Investors might be tempted to sell high-growth stocks after that double, triple, or even quadruple in value. However, investors who take profits too soon often miss out on even bigger multibagger gains down the road. Today, three of our Motley Fool contributors will examine three growth stocks that should be held for a quarter century or more -- Tencent Holdings (TCEHY 1.89%), Booking Holdings (BKNG -0.51%), and Amazon (AMZN -1.90%).
An "all-in-one" bet on Chinese tech
Leo Sun (Tencent Holdings): Tencent is an all-in-one investment on the Chinese tech market. It's the world's largest video-game publisher, and its portfolio includes hit games like League of Legends, Arena of Valor, and Clash of Clans, along with major stakes in the publishers of Fortnite and PUBG.
On the social media front, Tencent owns the top mobile messaging app in China, WeChat, and the older QQ messaging platform and the Qzone social network. Over the past few years, Tencent expanded WeChat into an all-in-one platform for various services like ride-hailing, deliveries, games, and e-commerce transactions. WeChat Pay -- which is integrated into WeChat, third-party apps and websites, and brick-and-mortar stores -- is also the second most popular payments platform in China.
Tencent Music is the most popular music streaming platform in China, and Tencent Video ranks second only to iQiyi in the streaming video market. Its cloud services compete against Alibaba's market-leading cloud platform.
However, despite all of those strengths, Tencent's stock tumbled more than 20% this year due to escalating trade tensions and concerns about its video-game business, which faces slower growth due to tougher regulations in China. The temporary suspension of new gaming approvals in China also cast a dark cloud over the gaming unit's future.
But looking ahead, these headwinds will likely fade as Tencent's strengths across the gaming, social networking, payments, and cloud markets pay off. Therefore, investors should take advantage of these dips and load up on the stock for the long haul.
Global travel and secular long-term trends
Nicholas Rossolillo (Booking Holdings): Booking Holdings stock -- formerly known as Priceline before it changed its name to reflect its biggest moneymaking site -- has had a tough summer. The company habitually under-promises on its forward guidance and usually over-delivers a few months later. During its second-quarter 2018 report, management held to its typical MO, but investors got spooked over especially sluggish expected growth for the third quarter of just 6% to 9%. Shares are down over 15% from their all-time highs as a result.
That makes for a great buying opportunity should shares pop higher on third-quarter numbers, but Booking Holdings is more than a short-term turnaround play. As CEO Glenn Fogel talked about earlier in the year, the rise of world travel is a long-term secular trend, and as the largest online travel service, Booking has several things going for it.
First, the rise in spending on travel is directly correlated to global economic growth. As developing economies accumulate wealth and increase the standard of living for their citizens, money spent on travel also goes up. Second, when people want to experience the world, they are looking to the internet to book accommodations. While that trend is mature in most developed countries, large swaths of the world's population are still migrating to online services. As they do so, one of Booking Holdings sites is usually there waiting for them.
The third tailwind relates to Booking's relative size. Even as the leader in the travel and accommodations industry, the company still makes up just a low single-digit percentage of the whole pie. That leaves plenty of opportunity to take market share through partnerships and acquisitions, like the recent deal with Didi Chuxing in China and the purchase of travel activity planner FareHarbor.
There are of course risks. There is plenty of online competition trying to overthrow Booking, and a global economic downturn could wreak havoc on the business. But the company has shown its resilience against both many times, continuing to adapt and using its highly profitable operations to leverage itself into new growth opportunities. Thus, if you think global travel has a long runway of growth ahead of it, Booking Holdings stock is worth owning for the indefinite future.
$1 trillion is just the start
Jamal Carnette, CFA (Amazon): There's a tendency to indiscriminately sell stocks when psychological barriers are attained. This is a mistake, and in the case of Amazon, it could be an expensive one. Although Amazon is now a $1 trillion company, the investment case has only increased.
Amazon investors understand it isn't the company's ubiquitous e-commerce operations that are responsible for its recent ramp in profitability, but rather the company's higher-margin Amazon Web Services cloud-computing division. Early investments into cloud are paying benefits, and will continue to do so.
However, many do not know the company is in the early phases of another high-margin business: digital advertising. As of the second quarter, Amazon's "other" division --primarily digital advertising -- has a run-rate of approximately $9 billion and is growing approximately 130% year over year. Although Amazon doesn't release margins attributable to "other," it's all but certainly higher than its e-commerce operations. Long story short, Amazon has plenty of room to run even at a $1 trillion valuation.