The S&P 500 has recouped nearly all its losses since March, when fears about COVID-19 crushed the market, and is once again approaching its historic highs. That exuberance -- which might seem irrational amid a second wave of infections, a high unemployment rate, civil unrest, and a trade war with China -- might convince investors to take some profits.
It's wise to trim some positions to raise some cash ahead of the next market crash, but investors should still hold onto their long-term winners. I personally won't touch three of my winning positions -- Amazon (AMZN +2.33%), JD.com (JD +0.95%), and Johnson & Johnson (JNJ +0.02%), which together account for roughly 20% of my portfolio -- anytime soon.
Image source: Getty Images.
1. Amazon.com
I initially bought shares of Amazon throughout 2015 and 2016. I pulled the trigger after Amazon started disclosing the growth of Amazon Web Services (AWS) in the first quarter of 2015. AWS was already the largest cloud infrastructure platform in the world, and Amazon revealed it was highly profitable -- which could offset the lower margins of its core marketplace business.
That unique business model enabled Amazon to subsidize the expansion of its e-commerce platform with low-margin products and services. Locking customers into its Prime ecosystem -- which offered discounts, free shipping, streaming media, and other perks -- further widened its moat against its brick-and-mortar rivals.
Meanwhile, surging demand for cloud-based services fed AWS' growth, which generated a positive feedback loop that crushed smaller companies and funded Amazon's expansion into adjacent markets like digital advertising, video game streaming, and brick-and-mortar stores.
Amazon's near-term growth might be lumpy, due to COVID-19 and other macro headwinds, but I fully expect its e-commerce and cloud businesses to propel the stock to fresh highs over the next few decades.
2. JD.com
I accumulated shares of JD, China's largest direct retailer, throughout 2018 as the stock was weighed down by concerns regarding its slowing growth, rising expenses, and a rape allegation against its founder and CEO. JD's expenses were rising because it was expanding its fulfillment capabilities, its logistics network, and its digital ecosystem. It was also gradually expanding into lower-tier cities to reach new shoppers and spur fresh growth.
Image source: JD.
I believed these efforts, along with the support of its top investors (Tencent, Walmart, and Alphabet's Google), would increase its scale and stabilize its earnings growth.
Those investments bore fruit over the past year, as JD's growth in annual active customers accelerated and its revenue growth remained consistently above 20% -- even throughout the COVID-19 pandemic. Cutting costs and offering paid logistics services to other companies stabilized its profits, and the troubling charges against CEO Richard Liu were dropped.
Alibaba co-founder Jack Ma once boldly claimed JD's capital-intensive model, which took on inventories for better quality control, would end in a "tragedy." JD clearly proved Ma wrong, and I believe it still has plenty of room to run.
3. Johnson & Johnson
I accumulated my main position in Johnson & Johnson throughout 2015, then reinvested its dividends over the past five years. Four things drew me to J&J: its broad portfolio of market-leading pharmaceuticals, medical devices, and consumer healthcare products; its wide moat; over five decades of consecutive dividend hikes; and its resilience during previous recessions and market downturns.
J&J has faced plenty of headwinds in recent years, including generic competition for its top drugs, disastrous recalls, and lawsuits. However, J&J's business is so well-diversified it can easily weather those short-term challenges.
That's why J&J raised its dividend in April even after cutting its full-year revenue and earnings guidance in light of the COVID-19 crisis. It currently pays a forward yield of 2.9%, compared to the S&P 500's average yield of 1.9%, and its stable business generated a total return of nearly 370% over the past 20 years. That slow and steady growth won't end anytime soon -- which makes J&J a great stock to buy, forget, and pass on to future generations.
