For many investors, taking a long-term buy-and-hold strategy for dozens of stocks is the best choice. This strategy has certainly paid off in the past: If you bought $10,000 in Alphabet (GOOG 0.56%) (GOOGL 0.69%) 10 years ago, you would have almost $52,000 today.
If you can find companies with strong competitive advantages and hold them for decades, you will likely become much richer over the long term. I have two companies that fit this bill: MercadoLibre (MELI -0.00%) and The Trade Desk (TTD -2.44%). I own both of these companies and plan to never sell them. Here's why.
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MercadoLibre: The everything company
In 2021, shares of MercadoLibre fell 24%, and some investors are wondering if the company will recover. MercadoLibre got swept up in the tech sell-off, but -- like many other stocks that fell in 2021 -- the company is performing stronger than ever. It is showing strong growth and dominance in all aspects of its business, but what is especially impressive is its off-platform performance.
While many companies that have a mobile wallet succeed internally, the real key for these companies is to see adoption outside of their product ecosystem. For example, Apple (AAPL -0.81%) has seen success with Apple Pay, which is now often used (by me especially) for every payment, ranging from gas to e-commerce transactions. When a business can see its product being used everywhere instead of just within its product ecosystem, then it can flourish.
MercadoLibre has done just that with both its fintech platform, Mercado Pago, and its logistics service, Mercado Envios. For Pago, its off-platform total payment volume for the third quarter grew 79% year over year, showing that Pago is rapidly becoming the Apple Pay of Latin America. Envios is also seeing dominance in Latin America. Not only does it ship 86% of MercadoLibre products, but it ships 37% of all goods in its areas of operation. This is led by Mexico, where Envios ships 65% of all items in that country.
This broad success in Latin America has led to $1.8 billion in Q3 revenue, along with a net income of $95 million. Any investor would love to have this, but the company is still looking to grow. With 79 million active users, MercadoLibre has just 12% of Latin American citizens on the platform.
The company trades at 10 times sales -- much higher than other international super-apps like Coupang (CPNG 0.53%), which trades at 2 times sales -- but I think this company is worth paying up for. It has seen rapid growth in Latin America, and its success across the region is resulting in MercadoLibre becoming a part of daily life. With this edge, I think the company can continue to expand in the region, making it a stock I want to hold for the next 20 years or more.
The Trade Desk: A ruthless combination of competitive advantages
The advertising technology space has become extremely popular because of its efficiency compared to traditional advertising scheduling. The older way of getting advertising space was through manual meetings between advertisers and publishers to negotiate prices, but the adtech industry has streamlined this with an automated bidding process, and The Trade Desk is the leader in it.
As the leader, The Trade Desk obtains the most data -- data which is obtained from every transaction on its platform about consumer viewership -- and it uses this data to make more accurate suggestions to advertisers about where to spend their ad budget.
These suggestions make the platform more valuable, which convinces advertisers to spend more on transactions, giving The Trade Desk more data. This creates a strong network effect where the more transactions take place on the platform, the more valuable The Trade Desk's platform is.
Therefore, as the leader with the most data, this advantage will only become stronger over time, and it has led the company to become a monster growth stock. The company is worth $41 billion, yet it is still increasing its top line by 40% year over year.
This dominant growth has also led to impressive profitability: The company brought in $130 million in net income and roughly $167 million in free cash flow in the first nine months of 2021. This shows how dominant its competitive advantages are, giving me confidence in its performance for the next decade.
The Trade Desk trades at almost 150 times earnings, which is very expensive, but the company's growth isn't over yet. The global advertising spending was $725 billion, yet programmatic advertising spending was just $129 billion in 2020. In an increasingly digital world, my bets are on programmatic advertising increasing as a percentage of total ad spending, and The Trade Desk is ready to capture it.
