The share prices of many companies skyrocketed last year as investor sentiment grew optimistic that the economy may surge back to life once the coronavirus pandemic is over.
But as 2021 begins, some investors are left wondering what companies will still be good long-term investments following Wall Street's rally last year. Here's why it may be a good idea to invest $1,000 in Roku (NASDAQ:ROKU), Amazon (NASDAQ:AMZN), and Square (NYSE:SQ) right now.
1. Roku: A healthy stream of growth
Roku has become a household name over the past few years as the number of active accounts using the company's streaming platform has grown from 6 million in 2014 to 46 million in the third quarter of 2020.
Roku's video streaming platform, which is found on its streaming devices and embedded into many smart TVs, isn't married to any one streaming service, which means that it benefits no matter who is winning the streaming wars. Whether that is Netflix, Disney+, AT&T's HBO Max, Apple TV+, or whatever new service comes along in the future.
Besides Roku's phenomenal ability to get into millions more households over the past few years, investors should consider how the company is tapping into the fast-growing cord-cutting trend. Last year an estimated 6 million people canceled their traditional pay-TV services, many of them opting instead to piece together streaming services. That's a lot of people leaving traditional pay-TV, but consider that by 2024 more than one-third of Americans are estimated to follow the same path.
Roku's shares are up 224% over the past 12 months, but considering that we're still seeing a mass migration away from pay-TV to streaming services, and the fact that Roku is the leading video streaming platform for such services, I think there are plenty of opportunities for this stock to beat the market in the coming years.
2. Amazon: The e-commerce wave is just beginning
Lockdowns and social distancing drove e-commerce sales higher last year and Amazon's business experienced tremendous growth because of it. The company's North American sales were up 37% and diluted earnings per share jumped 68% in the first nine months of 2020. Amazon had to hire 400,000 new employees just to keep up with rising e-commerce demand.
With a handful of COVID-19 vaccines already being distributed, at least some of the intense demand for e-commerce will likely slow late into 2021. But investors shouldn't think that the demand will drop off significantly.
E-commerce has certainly been accelerated by the pandemic, but instead of being just a temporary surge, it's more likely that the event has convinced many e-commerce holdouts that online shopping is here to stay. Research from McKinsey estimates that 70% of consumers plan to continue, or even increase, their online shopping once all social distancing restrictions are over.
In the first nine months of 2020, just 14.5% of all U.S. retail sales were online, which means that there's plenty of room for online shopping to continue expanding. As the leading e-commerce platform in the U.S., Amazon is likely to experience some of the biggest benefits as this market continues to grow.
3. Square: A stock that's squarely in the fast lane
If you haven't been following the technology industry for the past few years, then you may not know much about Square. The company is a payment processing platform whose point-of-sale terminals are popular with many small businesses and whose Cash App is a leading peer-to-peer payment mobile app.
Square is tapping into the massive shift from physical payments to digital ones and it's already experiencing phenomenal growth as it moves further into this market. It's estimated that digital payments will be worth $2 trillion by 2025, and Square couldn't be better positioned to take advantage of it.
The company's Cash App has 30 million monthly active users and its features have expanded beyond just peer-to-peer payments. For example, users can now buy and sell stocks (and even cryptocurrencies like bitcoin) within the app. The amount of active Cash App users is also increasing. In the third quarter, the amount of active daily transacting Cash App customers nearly doubled from the previous year, according to Square.
Square is a buy for the same reasons that Amazon looks like a buy right now. E-Commerce is growing fast and there's likely no going back even when the pandemic is over. And as more people look for easy and convenient ways to pay merchants in stores, and pay each other, Square's digital payment platform will likely thrive.
One final thought
The stock market has been on a tear since March 2020 and its massive bull run in the face of economic uncertainty, a pandemic, and political instability has been a bit more than a bit confusing. There's no guarantee that 2021 will bring the same market growth as last year, but long-term investors shouldn't be worried about that. Buying and holding these companies for at least five years should help you ride out any dips that come along and allow your investments to potentially outpace the market.