Tech Sell-Off: 3 Best Growth Stocks to Buy Now and Hold Forever

Tech investors have been on a roller-coaster ride lately, and it hasn't been fun. Many tech stocks are down over 50% from their highs just a few months ago. Seeing red on the portfolio scorecard is never a great feeling, but savvy investors know that when these pullbacks happen, it's a great opportunity to add businesses with a solid track record and a large runway of growth ahead.

We asked three longtime investors to pick one company that they'd buy now with the intent to never sell. They came up with The Trade Desk (TTD 0.85%), MercadoLibre (MELI -1.98%), and Zoom Video Communications (ZM 1.46%). 

Image source: Getty Images.

The Trade Desk: The industry leader in programmatic advertising

Danny Vena (The Trade Desk): Once upon a time, ad executives met in smoke-filled back rooms to determine advertising strategies to pitch products to largely captive audiences with limited viewing choices. These days, however, targeted advertising is less art and more science, using a data-driven approach to connect with viewers. That's where The Trade Desk comes in.

The company specializes in programmatic advertising, the bleeding edge of digital advertising technology, which employs sophisticated algorithms run on high-speed computers to automate the ad-buying process. The Trade Desk is the undeniable industry leader, with a state-of-the-art platform that can assess 12 million ad impressions and quadrillions of permutations every second, ensuring that ads connect with their target market. Additionally, The Trade Desk partners with the world's biggest advertising agencies rather than competing with them.

The digital advertising landscape is undergoing a once-in-a-generation paradigm shift led by Apple's recent privacy initiatives and Alphabet's decision to phase out traditional ad-tracking cookies. The Trade Desk has been preparing for this eventuality for years, introducing its Unified ID 2.0 solution, which helps with ad-targeting while simultaneously protecting consumer privacy, resulting in a rare win-win. Dozens of the industry's biggest names have adopted The Trade Desk's platform, which foregoes the collection of personal information while still delivering relevant ads. 

The advertising industry is a juggernaut that ebbs and flows at a snail's pace but is expected to grow about 6.9% to $619 billion in 2022. Yet underlying segments of the market are growing much faster, which is great news for investors in The Trade Desk.

Estimates suggest digital advertising will grow at more than double the rate of industry growth, increasing roughly 14% this year. Programmatic advertising -- The Trade Desk's bread and butter -- is the fastest growing segment of the market, with growth of 16.3% forecast for 2022. The rate of growth is evidence that The Trade Desk is stealing market share.

The company generated revenue of $1.2 billion in 2021, up 43% year over year, while its adjusted net income of $455.6 million climbed 36% even as The Trade Desk invested heavily to roll out Solimar, its most advanced trading platform ever. The company's growth was powered by strong customer retention, which remained above 95%, a watermark it has maintained for eight consecutive years. 

Finally, The Trade Desk's stock has gotten caught in the recent tech downdraft, with shares trading roughly 38% below their recent highs. The stock has never been cheap in terms of traditional valuation metrics, but its price-to-sales (P/S) ratio of 28 is trading near its lowest level in almost two years, giving investors the rare opportunity to get shares on sale.

Viewers continue to fuel the ongoing trend away from traditional broadcast and cable television, a shift that shows no signs of abating. The Trade Desk meets viewers wherever they are and is uniquely positioned to capitalize on this evolving landscape.

Image source: Getty Images.

MercadoLibre: A leading e-commerce and fintech giant south of the border 

Will Healy (MercadoLibre): MercadoLibre is Latin America's largest e-commerce enterprise. For that reason, one can easily write it off as the Amazon of Latin America. However, this company also holds the unique ability to turn challenges into lucrative business segments.

Despite a 4,300% increase in the stock price since its initial public offering (IPO), the potential for Latin American e-commerce appears primarily untapped. Morgan Stanley estimated a penetration rate of 11% within Latin America for 2022. It believes that the rate will rise to only 16% in 2025, implying that this growth story will persist for many years.

Also, Latin America is a cash-based society, so the company created Mercado Pago to help these customers spend electronically. This turned into a generalized fintech business that accounted for 37% of company revenues in the fourth quarter. The company also established Mercado Envios to deal with the logistics challenges unique to Latin America. That has turned into a fulfillment enterprise that can serve smaller companies in the markets where it operates.

Through these enterprises, it generated almost $7.1 billion in revenue in 2021, a 78% increase from 2020 levels. This led to a profit of $83 million in 2021, up from a $707,000 loss in 2020.

Still, even as the effects of COVID-19 recede, the growth rate appears poised to slow as analysts predict revenue growth of 36% and 34% in 2022 and 2023, respectively. Also, investors may balk at the nine price-to-sales (P/S) ratio, which exceeds Amazon's sales multiple of about four.

MercadoLibre's P/S ratio is near six-year lows. Additionally, the stock sells at a 40% discount to its high, and at a $63 billion market cap, it is much smaller than Sea Limited, the Asian e-commerce giant which has entered several of its markets. That situation probably prices in the company's slowing-but-still-robust revenue growth, likely making MercadoLibre stock a buy now.

Image source: Getty Images.

Zoom: A platform for the "new normal" of the hybrid workplace

Brian Withers (ZM):  It was just a little over two years ago that the U.S. started to shut down due to COVID-19 cases on the rise. Businesses scrambled to allow their employees to work from home, adopting Zoom's video platform as a de facto standard to meet remotely. The company has grown significantly since then and is in a much better position financially, but the stock, surprisingly, is actually down on a two-year basis. Let's take a look at why investors should consider adding (more) Zoom to their portfolios.

First of all, business metrics over the past two years show that Zoom's business is significantly stronger by just about every measure. Revenue is up more than fivefold and customers paying more than $100,000 in annual contract value (ACV) is up more than double. The company has gone from a net income of 8% of revenue to a staggering 46%. Second, the remaining performance obligations, representing the sum of all contracts not yet fulfilled, has quadrupled. This means more customers are signing longer and larger contracts.

Source: Zoom Investor presentations and earnings releases. Calculations by author. 

Even though these results are impressive, investors are looking to see how Zoom can grow going forward. The company has projected only a 12% growth for the upcoming first quarter but expects revenue to accelerate in the second half of the year. This is probably disappointing to longtime investors of Zoom, but I think the best days for the company are yet to come.

In the most recent quarterly conference call, the company talked about how it's focused on making its products not only work as a virtual-meeting tool but effective in hybrid-work situations as well. Its Zoom Rooms products enable in-person conference rooms to be inexpensively set up with the Smart Gallery feature that gives each in-person participant their own video stream, so everyone at the meeting is on an equal footing. Its Zoom Events product has been enabled to seamlessly combine the virtual attendee experience with the in-person one. The company looks to continue to invest in its hybrid initiatives and other growth engines by investing up to 10% to 12% of its revenue in research and development, up from 9% in fiscal year 2022.

With the hybrid-work environment becoming the inevitable new normal, this video platform specialist is set up well to continue to make inroads with its enterprise customers. With the stock trading near its lowest (P/S) ratio ever, it's a great time to add this growth stock to your portfolio with the intention of holding it for the next decade, or even longer.