the date of publication, Omor Ibne Ehsan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.