What will your portfolio look like in August 2028? When you take an approach to investing that asks such questions, you greatly increase the chances of making wise decisions that can lead to wealth-producing compounding in your nest egg.
While I have faith in all the stocks in my portfolio, five stick out as high-conviction picks for the next five years. All five have demonstrated they can defend their core business, while pursuing profitable ways to further their missions. These five are Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), Intuitive Surgical (NASDAQ:ISRG), Axon Enterprise (NASDAQ:AAXN), and Tencent Holdings (NASDAQOTH:TCEHY)
It's more than just the "Everything Store"
Amazon benefits from two huge advantages that I believe will make it relevant for decades to come. The first is the company's network of fulfillment centers. While specific numbers are hard to come by, professionals estimate that there are 122 such centers in the U.S. and another 152 outside the country. That allows the company to deliver packages in a maximum of two days for a lower internal cost than anyone else.
In addition, as Amazon becomes more and more popular, it begins to benefit from the network effect. More people visiting the site incentivizes third-party vendors to list their own goods on Amazon and use Fulfillment by Amazon to ship the products. That further incentivizes people to visit the site -- creating a virtuous cycle. With e-commerce still accounting for less than 10% of all retail sales in America, the runway for growth is enormous.
But Amazon is also not resting on its laurels. The company's goal from day one has been to be the world's most customer-centric company, and CEO Jeff Bezos shows no signs of slowing down. This focus has helped Amazon become both a cloud computing behemoth and a grocery vendor. Who knows what industry will be next?
The search king's "Other" bets are about to become more important
Non-investors might be surprised to find that the vast bulk -- 86% -- of Alphabet's sales come from advertising. The main reason the company can offer advertisers such a great deal: It has seven different products -- Search, Maps, GMail, YouTube, Play Store, Android, and Chrome -- with over 1 billion users. Alphabet collects the data from what we do on those apps and offers targeted ads no one else can, other than potentially Facebook or Tencent (more on Tencent below).
In investing lingo, Alphabet's moat comes from low-cost production. Once Search or Maps or the like are set up, they don't require that much capital to run. But as more and more people use them, Alphabet collects data for a lower cost than anyone else.
But Google changed its name to Alphabet in 2015 to emphasize its Other Bets. These are moonshot projects aimed at creating huge advances in technology around the world. It is becoming more and more likely that Waymo, Alphabet's autonomous driving project, could become the first major Other Bet to pan out. Recent estimates peg the division at a $175 billion valuation -- representing roughly 20% of Alphabet's overall value. Who knows how big the next Bet will be?
How many procedures can it really help?
Back in 2013, I warned investors that -- given reticence by medical professionals -- Intuitive Surgical and its da Vinci robotic surgical system could be in for tough times. Indeed, shares did dip 40% between January 2013 and May 2014.
But the main reason I held my shares (and will continue to do so) is its multiple possible futures. As I wrote in 2015: "After being trained on the machine, doctors begin experimenting to see what new procedures might benefit from the da Vinci. This is the basis of [multiple futures]: Over time, use of the da Vinci benefits from tinkering -- and the upside potential (revolutionizing the global market for certain procedures) is enormous."
With competition entering the scene, investors can rest easy knowing that hospitals and doctors have already committed a lot of time and money toward their da Vinci systems. There are high switching costs associated with leaving the da Vinci for another device maker, and I expect the company to exploit that advantage for decades to come.
Changing law enforcement for the better
For a long time, Axon was just a stun gun manufacturer known as Taser International. But with a name change last year, the company's transformation was formalized. While Axon's weapons segment is still very strong (and benefits from a virtual monopoly in the field), it is the company's software ambitions that have me really excited.
While there's nothing terribly special about Axon's body cameras, it's the Evidence.com platform for storing and analyzing the video from the cameras that makes it an excellent investment. Once a police department signs on to use the platform, it gets locked into Axon's system. The costs -- in finances, time to retrain entire workforces, and risks involved with losing crucial evidence -- associated with switching to another provider are onerous. And given that Axon just secured a monopoly in this field as well, there's still lots of room to run.
Like all the other stocks on this list, Axon isn't done innovating. Next year, the company plans to roll out a new records management system, which uses AI and could save thousands of hours of paperwork to free up police officers. Management expects this to be a $2 billion market alone. Who knows how Axon will help make law enforcement more efficient (and accountable) in the years ahead?
An underappreciated Chinese behemoth
Finally, we have the one foreign-based stock on the list: Tencent Holdings. The linchpin for my investment in the company is WeChat -- an enormously popular app in China. The best way to describe it is social-network/video blogging/messaging/payment app all rolled into one. We really don't have an equivalent stateside. The app benefits from the network effect: The more people who join it (there are over 1 billion), the more incentivized others are to join. Who, after all, wants to join a social network their friends aren't on?
But while WeChat's business being protected by the network effect is impressive, it's management's focus on areas outside of WeChat that have me believing Tencent will only get stronger as the next decade progresses.
Much has been made lately about Tencent's stumbles in gaming, mostly the result of government regulation. But here's the thing: In addition to WeChat, Tencent still has the biggest video game company under its wing as well. And it's also making inroads into digital payments, cloud computing, and advertising. Combine that with venture-capital-like investments in JD.com, Tesla, and Activision Blizzard, and it should be easy to see why I think there are lots of ways for Tencent to grow over the next 10 years.
How I'm approaching these five stocks
I don't think you should run out and buy these five stocks because of this one article. You need to do your own due diligence, and consider how these stocks might fit into your overall portfolio.
At the same time, it's important to note that my skin is firmly in this game: These five stocks currently account for 49% of my portfolio. I may sell shares in the future, but only because certain stocks may become too large a part of my portfolio. Otherwise, I fully intend on seeing them all included in my August 2028 portfolio.