Let's get this out of the way right up front: I don't think there is any stock that you can buy and simply ignore for decades. The pace of technological innovation, changing consumer habits, and demographic shifts all make this virtually impossible.
That said, there are companies with advantages making them likely not only to still be in your portfolio in your golden years, but also to continue to produce market-beating returns. Finding them can be tough but not impossible.
Some of the more promising places to look are companies that have a decided advantage in a high-growth area, pioneers in an emerging industry, or those paving the way in a cutting-edge technology. Companies that meet those criteria are Amazon.com (AMZN 0.87%), Netflix (NFLX +1.15%), and Alphabet (GOOGL 0.42%) (GOOG 0.58%).
Image source: Getty Images.
The everything store
There's little doubt that how the world shops is changing. In the first quarter of 2018, online sales in the U.S. had grown to 9.3% of total retail, up from just 3.5% a decade earlier. Worldwide statistics are even more compelling, with e-commerce accounting for 10.2% of total retail sales last year, up from just 8.6% in 2016. The growing adoption of mobile commerce around the globe will continue to drive that figure higher, and one company is best positioned to reap the rewards: Amazon.
Growing from humble beginnings as an online bookseller, the company has been touted as the "everything store," where consumers go to find products they can't find elsewhere. Amazon dominates e-commerce in the U.S., grabbing an estimated 44% of all online sales and 4% of total retail last year. The company has been expanding its international operations at a breakneck pace, in an effort to duplicate its domestic success worldwide.
Aside from its massive scale, the company has compelling advantages that make it difficult for others to compete. Amazon Prime provides members with streaming video and music, e-books, free shipping, and a host of other benefits for $119 per year. For many, the free shipping alone is worth the cost of membership; there are more than 100 million Prime members and counting. Many increase the number of purchases they make to be sure to get their money's worth.
Image source: Amazon.com.
The company also benefits from the continuing dominance of Amazon Web Services (AWS), its cloud computing service. AWS, the undisputed leader in the industry it pioneered, generated nearly 10% of Amazon's sales last year and all of its operating income. This allowed the company to subsidize its international expansion.
Its clear leads in two high-growth areas make Amazon a stock to hold for decades.
Changing consumer behavior
It was only a decade ago that families still gathered around the television on a specified day and time to watch their favorite show, but those days are winding down. The introduction of streaming video gave consumers more freedom, which they welcomed with open arms.
Netflix pioneered the concept of streaming, even cannibalizing its DVD-by-mail service in the process. The company gained an initial advantage by ensuring that consumers could stream programs on TVs, Blu-ray players, game consoles, and a host of other devices.
The company's early success invited competition, and the cost of content began to rise. Netflix pivoted its strategy and began to produce its own programming, using years of data and AI (artificial intelligence) algorithms to inform its choices. That decision led to hit shows like House of Cards and Orange Is the New Black. But Netflix didn't stop there, realizing that owning its programs would cost even less on a per-subscriber basis. The company plans to spend up to $8 billion this year on content as its subscriber ranks swell.
Image source: Netflix.
After perfecting its model in the U.S., the company expanded its service to over 190 countries around the globe. This has led to growing adoption of streaming worldwide, and Netflix's international subscribers have overtaken its domestic customers. The company now boasts 125 million members, with more joining every quarter. Some analysts suggest that massive international growth could triple Netflix's subscriber base by 2030. The company's surging subscriber base is supporting growing contribution margin and operating profits.
Some investors have given Netflix a pass because of the company's increasing negative cash flow, but that could soon reach a tipping point. The combination of steady subscriber growth, pricing power, and owned programming has some believing the company will be cash flow positive by 2022.
As the clear leader in the emerging industry of streaming, Netflix could be a solid investment for the next 50 years.
The search for AI continues
Make no mistake: Alphabet made its fortunes on the back of Google's search leadership -- and the company still controls an estimated 90% of the worldwide search market. This sheer dominance has made the company one of the leaders in online advertising, with an estimated 39% of the digital ad market in the U.S. last year. It also provided Alphabet with plenty of cash to invest in emerging technologies, the largest of which is artificial intelligence.
One of the most visible demonstrations of Google's AI investment is its self-driving-car spin-off Waymo. The company has driven more than 6 million miles on public roads, and more than 2.7 billion simulated miles last year alone.
The company's "early rider program" debuted in Phoenix early last year, testing a fleet of more than 600 autonomous vehicles, and shuttling consumers to school, work, and soccer games. Just this month, Waymo revealed that its self-driving ride-hailing service would be launching in Phoenix later this year, making it one of the first companies to generate revenue from autonomous vehicles.
Image source: Waymo.
Google has made a number of noteworthy breakthroughs in the field of AI. A partnership with NASA helped discover unidentified planets in a distant solar system. Researchers at Alphabet's life sciences division Verily used Google's AI to help assemble a more complete human genome, and scanned images of the retina to detect heart disease. The technology even bested human pathologists at detecting cancer.
The most compelling use of Google's algorithms is to help maintain its dominance in search and advertising. The company has long used AI to improve the relevance of its search results, but it also uses the technology to boost advertising revenue by placing the right ads in front of the right consumers. The company developed a system that could more accurately predict the click-through rate, where even small improvements can result in huge revenue gains.
As one of the leaders in the cutting-edge technology of AI, Alphabet is a prime candidate to hold for the next five decades.
Final thoughts
As the old saying goes, "Nothing is certain in life but death and taxes." Even so, each of these companies sits at the start of a growing trend that will likely continue for decades. Owning shares in the leaders in e-commerce, streaming video, and artificial intelligence can be a great way to increase your odds of success.
