No matter where you are in your investing journey, building and maintaining a portfolio of individual stocks requires a time commitment. That's especially true if you're just getting started. With so many companies to research (and so many opinions floating around the internet), it's easy to get overwhelmed, and it's even easier to second guess your decisions.
Before I share my own opinion, let me offer this piece of advice: Invest with a long-term mindset. Build a diversified portfolio of stocks that you think will perform well over the next decade (or longer). Don't build your investment theses around short-term catalysts, and don't buy into ideas that promise to make you rich overnight.
With that in mind, here are the first three stocks I would buy if I were starting from scratch today.
Image source: Getty Images.
1. Shopify: An e-commerce powerhouse
Consumers love convenience, and e-commerce is a perfect example. What could be easier than shopping online from the comfort of your home? Not surprisingly, online retail spending is expected to grow at nearly 11% per year through 2025, reaching $7.4 trillion, according to eMarketer. And Shopify (SHOP -2.37%) has established itself as an industry leader.
Its platform includes software that helps businesses manage sales across digital and physical storefronts, as well as value-added services like payment processing, discounted shipping, and financing. That value proposition has drawn over 1.7 million merchants to Shopify, and its software powers 27% of all e-commerce websites, making it the most popular solution on the market.
Not surprisingly, Shopify has consistently posted stellar financial results. Over the past year, revenue soared 71% to $4.2 billion, gross margin expanded 150 basis points to 54.5%, and free cash flow rocketed 150% higher to $458.2 million. More importantly, the future looks bright for this commerce company.
Shopify puts its addressable market at $153 billion, and management has outlined a robust growth strategy that should help the company capitalize on that opportunity. That includes simplifying logistics by building a nationwide fulfillment network, driving buyer engagement (and repeat purchases) through the Shop mobile app, and expanding its international footprint.
In short, Shopify is a key player in a growing industry, and management has already demonstrated its ability to execute and innovate. Those qualities should translate into market-beating returns for shareholders. That's why Shopify would be at the top of my list if I had to build a portfolio from scratch today.
2. Zscaler: Specializing in cybersecurity
Trends like cloud computing, remote work, and the proliferation of connected devices have made cybersecurity more important than ever. In fact, the number of cyberattacks jumped 50% last year, according to Check Point Research, and the average data breach now costs $4.2 million. That tailwind should be a significant growth driver for Zscaler (ZS -1.49%), a company that specializes in cloud-based networking and cybersecurity services.
Its platform -- known as a secure access service edge (SASE) -- accelerates and secures corporate infrastructure and applications, while also eliminating the need for on-site security appliances. Zscaler makes it possible for employees to access corporate resources from any device or location, whether those resources exist in a private data center or the public cloud. Moreover, research firm Gartner has recognized Zscaler as the industry leader for 10 consecutive years.
Financially, revenue skyrocketed 58% to $761 million over the past 12 months, and Zscaler generated positive free cash flow of $184.9 million, up 205%. And in each of the last four quarters, its retention rate exceeded 125%, meaning clients are spending at least 25% more each year, suggesting that Zscaler provides a valuable service.
Looking ahead, Gartner believes 60% of enterprises will at least have plans to adopt SASE solutions by 2025, up from 10% in 2020. And Zscaler puts its addressable market at over $72 billion -- 94 times its trailing-12-month revenue. That's why this growth stock would be at the top of my buy list.
Image source: Getty Images.
3. The Trade Desk: Digital advertising
The Trade Desk (TTD -0.54%) specializes in programmatic digital advertising. It operates the largest independent demand-side platform (DSP) in the industry, helping advertisers launch, measure, and optimize data-driven campaigns across digital devices like computers, smartphones, and connected TVs (CTVs). Compared to traditional media buying, which involves time-consuming manual negotiations between ad buyers and publishers, The Trade Desk helps its clients operate more efficiently.
The company's size is a significant advantage. Its platform taps into over 600 billion ad impressions each day, allowing it to capture troves of consumer data. That information powers its artificial intelligence models, helping the company surface increasingly relevant suggestions for ad buyers over time. To that end, The Trade Desk has kept its customer retention rate above 95% for seven consecutive years. And that has translated into strong financial results.
Over the past 12 months, revenue rose 53% to $1.1 billion, helping the company earn sixth place on Fortune's list of the 100 Fastest Growing Companies in 2021. Better yet, free cash flow skyrocketed 139% to $316.9 million.
Looking ahead, The Trade Desk has plenty of room to grow its business. Digital ad spending is expected to hit $524 billion in 2022, according to eMarketer. And management has outlined a strong growth strategy focused on CTV, shopper marketing, and international expansion. That's why this growth stock looks like a smart buy for long-term investors.
