The buy-and-hold strategy has been advocated by some of the world's greatest investors, such as Warren Buffet, Peter Lynch, and Benjamin Graham. This strategy eschews the folly of trying to time the market, focusing instead on a company's fundamentals and business model. In so doing, strong buy-and-hold stocks are able to deliver value over the long term, regardless of the broader market's short-term performance.
I'll cover three growth stocks that I think investors should buy and hold for the next decade (or more): Tesla (TSLA 1.85%), Advanced Micro Devices (AMD 2.44%), and Lululemon Athletica (LULU 0.80%).
1. Tesla
You might not like his jokes or his politics, but even critics can find something to respect about Elon Musk's business acumen. The self-dubbed "techno king" has transformed Tesla from an idealistic start-up on the verge of bankruptcy to a corporate giant with a market cap near $1 trillion.
To put this in perspective, if you took the next 10 largest automakers around the globe, their combined market cap would still be lower than Tesla's. The only American companies larger than Tesla are Apple, Microsoft, Alphabet, and Amazon. But what about the future? Can Tesla live up to the lofty expectations that its sky-high market cap represents?
Its impressive financials certainly set Tesla on the right track. Operationally, the carmaker is head-and-shoulders above its competition. With quarterly operating margins of 19.2%, Tesla blows away General Motors (GM 4.37%) and Ford (F 0.47%), which have operating margins of 6.1% and 7.8%, respectively. Revenue has grown 195% over the last three years to $18.8 billion in its most recent quarter. It's been fully profitable since 2020, and diluted earnings per share (EPS) in the most recent quarter were $2.86. Wall Street analysts anticipate future successes, expecting full-year revenue to climb to $86.6 billion this year, followed by $115.3 billion in 2023.
Beyond these fundamentals, Tesla has all the hallmarks that buy-and-hold investors typically seek out. It is the leader in the electric vehicle market, an important and growing industry. Its products are popular, innovative, and well-made. All told, Tesla is well-positioned to thrive for at least the next decade.
2. Advanced Micro Devices
Despite suffering from a 37% dip since the start of the year, Advanced Micro Devices has been one of the best stocks to own over the last few years, surging 784% in the past half-decade. Its impressive performance has been partly driven by its sales growth: Annual revenue has skyrocketed 144% since January 2020.
As our everyday devices have become increasingly advanced, the demand for AMD semiconductors has surged. Its chips are found in everything from cars to thermometers, helping provide much of the "brainpower" we rely on today and will continue to need in the years to come. What's more, AMD's graphics processing units (GPUs) are sought by gamers for their power and speed in rendering complex computer graphics.
Wall Street analysts see a bright future for AMD, estimating revenue of $25.2 billion in 2022 for a year-over-year increase of 53%. Their forecasts anticipate slowing growth in 2023, with revenue of $28.8 billion, as the cyclical semiconductor industry exits its current high-demand, low-supply phase.
On top of all this, AMD is investing more in research and development. This positions the company well to ride out any downturn in the chip market and come out even stronger on the other side.
Image source: Getty Images.
3. Lululemon
Lululemon makes athletic apparel including yoga pants, running shorts, tops, jackets, and other accessories for what the company calls "sweaty pursuits."It offers the best of both worlds, operating through company-owned stores and direct-to-consumer (DTC) digital shops. In its more than 500 brick-and-mortar stores, customers can browse Lululemon products and speak face-to-face with salespeople. On the other hand, the DTC digital storefronts offer convenience for shoppers and lower overhead for the company.
In recent years, Lululemon has outperformed many of the better-known names in athletic apparel, like Nike (NKE -0.18%) and Adidas (ADDYY 2.20%). Since CEO Calvin McDonald was named to the post in July 2018, the stock has returned 187%, outpacing Nike (55%) and Adidas (down 7%).
Despite economists' concerns over slower consumer spending, Wall Street analysts think Lululemon's prospects are solid. They expect $9.34 in EPS for the fiscal year 2023 (ending Jan. 31), up from $7.79 in fiscal 2022. Forecasts expect EPS in fiscal 2024 to jump even higher to $10.99. Crucially, the company maintains a fortress of a balance sheet. Its $1.26 billion in cash easily outpaces its $880 million in debt, leaving it more than capable of riding out a recession.
With its popular products, best-of-both-worlds business model, and a plan to double revenue by 2027, Lululemon will be a stock worth owning for years to come.
