You only need two things to make money in the stock market: a portfolio of high-quality stocks and a long-term mindset. Studies have consistently shown that the vast majority of day traders lose money, and since 1928 the S&P 500 has generated a negative return on a monthly basis nearly 40% of the time. That means you need to think in terms of years, not days or months.
Building on that idea, The Trade Desk (TTD 1.62%) and Zscaler (ZS 0.25%) are two of my highest-conviction investment ideas right now. Assuming nothing material changes with either business, I plan to hold both stocks until I retire. Here's why.
1. The Trade Desk
The Trade Desk specializes in digital advertising. Its AI-powered platform helps ad buyers create, measure, and optimize data-driven campaigns across channels like connected TVs, desktops, and mobile devices. Better yet, its proprietary bid-factor-based architecture allows clients to set expressive targeting parameters more easily than other buy-side platforms, giving the company an edge over the competition.
The Trade Desk has further distinguished itself with its independent business model. It doesn't own any content and therefore has no reason to favor ad inventory from any website or mobile app. That differs dramatically from the tactics employed by Alphabet and Meta Platforms, both of which serve third-party ad buyers and sellers, while simultaneously selling their own ad inventory.
That competitive edge has translated into consistently solid financial results. Last year, ad spend on The Trade Desk's platform jumped 47% to $6.2 billion, outpacing the 29% growth in global digital ad spend. That means the company is gaining market share. In turn, revenue rose 43% to $1.2 billion, and non-GAAP earnings rose 32% to $0.91 per diluted share. But with global digital ad spend set to reach $785 billion by 2025, The Trade Desk has only captured a tiny fraction of its addressable market.
To capitalize on that opportunity, it recently partnered with Walmart (the world's largest retailer) in shopper marketing and Xiaomi (the world's second-largest smartphone maker) in mobile advertising. Both moves give ad buyers access to more inventory. The Trade Desk also introduced OpenPath in February, a tool that allows its platform to interface directly with ad sellers. In doing so, the company seeks to make the ad buying process more efficient by removing supply-side tools (like Google Ad Manager) from the transaction.
In short, The Trade Desk is a key player in a massive market, and management is executing on a sound growth strategy. That's why this stock is a high-conviction buy.
Zscaler specializes in network and cloud security. Traditionally, businesses have secured their sensitive data by building firewalls around their corporate data centers. But that solution is no longer effective, because many applications and resources now live in the cloud. To resolve that inconsistency, Zscaler's zero-trust platform -- known as a secure access service edge (SASE) -- makes it possible to enforce security policies in the cloud.
Specifically, Zscaler acts as a gateway that quickly and securely connects employees to corporate resources and the open internet. That creates a better user experience, and it eliminates the need for on-site security appliances. Better yet, Zscaler's SASE platform runs across more 150 global data centers, making it the largest security cloud in the world.
That competitive edge has translated into strong demand. Zscaler has over 5,600 customers, and the average customer spent 25% more over the past year. In turn, revenue soared 60% to $860 million, and free cash flow surged 145% to $196 million. But the future looks even better for this cybersecurity company.
Research company Gartner has recognized Zscaler as an industry leader for the last 11 years. Gartner also believes that 60% of enterprises will have strategies in place to adopt SASE products by 2025, up from just 10% in 2020. That massive uptick in adoption should be a tailwind for Zscaler, helping the company capitalize on its $72 billion market opportunity. That's why this growth stock is a high-conviction buy.