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3 Best Stocks to Set You Up for Early Retirement

Motley Fool - Wed Aug 16, 2023

Most investors are just trying to secure a nice, well-funded retirement. And, most people who adhere to sound investing principles will achieve this goal.

The date you reach this goal, however, isn't etched in stone. The more growth you muster between now and then, the sooner you can comfortably retire.

Here's a closer look at three stocks that could help you retire at least a little bit earlier than you might be able to by owning other names. Notice each underlying company is not only adaptable, but also operates in an industry that's perpetually in demand.

1. Amazon

There's no denying Amazon(NASDAQ: AMZN) has cyclical ups and downs. Its e-commerce operations actually swung to a loss last year, for instance, unable to completely pass along its own higher expenses to its customers. Its cloud computing business's profit margin rates were also pinched, even if Amazon Web Services remained profitable.

AMZN Revenue (Quarterly) Chart

AMZN Revenue (Quarterly) data by YCharts

Take a step back and look at the bigger picture, though. Amazon Web Services is still the world's biggest cloud computing service provider, and Amazon.com is still the undisputed king of e-commerce in North America and Europe. That's not apt to change anytime soon.

But that doesn't mean there's little room left for sustained e-commerce growth. There's a shocking amount of the retail spending that's not yet being done via the web.

The U.S. Census Bureau reports only 15.1% of the first quarter's total retail spending in the United States was done online, jibing with previous quarters' e-commerce share. The remaining 85% is up for grabs by an enterprising company that can convince consumers to skip a trip to the store and visit a website instead.

And that's something Amazon has proven it can increasingly do, by innovating and continually adding value to its platform. As an example, just last month Prime members were also granted one year of free access to Grubhub+ and earlier this month the company expanded its virtual/telemedicine health clinic to make it available nationwide.

It's not completely clear how -- or even if -- these additional perks will directly bolster Amazon's top and bottom lines; ditto for all the other add-on services the company has introduced in the past and will unveil in the future.

It just doesn't matter. The company continues bringing people into the fold. Once they're in, Amazon will eventually find ways to profitably monetize them.

2. DraftKings

You likely know DraftKings(NASDAQ: DKNG) as a sports-betting brand. It's important, however, to clarify that it's not just a platform allowing sports fans to place wagers on the outcome of a particular game. It's also a fantasy sports platform, allowing enthusiasts to enter "pick 'em" style contests every single day. It might be more accurate to say DraftKings is an immersive lifestyle platform aimed at sports fans looking to enhance their overall experience watching games and following their favorite athletes.

That's an important distinction, too.

While at first blush DraftKings looks a lot like its closest -- and bigger -- competitor FanDuel, DraftKings' products are differentiated from FanDuel's as well as all of their smaller rivals. For instance, the company recently rolled out an in-house/in-game parlay feature.

DraftKings' management team is also making a point of thinking like a customer, asking what challenges need to be addressed before they evolve into full-blown problems. As CEO Jason Robins explained during the second-quarter earnings call: "It's a very complicated product and there are a lot of things that can create customer friction if you're not careful. A big focus for us over the last year and a half has been removing customer friction throughout the journey."

The company's results back the claim up. Last quarter's top line was up 88% year over year, steering the company firmly closer to profitability. The in-game parlay option measurably had a lot do with this growth in revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA).

DKNG Revenue (Quarterly) Chart

DKNG Revenue (Quarterly) data by YCharts

It's just a taste of what awaits, though. With this melding of traditional sports betting and fantasy sports at a time when online sports betting itself is still relatively new, Mordor Intelligence believes the worldwide online sports wagering industry will grow at a pace of more than 11% through 2028. The growth is expected to be greatest in North America, where DraftKings is already a leading name.

3. Adobe

Last but not least, add Adobe(NASDAQ: ADBE) to your list of stocks that could help set you up for an early retirement.

You likely know the company as the name behind namesake PDF (portable document file) tools and computer graphics software Photoshop. It still owns and updates both, in fact.

Adobe is so much more than just Photoshop and Acrobat these days, though. It's a soup-to-nuts solutions provider for computer graphics professionals and enterprises alike.

The first of these platforms is a digital media suite called Experience Cloud. It's aimed at businesses looking to customize every customers' experience with an organization's website. It's also a content management platform, and allows client companies to use customer data in a way that actually drives sales.

Adobe's Creative Cloud platform includes its flagship Photoshop, but much more. Users can also access cloud-based software like illustration tools and animation software, and even tap into the company's stock photo library. Perhaps most notably, Creative Cloud allows subscribers to create and edit all kinds of images using artificial intelligence (AI), putting the well recognized brand name into a fast-growing sliver of the AI market.

And marketability is clearly not a problem. Despite broad economic headwinds, last quarter's revenue grew 13% year over year on a constant-currency basis, driving similar profit growth. Analysts are calling for more of the same for the rest of this year and next year.

The key to this consistency is the way its software is sold.

See, while it's still possible to make a one-time purchase of most of its products, Adobe's customers are increasingly choosing to pay a nominal monthly fee for ongoing cloud-based access to the company's software. The vast majority of the company's sales are now subscription-based, in fact, translating into recurring, predictable revenue Adobe doesn't have to constantly fight to win. Indeed, for most corporate and individual consumers, switching to an alternative suite would prove complicated and time consuming.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe and Amazon.com. The Motley Fool recommends the following options: long January 2024 $420 calls on Adobe and short January 2024 $430 calls on Adobe. The Motley Fool has a disclosure policy.

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