Investing in 2020 has been quite the experience. The uncertainty surrounding the coronavirus disease 2019 (COVID-19) pandemic led to unprecedented levels of volatility that chopped 34% off of the broad-based S&P 500 in under five weeks. For some context, when the S&P 500 has lost at least 30% of its value, it's historically taken about 11 months. The pandemic made that happen in roughly one month.
If investors have learned anything over the years, it's the value of picking up high-quality companies on the cheap. Buying innovative companies during pullbacks and allowing your investment thesis to play out over the long term can yield game-changing gains and a comfortable retirement.
If you have $10,000 that you won't need for bills or emergencies, consider buying these three surefire winners and hanging onto them for at least the next 20 years.
Palo Alto Networks
When you think of basic-need goods and services, electricity, water, food, toothpaste, and toilet paper probably come to mind. But what about cybersecurity solutions?
Prior to the pandemic, businesses were steadily shifting to an online or cloud setting. Sharing and storing data remotely were becoming increasingly common for businesses of all sizes. COVID-19 has been a shot in the arm for this transition, with businesses large and small forced to change their growth plans on the fly. There's a real chance we're not fully going back to the old normal, making the cloud the unstoppable growth trend moving forward.
To protect the cloud of the present and future, enterprises will look to cybersecurity solutions provider Palo Alto Networks (NYSE:PANW). Hackers and robots don't show mercy just because a business is having a rough year, so cloud protection services are now essential for companies of all sizes.
Just as businesses are adapting to COVID-19, Palo Alto is adjusting to provide security solutions to enterprises. It's been shifting new and existing clients away from physical firewall products, which can yield lumpy revenue recognition, toward cybersecurity subscription services, which typically reduce client churn and offer much higher margins than physical firewall products.
Investors can expect Palo Alto Networks to deliver pretty consistent growth of between 15% and 20% a year. The company is regularly making bolt-on acquisitions to broaden its product portfolio and appeal to small- and mid-sized businesses. It's also seeing a significant uptick in next-generation security billings, with fiscal 2020 next-gen billings rising 105% from the prior-year period.
Cybersecurity looks like a surefire place to invest in over the next 20 years, and Palo Alto Networks should be at the leading edge of innovation within the industry.
Amazon is best known for absolutely dominating the U.S. online retail space. According to estimates from analysts at Bank of America/Merrill Lynch, Amazon controls 44% of all online U.S. sales. Meanwhile, eMarketer lists Amazon with 37.3% of e-commerce market share, by gross merchandise volume, as of Oct. 2019. Amazon has been able to pivot this dominance into further gains.
Retail margins are typically small, but Amazon has been able to sign up more than 150 million people to its Prime membership. Aside from Amazon's premier logistics, Prime offers its members access to exclusive streaming content and potentially bigger discounts on purchases. For Amazon, the fees collected from Prime pad its retail margins and ensure that it undercuts brick-and-mortar retailers on price. Prime is also crucial to maintaining consumer loyalty.
Over the coming years and decades, Amazon's cloud segment, Amazon Web Services, is expected to generate most of the company's cash flow growth. As more businesses shift into the cloud, the need for AWS' cloud building-block infrastructure should increase. Even with the U.S. economy facing its biggest quarterly downturn in decades in the second quarter, AWS' sales grew by 29% from the prior-year period.
The margins in AWS are light-years higher than retail. As AWS grows into a larger percentage of total sales, Amazon's operating cash flow will soar. Since Amazon loves to reinvest in itself, its growth is far from over.
The healthcare space could also see exceptional growth prospects over the coming 20 years. In particular, any drug or device that personalizes the treatment process offers big-time potential. That's why leading robotic systems developer Intuitive Surgical (NASDAQ:ISRG) should be in investors' proverbial shopping carts.
This past week, Intuitive Surgical announced that it had installed 5,865 of its da Vinci surgical systems worldwide. That may not sound like a lot, but Intuitive Surgical has placed more systems over the last 20 years than all of its competitors combined. The company has built up a virtually insurmountable competitive advantage, and it's unlikely to cede much of its share given the $0.5 million to $2.5 million price tag that comes with its da Vinci systems. In other words, its customers will stay clients for a long time.
What makes Intuitive Surgical such an incredible healthcare stock is how its business model is built to get stronger over time. In its earlier days, the company generated most of its revenue from selling its pricey systems. These intricate systems are costly to build and thus don't yield the best margins. Selling accessories and servicing equipment are more profitable. As more da Vinci systems have been installed, the percentage of sales derived from these higher-margin revenue streams has steadily increased. This trend should persist over time.
Furthermore, Intuitive Surgical's da Vinci system hasn't even come close to procedural saturation. Though it's the dominant platform for urology and gynecology surgeries, it has a long runway to expand into thoracic, colorectal, and general soft tissue procedures.
Long-term investors should expect a consistent double-digit growth rate.