The market's having a tough time lately. But as veteran investors can attest, the current turbulence won't mean much a year from now and won't even be remembered a decade from now. And those are the sorts of timeframes most long-term investors should be thinking about. What's happening in the meantime is just noise.
To this end, here's a closer look at three great growth stocks that may or may not be doing well right now but are poised for seriously outsized long-haul performance. In no particular order...
1. Applied Materials
Investors looking to add semiconductor exposure to their portfolios often consider names like Intel or Taiwan Semiconductor Manufacturing, and rightfully so. These two companies are among the biggest names in the chip business, with each boasting an impressive pedigree. Prioritizing the chipmakers, however, may be the wrong approach. The semiconductor business is brutally competitive, and one company's newest technological development could readily upend a rival's market share.
Instead, long-term investors are arguably better served by holding stakes in companies that specifically help semiconductor manufacturers wage their never-ending war with one another.
A name like Applied Materials (AMAT +5.98%) does the job nicely. This company provides the scientific equipment needed to make modern computer processors, for instance. But it also offers the materials required to manufacture them and the software needed to make the manufacturing process work. As long as the world needs computer chips and chipmakers continue their quests to make the market's best ones, Applied Materials will enjoy plenty of willing buyers of its wares.
NASDAQ: AMAT
Key Data Points
This year's forecasted revenue growth of 10% isn't necessarily the fastest growth you can plug into, and the company is only expected to see about the same degree of sales growth in 2023. Applied Materials has been a pretty reliable long-term growth company, though, when looking at its long-term performance. Last year's sales of $21.2 billion are more than twice the organization's annualized top line from 10 years ago. That's something not too many companies can say.
2. Shopify
Amazon (AMZN +0.55%) may have mainstreamed e-commerce en route to becoming the Western world's predominant player. But it's starting to show signs of its age and size. Smaller merchants looking for more flexibility than Amazon offers -- and looking to avoid being lost in a sea of competition -- are tapping Shopify (SHOP 1.37%) to be that alternative e-commerce platform.
Shopify can be best described as alt-Amazon.
While Amazon.com clearly draws a massive amount of traffic, it also steers would-be buyers to a competing seller's products. Amazon also ultimately owns a particular store's data, even though an Amazon store operator takes the risk of making or buying merchandise to sell via the site. Shopify, conversely, helps online sellers set up their own e-commerce platforms and build their own customer databases that remain theirs to use however they see fit.
NASDAQ: SHOP
Key Data Points
And sellers are embracing the alternative in droves. While the company itself doesn't provide a regularly updated count, estimates peg the number of online stores built on Shopify platforms at somewhere in the ballpark of 2 million, collectively selling something to over 2 million consumers every single day. The company does confirm total sales facilitated, though. That figure reached $175.4 billion last year, up 47% year over year and generating $4.6 billion worth of revenue for Shopify itself. Top-line growth is expected to cool to only 25% this year before accelerating to nearly 30% growth next year, though the company's highest-growth days are likely in the past.
Still, Shopify's service is clearly gaining traction.
The kicker: As big as e-commerce has become, the U.S. Census Bureau reports that only about 14% of the country's shopping is done online. The remaining 86% is a huge opportunity for merchants looking to establish or expand an online presence.
3. Amazon
Finally, while the aforementioned Shopify is a threat to Amazon's potential share of retail spending that's still being done offline, Amazon remains a worthy long-term growth addition for most investors' portfolios.
Just not for the reason you might think.
As strange as it may seem in light of the company's roots, online retailing has never been a particularly profitable venture for Amazon. Big? Yes. Highly profitable? No. Even in a historically good year, Amazon's profit margin rates were in the low single digits, and thanks to inflationary pressure, the e-commerce giant's e-commerce operation slipped into the red during the first quarter of this year.
NASDAQ: AMZN
Key Data Points
The company's bottom line is improving all the same, however, because of two side businesses Amazon has cultivated into key profit centers.
One of these is, of course, its cloud computing arm, Amazon Web Services. Last year, although it only made up 13% of its total top line, Amazon Web Services accounted for 74% of the company's operating profits. It's simply a fast-growing, high-margin business.
The other new major profit center is Amazon's ad business, which allows its sellers to pay to promote and feature their products at Amazon.com. We've heard little about this budding business until this year when the company told us it generated a total of $31.2 billion worth of advertising revenue in 2021. This doesn't tell us much about the profitability of this arm, but given that the organization is simply leveraging the e-commerce platform it already operates to drive this business, it's conceivable that most of this revenue is trickling down to the bottom line.
More important to prospective buyers, both of these businesses have lengthy growth runways in front of them.
