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3 Top Stocks From the Best Performers of the Past 90 Years

Everyone wants to own life-changing stocks like Microsoft (NASDAQ: MSFT) and Apple (NASDAQ: AAPL) from the beginning. But many are not aware of just how powerful owning one of the few stocks that went on to become multibillion-dollar success stories can be for one's portfolio.

In a research paper titled "Do Stocks Outperform Treasury Bills?," Arizona State University finance professor Hendrik Bessembinder found that an incredibly small portion of stocks have done extremely well over time. In fact, 58% of stocks since 1926 have failed to exceed the returns of one-month Treasury bills over their lifetimes. That's a really low bar, given the piddling returns on one-month Treasuries -- which are currently at less than 1%.

Perhaps most interesting, among the 20,000 scenarios used to calculate the results, Bessembinder found that a mere 4% of the stocks in the whole market -- among them ExxonMobil (NYSE: XOM), Apple, General Electric (NYSE: GE), Microsoft, and IBM (NYSE: IBM) -- basically represented all of the net market returns from 1926 through 2015.

Upward-pointing arrows, representing stock-chart movements, are superimposed over a digital rendering of the earth.
Upward-pointing arrows, representing stock-chart movements, are superimposed over a digital rendering of the earth.

Image source: Getty Images.

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Here are the top five stocks of the 50 that were highlighted as the top stocks of the past 90 years:

Company Name

Lifetime Wealth Creation

% of Total Market Returns*

Annualized Return*

Start Month

ExxonMobil Corp.

$1.002 trillion

2.88%

11.94%

July 1926

Apple Inc.

$745.68 billion

2.14%

16.27%

January 1981

Microsoft Corp.

$629.8 billion

1.81%

25.02%

April 1986

General Electric

$608.1 billion

1.75%

10.67%

July 1926

International Business Machines

$520.24 billion

1.49%

10.07%

July 1926

Data source: Hendrik Bessembinder, "Do Stocks Outperform Treasury Bills?" (Aug. 22, 2017).
*Return data assumes dividend reinvestment.

While this is an academic exercise, it does point to some of the best wealth-creating enterprises in the history of the stock market. Take ExxonMobil for example. ExxonMobil, for those that don't know its history, is just a mere part of what was once John D. Rockefeller's Standard Oil -- a company that once controlled over 90% of the United States oil refining market. Bessembinder found that since July 1926, ExxonMobil and its predecessor companies were responsible for 2.88% of ALL stock market returns.

Naturally, today's investors aren't concerned with the past. Which companies are most likely to produce solid returns in the future is far more useful. So, while the companies listed above have bested practically every stock that has ever existed in American history, here are a few from the list of 50 that could be here 90 years from now.

An Apple that takes a bite out of the market's historic returns

It should come as no surprise that Apple found its way toward the top of the list. What's notable about Apple and fellow tech giant Microsoft is how far they've come in so little time -- they're some of the youngest members on the list. Famously founded in a garage by Steve Jobs and Steve Wozniak in the 1970s, Apple went on to change the world, first as a computer maker and then as a full-blown consumer-electronics behemoth.

Its top products today include the iPhone, iPad, Mac, Apple Watch, and Apple TV -- all of which run on the company's software and link up to the company's iCloud product. Apple is even getting involved with mobile payments, though Apple Pay.

In spite of the huge returns, there's still plenty of excitement around this stock. The iPhone X release, for example, should give profits in the near-term a solid boost. Not only that, but Apple has over $260 billion in cash and cash equivalent investments -- which is a huge sum even compared to Apple's own market capitalization of $794 billion. The stock trades at just 17 times forward EPS estimates, according to S&P; Global Market Intelligence. Those same analysts also expect earnings to continue their upward march, growing 10% per year through fiscal 2020. With such a huge cash hoard and an increasingly inescapable ecosystem, it's little wonder that Warren Buffett recently picked up more than a few shares.

Phoning in profits with Ma Bell

The modern-day successor to the original AT&T (NYSE: T), which came in at No. 17, generating wealth from July 1926 through November 2005, was once known as SBC Communications. SBC bought the rights to the name AT&T, and today's company by that name is one of the world's largest telecom holding companies. It's also the largest in the U.S, with AT&T Wireless serving as its flagship division.

There's good reason to think this stock will reward owners in the years ahead. The company sports a healthy dividend yield of 5%, which is more than covered by the company's ample free cash flow-generating capabilities -- it took in $15.8 billion over the 12 months ended June 30, 2017.

The company is poised to become a modern content and communications conglomerate, fueled by its pending acquisition of Time Warner (NYSE: TWX). With its shares trading at 16.4x this year's estimates as polled by S&P Global Market Intelligence, AT&T will be rewarding shareholders for years to come.

Billions of users (and profits)

One of the youngest members of Bessembinder's list of top stocks is Facebook (NASDAQ: FB), which came in at No. 28, generating over $181 billion of wealth for its owners since June 2012. Investors should give Facebook a close look because its dominance in social media shows no signs of stopping. The company saw its Q2 revenue leap to $9.3 billion, up 45% year over year -- aided by mobile ad revenue, which made up 87% of the total. The bottom line looked even better, with net income surging 71% to $3.89 billion over the prior-year quarter.

Perhaps most importantly, Facebook's total monthly active users surpassed the 2 billion milestone during the quarter, and the company has other properties like Instagram, Messenger, and WhatsApp with massive users bases too.

Facebook's stock trades for just under 32x this year's estimated earnings, fair given that analysts estimate EPS will grow at a healthy 23.7% per year through FY 2021.

Foolish final thoughts

There are lots of ways to define a top-performing stock. Some studies include dividends, and some try to handicap what might have been had you simply held on to broad indexes. But no matter how things look in hindsight, investing is a game that concerns the future.

If there are two things we can take away from Bessembinder's work, it's that wealth is generated by 1) identifying great companies and 2) holding them for long periods of time.

More From The Motley Fool

Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool’s board of directors. LinkedIn is owned by Microsoft. Sean O'Reilly has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple and Facebook. The Motley Fool owns shares of ExxonMobil and has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Time Warner. The Motley Fool has a disclosure policy.