Investing in the stock market can be a risky endeavor. Diversification -- buying several stocks with limited correlation to each other -- reduces some of the risk. Therefore, purchasing a group of stocks and holding them for the long term is typically the most prudent investment method.
However, if I could buy and hold only one stock, it would be Netflix (NFLX 1.61%). The company has established itself as a giant in streaming video, a position that will be difficult to overtake. What's more, watching video content is something I expect people will be doing for a few more decades. Here's more detail on why Netflix is the one stock I would buy and hold.
Netflix's virtuous cycle is snowballing
Netflix has amassed a scale with sticking power. In its Q3 ended Sept. 30, it had 214 million paying subscribers, up from 195 million at the same time last year. Management expects this total to increase to 222 million by the end of Q4. It has been growing subscribers briskly over the years, but the coronavirus pandemic accelerated that growth. Billions of people worldwide stayed home more often, trying to avoid public places. So subscribing to Netflix seemed like a no-brainer. For less than $20 per month (and much less in lower-income countries), folks can get access to content that could entertain a family.
Therein lies a key factor to Netflix's rise: a compelling customer value proposition that is unmatched. Compare the cost of a Netflix subscription to a traditional cable TV payment. Depending on your region, Netflix could be a third of the cost. What's more, Netflix is the more convenient choice; you can start viewing the content in a few clicks. What's more, you can view it anywhere you can get an internet connection on a mobile device. This advantage is not likely to reverse and could be a tailwind for Netflix, attracting more and more cable customers for years.
Netflix's size ensures it can offer its customers a slate of fresh content that competitors will find difficult to match. The company is on pace to achieve $30 billion in annual revenue. In the nine months ended Sept. 30, it spent $12 billion on content. That's up sharply from the $8.5 billion it spent during the same time last year. The spending has produced hit shows like Squid Game, viewed by 142 million households. Popular shows and movies keep existing customers satisfied, and word of mouth on social media could attract millions of new subscribers. The virtuous snowballing cycle has taken Netflix years to build, and it is now reaping the benefits.
Netflix is an excellent business at a bargain price
Interestingly, at a time when Netflix's business is arguably in its strongest position ever, the stock is relatively inexpensive. Based on its price-to-earnings ratio of 55, it is selling at the lowest price since 2012.
As mentioned earlier, I would prefer to hold multiple stocks in my portfolio -- but if I had to choose only one, it would be Netflix. The company has reached a scale that makes it difficult and expensive for others to compete with it. Plus, it offers a superior service to alternatives at a better price. And the cost of the stock makes it a relative bargain.