5 of the Most Profitable Companies to Buy
The most profitable companies aren’t necessarily the ones that have the highest market cap. That means you don’t have to focus on names like Amazon (NASDAQ:AMZN) or Netflix (NASDAQ:NFLX). Not that these two companies don’t have value, but for this piece we’re looking straight at the bottom line.
That also takes big revenue generators like General Motors (NYSE:GM), Exxon Mobil (NYSE:XOM) and Walmart (NYSE:WMT) out of the picture as well.
There are several ways to look for the country’s most profitable companies. We could do so by seeing which companies have the largest net incomes. We could also do it by looking at which companies have the best profit margins — those that don’t make the most money, but are the most efficient.
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For today, we’re going to look at the big players in the market, the ones with the largest net income.
So who dominates the bottom line? Let’s see.
Most Profitable Companies: Apple (AAPL)
Let’s start with the big daddy, Apple (NASDAQ:AAPL). The tech giant looked like it would easily become the first company with a $1 trillion market cap. However, with Amazon and Alphabet quickly catching up, that task is no longer a layup.
In either regard, Apple has found a way to grow its massive bottom line. In 2017, Apple pushed out almost $50 billion in net income.
With its suite of high-end products and the recent increase in iPhone prices, Apple is finding little difficulty in growing its bottom-line results. But to maintain its position as one of the most profitable companies, it needs to do more than raise prices.
That’s where Apple’s Services segment comes in. With strong double-digit revenue growth and massive margins, this small but growing segment is only helping to pad Apple’s profits.
It has gotten to the point where the only thing Apple really wants to use its substantial pile of cash on is itself. It has recently announced $100 billion buyback is enormous, and one reason Warren Buffett has made it his largest position.
Speaking of Warren Buffett …
Most Profitable Companies: Berkshire Hathaway (BRK.A, BRK.B)
For lack of a better description, Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) is the portfolio of famed investor Warren Buffett. Ranging from his private takeovers like Burlington Northern or Precision Castparts to his public equity stakes, investors get a glimpse into one of the world’s most heralded investors.
Sure, Buffett can buy huge swaths of airline stocks like Delta Air Lines (NYSE:DAL) and United Continental (NYSE:UAL), but he can also get deals that other people can’t. Take the banks for instance. When the Great Recession hit about a decade ago, a number of banks were facing a severe liquidity crunch. Banks were losing big time and we saw a number of them go under.
In comes Warren Buffett though, the so-called white knight, to save the financials. He arranged excellent deals, loaded with warrants and preferred stock. Once Buffett knew that the banks were merely illiquid and not insolvent — a lesson taught by J.P. Morgan — all he had to do was wait a few years for the recovery.
Since then, banks have exploded in value and so has Berkshire, which reeled in $44.9 billion in net income in fiscal 2017.
Most Profitable Companies: The Banks
Speaking of the banks, the Oracle of Omaha’s move to help save them has paid off in spades. In 2017, JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC) and Bank of America (NYSE:BAC) were some of the most profitable outfits in the country.
JPM hauled in $24.2 billion last year, Wells Fargo took in $22.1 billion and BAC earned $18.2 billion. And guess what? All of those figures are heading substantially higher in 2018. No, they won’t knock off Apple, but that doesn’t mean we should ignore them.
The banks are quite attractive for a number of reasons. For starters, they all have low valuations, below that of the S&P 500. They also have index-topping growth, with each expected to grow earnings by double digits this year and next year. While WFC and JPM each pay out close to 3% in dividend yields, BAC comes with a decent 2% yield. Given BAC has the best growth though, it certainly shouldn’t be ignored.
Our recent trade outline on JPM and BAC had investors buying at a favorable time, and the upside shouldn’t be done yet. As rates head higher and the economy continues to gain momentum, don’t bet against the banks. Just make sure the yield curve doesn’t invert.
Most Profitable Companies: Alphabet (GOOG, GOOGL)
Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) is hard to include on the list, because of the fines the company continues to rack up. In any regard though, Alphabet has become one of the market’s more profitable entities.
In 2016, it earned $19.5 billion, a figure that slumped to just $12.6 billion last year. To date, the company’s 2018 net income has already swelled to roughly that mark and we’re only two quarters into GOOGL’s fiscal year.
In other words, Alphabet will be one of 2018’s top earners.
The company is generating massive revenue — it’s one of the few companies that can sport a market cap in excess of $800 billion while continuing to grow its revenue at more than 20%. Analysts expect earnings and revenue to each grow about 24% this year and roughly 20% in 2019. All the while GOOGL stock trades at a somewhat reasonable 30 times this year’s earnings.
It was recently announced that Alphabet’s Drive platform is at roughly 1 billion users. In the billion-user club, Drive joins Gmail, Maps, Chrome and Android, the last of which is in the two-billion-user club. In other words, it shows just how sticky of a platform Google has created.
Its rollout of Waymo has some analysts valuing the self-driving unit at up to $180 billion over the long term and oh yeah, don’t forget about YouTube.
There are a lot of reasons to be optimistic about Alphabet for the foreseeable future.
Most Profitable Companies: Microsoft (MSFT)
Like Alphabet, Microsoft (NASDAQ:MSFT) is a name that has its net income bounce around. But because the company has consistent growth and is a juggernaut with the cloud, it’s not one we should leave out.
GAAP accounting knocked the company’s net income down to $16.5 billion, down from the $21.2 billion in earned in the prior year. If the company’s latest earnings report is any indication though, then things are going just fine.
That’s unlike what investors were saying about Netflix last week and its subscriber issues or what Facebook (NASDAQ:FB) investors are now saying about the social media’s financials. Instead, MSFT continues to churn out strong growth, as its products tie in nicely together and cloud growth continues to impress.
It shows that the cloud is still in its early stages and has plenty of potential moving forward, while analysts expect double-digit growth in earnings and revenue this year and next year. So long as MSFT doesn’t disappoint, it’s hard for investors to rid their portfolio of the name.
So the basis of the most profitable companies? Tech and big banks rule the show. Investors would be wise to at least considering owning a few of these names and perhaps adding a more diversified name to their holdings in Berkshire Hathaway.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long AAPL, BAC, JPM and GM.
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