Investing for long durations -- like a decade -- gives you the benefit of the power of compounding. Consider that a 10% annual return can turn a $1,000 investment into $2,593 in 10 years.
Two stocks that can help grow your portfolio's value if you buy and hold them for the next decade are Netflix (NFLX 1.18%) and Amazon (AMZN 1.63%). Each is a great business that's facing headwinds that are causing their stocks to be trading at bargain valuations currently.
Let's look at why they are likely to increase the value of your portfolio in the long term.
Netflix is the pioneer of streaming content
Netflix has changed the way people consume content all over the world. Formerly, the options were limited to a cable or satellite connection that would only allow you to watch at home. Thanks to Netflix, folks can now watch their favorite movies and shows anywhere they can get internet service.
Moreover, Netflix has made the content more affordable. At less than $20 per month, your family can access Netflix's massive library of content. That's in stark contrast to expensive cable or satellite subscriptions that can reach over $100 monthly.
It's no surprise that Netflix has grown to over 222 million subscribers. That scale has helped Netflix boost revenue from $6.8 billion in 2015 to $29.7 billion in 2021. The business model is highly supportive of economies of scale, too. It costs Netflix roughly the same whether 10 million people or 200 million watch its content. Therefore, incremental signups boost operating income exponentially. Indeed, from 2015 to 2021, as revenue expanded, its operating profit margin rose from 4.5% to 20.9%.
Of course, other companies noticed how lucrative streaming services are, so they're launching their own. That's creating a headwind for Netflix in the near term as these competitors' entry-level pricing captures new customers. However, they cannot keep prices low forever. Eventually, they must raise prices to stop losing money.
Meanwhile, the competitive pressure has caused Netflix's stock to be trading at a price-to-earnings ratio of 16.3, the lowest in the last five years. Investors buying Netflix stock now and holding it for 10 years are likely to see its value rise.
Amazon Web Services is driving profits
Like Netflix, Amazon is facing near-term headwinds that have caused its stock price to fall. The company thrived at the pandemic's onset as billions of folks looked to avoid shopping in person. Amazon was an excellent alternative, and sales surged.
That tailwind is reversing as economies reopen and folks return to some of their pre-pandemic shopping behavior. That said, Amazon's more profitable web services segment has accelerated revenue growth amid economic reopening.
Indeed, in its quarter, which ended on March 31, Amazon Web Services (AWS) grew by 37%, five percentage points higher than the 32% rate in the same quarter the prior year. That's crucial because the segment delivered an operating profit margin of 35.3% in the quarter. To put that into context, Amazon's operating profit margin has never exceeded 6% in the last decade. Growth in Amazon's more lucrative segment will go a long way in boosting its profitably over the next decade.
Amazon's stock is trading at a price-to-earnings ratio of 53, also near the lowest in the last five years. It's another stock that investors can expect to increase the value of their portfolio if they hold it over the next 10 years.