By thinking in terms of decades instead of months, a stock's underlying business and its benefit to the world become more important than daily price fluctuations, quarterly financials, or current valuations. This long-term, buy-and-hold focus gives investors the upper hand in the market by helping them avoid interrupting the power of compounding returns.
Keeping this hold-for-life approach in mind, let's look at four companies with encouraging tailwinds that make them fantastic investments to own forever.
Image source: Getty Images.
1. The Trade Desk
Operating in a global advertising industry worth nearly $1 trillion, The Trade Desk (TTD +1.69%) looks to continue its rise to prominence through its omnichannel, demand-side platform. Posting revenue growth of 43% and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) growth of 72% year over year for the first quarter of 2022, the company's incredible expansion is stronger than ever.
However, despite The Trade Desk's annualized five-year growth rate of 42% looking unstoppable, its share price has struggled recently, dropping over 40% this year with a brutal tech and growth stock market.
NASDAQ: TTD
Key Data Points
So what exactly makes The Trade Desk a promising lifelong holding?
First, Statista expects the target addressable market for digital advertising to reach $800 billion by 2026, implying a 10% annualized growth rate. The Trade Desk exclusively focuses on this digital niche but only accounted for $6.2 billion of the roughly $500 billion spent by advertisers -- highlighting the immense potential to grow its market share.
Second, the company plans to gain this market share thanks to the current shift to ad-supported streaming in the connected-TV industry. With Netflix set to join the many video-streaming companies offering ad-supported subscription packages, major brands and ad agencies will continue turning to The Trade Desk to get the best marketing bang for their buck.
Together, these two growth drivers act as a tailwind for investors of The Trade Desk, making it a tremendous lifelong holding with the potential to grow sales by 30% or more annually for the foreseeable future.
2. Zoom Video Communications
Despite its core Zoom meetings product becoming a verb over the last few years, Zoom Video Communications (ZM +0.49%) has set its sights on creating growth optionality for the long haul. Discussing Zoom's fiscal 2023 first quarter (ended April 30, 2022) earnings, CFO Kelly Steckelberg explained that its younger product lines -- such as Zoom rooms, phone, contact center, and events -- now account for more than 10% of revenue.
With sales only rising 12% and earnings per share (EPS) dropping 50% year over year for Q1, this pipeline of new products is a welcome development for shareholders hoping for a return to high growth. While this budding optionality is the leading cause of Zoom's research and development expenses doubling year over year -- it may be just what the company needs for a turnaround in its share price.
NASDAQ: ZM
Key Data Points
Furthermore, with Zoom's enterprise customers now accounting for more than half (52%) of revenue for the first time in its history, the opportunity exists for these large clients to continue expanding into the company's new products. This opportunity makes Zoom's net dollar expansion rate very important to watch, as its current mark of 123% highlights substantial progress in its growth optionality.
Trading at roughly 30 times free cash flow (even after backing stock-based compensation out) and with management conservatively guiding for 11% revenue growth in fiscal 2023, Zoom looks like a beautiful lifelong holding trading at a fair price.
3. DigitalOcean
While Amazon, Microsoft, and Alphabet act as the Goliaths of the broader cloud industry, DigitalOcean (DOCN 3.20%) assumes the role of David with its Infrastructure-as-a-Service and Platform-as-a-Service offerings.
At first blush, this seems like an unenviable position for any company, as DigitalOcean's $5 billion market capitalization amounts to a rounding error compared to these three juggernauts. However, DigitalOcean uses its diminutive size as a competitive advantage, offering simplified cloud solutions to start-ups and small- to mid-sized businesses (SMBs) that the mega caps tend to avoid.
By focusing on this SMB niche, DigitalOcean provides relatively cheap cloud solutions to its young customers early in their growth story -- allowing it the potential to succeed alongside these upstarts. Thanks to this option-like potential from its large base of small customers, DigitalOcean's share price briefly tripled in 2021 before dropping below its original IPO price in 2022.
NYSE: DOCN
Key Data Points
Recording 36% revenue and 37% non-generally accepted accounting principles (non-GAAP) operating earnings growth year over year in Q1 2022, the company appears to be firing on all cylinders. Furthermore, its net dollar retention grew from 107% last year to 117% in Q1, demonstrating high product expansion among its quickly developing customers.
As DigitalOcean continues to develop new products and features -- such as the upcoming launch of its serverless offering -- it looks positioned well to deepen its relationships with its most successful clients and grow right alongside them.
4. SolarEdge Technologies
With global electricity consumption expected to triple by 2050 and solar power generation expected to grow ninefold over the same time, SolarEdge Technologies (SEDG 0.64%) has two megatrends working in its favor over the very long term.
Best yet, for investors, SolarEdge is capitalizing on this opportunity, growing sales by 36% annually over the last five years and by 62% year over year for Q1 2022.
SEDG Revenue (TTM) data by YCharts.
Providing the photovoltaic inverters, power optimizers, and monitoring needed for residential, commercial, industrial, and utility solar projects, SolarEdge is vital to meeting the world's rising sustainable energy needs. Thanks to its importance to the world and its leadership position in the solar industry, the company should be able to replicate the historical growth shown in the chart above.
While profitability has faced pressure due to supply chain issues and the ongoing success of its lower-margin battery operations, these problems should be temporary -- making SolarEdge an alluring lifelong holding.
