It's easy to forget the importance of long-term behavioral trends when investing. These trends and habits develop over time and get ingrained in human nature and behavior over a generation. Aside from human trends, there are also industry trends that favor progress, growth, and continuous improvement. Some of these trends can perpetuate years or even decades of consistent growth for companies within that industry.
When looking out for great investment ideas, you can turn your attention to these human and industry trends to filter out companies with long-term growth potential. However, the key here is to understand the driving force behind each trend and ensure that it can indeed continue for many more years. Technology and disruptive change may negatively impact certain trends, and that is part of the risk investors need to accept.
Here are three stocks that have latched onto strong multi-year industry trends that should not go away anytime soon.
Apple (NASDAQ:AAPL) is well-known for its iconic iPhone and iPad. But what many investors may not realize is that Apple has also been growing its wearables and accessories segment as well as its services segment, driven by the dual trends of healthier lifestyles and on-demand service offerings.
For the first half of the fiscal year 2020, Apple's wearables segment chalked up revenue of $16.3 billion, growing an impressive 31% year over year. The division now makes up 10.9% of Apple's total revenue of $150.1 billion, up from 8.7% during the same period last year. The division is led by the Apple Watch, which is now into its fifth iteration. The watch functions as a health tracker, with heart rate monitoring and an ECG feature. The company will be releasing the Apple Watch 6 in late 2020 alongside the iPhone 12, and this version of the smartwatch could run on a new operating system.
Apple's services segment is also growing in importance, making up 17.4% of total revenue for the first half, up from 15.7% the year before. This diversified division includes digital content such as Apple TV+, Apple News+, iCloud, and Apple Pay. The strength of the division lies in the recurring nature of its revenues, as many of these services are subscription-based.
E-commerce and cashless digital payments are two more trends that have been growing over the last decade. The coronavirus pandemic has accelerated the adoption of digital payments, benefiting companies such as Visa (NYSE:V). The company's chief product officer, Jack Forestell, said that 13 million people in Latin America made their first-ever online purchase during the March quarter. U.S. digital commerce spending also saw an 18% year-over-year increase during April (excluding the travel category), even though face-to-face transactions fell 45%.
Aside from this strong tailwind, Visa continues to invest in its fintech capabilities. Last month, the company's Visa Ventures investment arm established a strategic partnership with analytics company GoodData. Plaid, the operator of a network that allows people to securely connect their financial accounts to the apps they use, was acquired by Visa in January for $5.3 billion. These moves should boost Visa's capabilities and allow the company to deliver more secure and seamless transaction abilities for its customers.
With the proliferation of mobile phones and handheld devices, speed and ease of connectivity have become major pain points for consumers. 4G networks can currently handle these network demands, but as more people download larger files and engage in videoconferencing, the trend is moving toward faster 5G networks that won't suffer the same strain as their less advanced counterparts. American Tower (NYSE:AMT) owns and operates the wireless communications infrastructure and cell towers that help power the wireless capabilities for many carriers.
The trend toward 5G technology is poised to solve these pressing connectivity issues. 5G networks are believed to be smarter, faster, and more efficient than 4G networks, with speeds as much as 100 times faster. CEO Tom Bartlett has talked about the expected acceleration of 5G infrastructure over the next few years, even though 4G network investments will continue to be made. The migration to 5G will take several years to deploy as network operators scale up their capital commitments to purchase and install more complex equipment on American Tower's cell towers, a process that should last for at least the next 5 to 10 years.
Investors keen on riding the 5G wave can use American Tower as a proxy for the growth of 5G networks, as the real estate investment trust is set to be a major beneficiary of the anticipated increase in capital spending.