Want to Get Richer? 2 Innovative Growth Stocks to Buy and Hold

You only need two things to build life-changing wealth: a diversified portfolio of high-quality stocks, and a long-term mindset. The easiest way to accomplish that is with an exchange traded fund (ETF), especially one that tracks the S&P 500. You benefit from instant diversification, and you don't have to spend time doing research.

That being said, if you enjoy learning about individual companies and you're willing to put in the work, you could generate market-beating returns. And beating the market, even by a percentage point or two, could add thousands or even tens of thousands of dollars to your portfolio in the long run.

Datadog (DDOG 0.50%) and Axon Enterprise (AXON 0.28%) have beat the S&P 500 over the last two years, and both are well positioned to maintain that trend over the coming decade. Here's what you should know.

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1. Datadog

Datadog specializes in monitoring and analytics. Its platform integrates data from applications, networks, and infrastructure across private data centers and pubic clouds to help clients identify performance and security issues. Datadog processes over 10 trillion events each day, and leans on artificial intelligence to make sense of that data and deliver actionable insights in real time.

Diving deeper, Datadog breaks down silos between development, security, and operations teams, helping them collaborate more effectively. That enables organizations to prevent (or quickly resolve) technology problems, while accelerating their ability to execute on digital transformation initiatives. In turn, each new system (and each new client) creates more data, sharpening Datadog's AI models over time. 

That virtuous cycle has helped the company keep its retention rate above 130% for the last 16 quarters. In other words, its software platform is very sticky, because the average customer spends at least 30% more each year.

Not surprisingly, that loyalty has translated into solid financial results.

Source: YCharts. TTM = trailing-12-months.

Looking ahead, Datadog is well positioned to grow its business. Currently, management puts its market opportunity at $38 billion, but that figure should rise to $53 billion by 2025 as enterprises continue to spend aggressively on digital transformation. More importantly, the breadth of Datadog's product portfolio and the depth of its data sets differentiate it from rivals, and the company's clockwork delivery of innovative new products should keep it ahead of the competition. That's why this growth stock is a smart buy right now.

2. Axon Enterprise

Axon's mission is to protect life. The company's portfolio includes a range of hardware, software, and sensors designed to help law enforcement and public safety personnel work more productively. In 1993, the company started with TASER devices, and it's still the market leader in that industry -- but its business has expanded substantially since then.

Today, Axon sells body cameras, in-car fleet cameras, and drone-mounted aerial cameras, all of which feed data to Axon Respond, a real-time situational awareness platform that allows dispatchers, first responders, and police commanders to coordinate and monitor personnel in the field. Axon also provides cloud-based digital evidence management (DEM) software to simplify data storage, and records management software (RMS) that integrates video to accelerate report writing. Collectively, those solutions mean officers spend less time on administrative tasks, and more time protecting their communities.

Due to its success in the TASER industry, Axon works with 94% of law enforcement agencies in the U.S., and it's gaining traction in a growing number of adjacent markets: international law enforcement, domestic government and military, and departments of correction. Collectively, those relationships have helped Axon extend its leadership to software and sensors, and that strong competitive position has translated into impressive financial results.

Source: YCharts. TTM = trailing-12-months.

During the third quarter, Axon posted a software revenue retention rate of 119%, which means the average customer spent 19% more over the past year, evidencing the stickiness of its products. The company also noted several customers wins during the quarter, including the Gujarat State Police in India, the Toronto Police Service, and the Scottish government, as well as a number of upsells with police departments in the U.S.

Going forward, shareholders should look for Axon to maintain that momentum. The company puts its market opportunity at $52 billion, and management is clearly capable of growing the business. That's why this stock looks like a smart long-term investment.