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Passive income is the ultimate goal of most investors. However, getting to the point where we can get income from investments can be a challenge. For example, if I were to have £15,000, I would have to accept that I won’t be able to generate a life-changing income anytime soon.
Instead, it takes time. We also need to make smart and growth-oriented investment decisions. And eventually, we will reach a point where we can move to a dividend-oriented portfolio and earn income.
Picking the winners
If I had only invested in a FTSE 100 tracker over the past ten years, I would have seen my portfolio grow by about 5.4% per year. That is not the basis. This growth rate will turn £15,000 into £25,700 over a 10-year period.
However, a carefully researched portfolio can do much better. For example, Scottish Mortgage Investment Trust it has delivered a growth of 308% in the last decade. The trust has a reputation for successfully picking big winners.
But when I invest in Scottish Mortgage, I prefer to pick most of my investments by hand, picking stocks based on their strength and momentum. I basically look for stocks with attractive price-to-earnings-to-growth (PEG) ratios, strong profit margins, a recent history of exceeding earnings expectations, and share price momentum.
This strategy led me to companies like AppLovin – I’m up over 600% here in one year – Celestica, Nvidia, Rolls-Royceagain Sterling infrastructure. And this is how we can deliver a portfolio that outperforms the market and get our investments moving in the right direction. These are all stocks that I continue to hold.
So, instead of earning 5.4% per year, I can earn more by following a simple stock picking formula. In fact, looking at my daughter’s young ISA – almost a year old – this strategy has delivered 67.4% growth in assets invested.
Even at half this growth rate, I could turn £15,000 into £200,000 in less than ten years, allowing me to generate a life-changing sum – around £16,000 a year – in income.
One to watch
One stock that meets most of my criteria right now is this one United Airlines (NASDAQ: UAL). The stock is up 133% over the past 12 months and still trades at an attractive 8.7 times earnings — representing a 60% discount to the industrial sector.
Going forward, the company is expected to deliver a minimum wage growth of 7.5% annually in the medium term. This could be helped by the Trump presidency with proposed lower corporate taxes and a promise to keep oil prices low – fuel typically represents 25% of operating costs.
The airline also recently posted a regular profit and analysts have widely upgraded their expectations for the current quarter.
Although President Trump’s presidency sees the opening of a Russian airport in the event of an end to the fighting in Ukraine, the President-elect’s domestic policies are widely viewed as inflationary. So, I have some concerns that higher inflation will reduce interest rates, and this will mean less discretionary income for holidays and flights etc.
It’s not a stock I’m getting into, but it’s one that meets the criteria and matches my big winners listed above. For now at least, I’ll be watching.
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