Structuring a portfolio around a core group of high-quality stocks is critical, no matter what your investing experience is. Having stable companies that can weather the volatile storm in the stock market allows you to spread your wings and invest in other companies that might be riskier.
It is important to keep a few things in mind as a new investor. First, diversity is your friend, and you should aim to have at least 20 to 25 stocks in your portfolio. This is also why your core holdings should consist of multiple companies (which is why I'm talking about three today), not just one. Second, time is your friend. As many investors have seen in 2022, the stock market is volatile, and timing it is next to impossible. For that reason, investing with a five-year time horizon or longer will likely produce stronger returns compared to investing with a five-week horizon.
With these tenets in mind, here are three stocks that can act as strong bellwethers in your portfolio while still providing impressive growth over the next five years and beyond.
1. The Trade Desk
The Trade Desk (TTD -3.28%) has already seen incredible growth since going public in 2016 with the stock rising nearly 4,000% from its IPO price. However, the company has barely scratched the surface of its full potential.
The Trade Desk serves as an intermediary that helps advertisers reach their target audience through digital channels. It is the industry leader with no major competitors, so it has been able to rule the advertising technology market. About $6.2 billion in advertising spending ran through its platform last year, up 47% year over year.
The company's outright dominance in the space could continue to do wonders for the company. It already has over 225 partnerships with some of the biggest advertising suppliers like PubMatic and Magnite to offer ad space to its customers. Considering most of the supply is already available to Trade Desk customers, there would be no incentive to move to another platform.
This allows The Trade Desk to capitalize on this large market. Global digital ad spending in 2021 was worth $439 billion, meaning the company captured less than 1.5% of its total opportunity. By 2025, however, global digital ad spend is estimated to be worth $627 billion. With so much potential on the horizon, investors should consider adding this leading name to their portfolio and hold it long term.
2. Unity Software
The gaming space is expected to explode over the coming years with the market estimated to be worth $300 billion by 2027. Unity (U -4.77%) has leveraged this huge opportunity as the number of games built on its development engine grew 93% in 2021.
Unity is the top dog in the game creation software industry with Epic Games' Unreal Engine being a distant runner-up. However, this isn't a winner-take-all scenario -- both companies could succeed simultaneously given how large the gaming market is. Unity has shown the early stages of its success with stellar adoption over the past few years. It now has over 1.5 million monthly active creators and $1.1 billion in annual revenue.
Unity isn't perfect as an investment, however. The company reported negative free cash flow of $153 million last year. While that only made up 14% of revenue, management needs to make progress pushing that figure toward positive territory. Today, however, I am willing to overlook that issue given Unity's leadership in this industry.
Shopify (SHOP -5.74%) provides e-commerce services to small and medium-sized businesses (SMBs), helping them build out their physical and digital operations. It has supported more than $200 billion in sales on its platform, ranging from mom-and-pop shops to publicly-traded companies like Allbirds.
Shopify's unwavering focus on customer success is why it has grown to the size it is today. It offers tools for everything from payment processing to international expansion. It has even partnered with big brands like Walmart to help its merchants thrive. The company isn't losing sight of its focus either: Shopify has long-term plans for several services, including a fulfillment network. With this innovation, it's easy to say that Shopify will likely be much bigger a decade from now.
Shares of the company are still expensive, trading at just over 19 times sales. That said, its 10% share of U.S. e-commerce sales in 2021 is indicative of its positioning and the opportunity that lies ahead of it. Second only to Amazon, Shopify has a unique edge over its competitors, which is why I think it's still worth buying today.