The "Holy Grail" in investing is to pick long-term winners that can continue to compound your money through good times and bad. These are stocks that you can hold for years and even decades as they form a core part of your investment portfolio. These businesses provide you with the building blocks for a happy retirement fund as their share prices head higher over time.
The process of finding such businesses isn't as tough as it may seem. What you need to look for are characteristics that make these stocks great long-term picks. They should have strong business models and brands, be leaders in their industries, have proven models for sailing through various economic cycles, and have sustainable tailwinds on their backs to ensure they continue their steady growth.
Here are three growth stocks that satisfy the above criteria that you might want to consider adding to your investment portfolio.
Adobe
Adobe (ADBE -0.77%) is a company that offers various cloud solutions that connect content and data while also inspiring creativity and design. Well known for its portable document format (PDF), the company also offers its Creative Cloud, Experience Cloud, and Document Cloud to help businesses better manage their digital transformations. The software-as-a-service business has seen steady growth even through the pandemic, with total revenue rising from $11.2 billion in fiscal 2019 (FY2019) to $15.8 billion in FY2021.
The power of its subscription model is clear, as the proportion of subscription revenue during this period has increased from 86% to 92%. Operating income surged from $3.3 billion in FY2019 to $5.8 billion in FY2021, while net income rose from $3 billion to $4.8 billion. This momentum has carried into Adobe's fiscal 2022's first quarter, which ended March 4, with total revenue rising 9% year-over-year to $4.3 billion and operating income climbing 8.7% year-over-year to $1.6 billion. Net income inched up 0.4% year-over-year due to a higher tax liability for the quarter. Free cash flow of $1.67 billion was generated, in line with the $1.71 billion generated in the prior year.
Adobe's total addressable market is estimated to be around $205 billion by 2024, providing the software cloud company with ample room for continued growth.
Image source: Getty images.
Chipotle Mexican Grill
Chipotle Mexican Grill (CMG 6.33%) runs a chain of restaurants serving Mexican cuisine such as tacos, quesadillas, and burritos. The company has been successful in managing the temporary closures related to COVID-19 back in 2020, and has pivoted its business toward digital sales. The result has been impressive: Total revenue for the Mexican food chain went from $5.6 billion in FY2019 to $7.5 billion in FY2021 without experiencing a dip. Over the same period, operating income climbed from $444 million to $805 million, while net income jumped from $350.2 million to $653 million.
Digital sales continued to grow, rising by 24.7% year-over-year for FY2021 and accounting for 45.6% of total sales. Comparable restaurant sales improved by 19.3% year-over-year, and just last month Chipotle celebrated the opening of its 3,000th restaurant in Phoenix, Arizona. The company opened 215 new locations in the U.S., Canada, and Europe, and around eight out of ten of these locations featured a "Chipotlane". Chipotlanes allow for quick and easy pick-up by drivers, and represent the latest innovation by the company to focus on quick turnarounds.
CEO Brian Niccol has a goal of having 7,000 restaurants in the U.S., and this year alone the company plans to open between 235 and 250 new restaurants. Chipotle is also successfully innovating its menu by introducing a new chicken offering for the first time in its history, attracting more customers and encouraging repeat visits.
Match Group
The pandemic has thrown a spotlight on just how lonely people can get when subject to movement restrictions and social distancing. That's where Match Group (MTCH -0.78%) comes in to fill the gap with its wide range of dating apps such as Tinder, OKCupid, Hinge, and Meetic. Revenue has risen steadily from $2 billion in FY2019 to $2.98 billion in FY2021 as more people flocked to use the company's apps. Operating income rose from $645 million to $851.7 million, but net income in FY2021 took a hit due to a $441 million employee litigation payout that Match Group had to provide for.
Apart from the blip above, Match Group has done well to consistently grow its user base, revenue and bottom line. The number of paying customers rose by 15% year-over-year in FY2021 to 16.2 million, while revenue per customer inched up by 8% year-over-year to $16.16. Although Tinder still makes up more than half of Match Group's revenue, there's evidence that emerging brands such as Hinge and the newly acquired Hyperconnect are gaining traction. Hinge saw its revenue more than double to $197 million in FY2021 and is now focused on international expansion, while Hyperconnect rolled out live streaming on its Azar app and enjoyed a better performance in December 2021 compared to earlier months.
Not neglecting its established brands, Match intends to incorporate new features such as audio and video into its apps to increase their appeal. The company has launched a new premium service for serious daters, and introduced a new brand, Stir, that taps on the company's platform and that focuses on single parents. Match is projecting a 15% to 20% year-over-year revenue increase, and is confident of continuing its growth trajectory.
