Picking stocks to invest in can sometimes be an overwhelming process for new investors, but it doesn't have to be difficult.
If you're in the market for growth stocks -- companies that grow sales faster than many of their competitors -- there are plenty of great options out there, including Amazon (AMZN -1.65%) and The Trade Desk (TTD -0.54%).
Both of these companies offer new investors exposure to some very fast-growing industries, including digital advertising, cloud computing, and e-commerce, and each has carved out a niche in their respective markets. Let's find out a bit more about these two growth stocks.
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1. The Trade Desk
Digital advertising is a massive market that generated sales totaling $567 billion last year and is poised to grow into a $696 billion industry by 2024, according to Insider Intelligence. And it's within this impressive ad market where The Trade Desk benefits. The company has an ad-buying platform that allows companies to place orders for ads across connected devices -- everything from smartphones to smart TVs.
Business is booming for The Trade Desk, and in the third quarter, the company's sales rose 31% to $395 million, and its non-GAAP (adjusted) net income increased 45% to $129 million. That growth is even more impressive, considering that many companies in the ad industry experienced a slowdown recently related to concerns about a potential recession.
That short-term slowing shouldn't worry investors who are buying stocks and holding onto them for five years or more. Not only is The Trade Desk continuing to expand its business, but it's also helping to change the ad industry by helping it to move away from unpopular online trackers. The ad industry has been moving away from tracking cookies, and The Trade Desk offers advertisers an alternative -- called Unified ID 2.0 -- that helps them serve targeted ads while adding more privacy for online users. Unified ID has already been adopted by many major companies, including The Washington Post, Amazon Web Services, FuboTV, and many others.
Growth stocks usually trade for a premium compared to value stocks, making them relatively more expensive than some of their counterparts. Right now, The Trade Desk's price-to-sales (P/S) ratio is 15, which isn't cheap, but with the broad tech stock sell-off over the past year, it's much cheaper than its P/S ratio of 35 this time last year.
2. Amazon
Amazon should be on your buy list because the company is a leader in three key markets: cloud computing, e-commerce, and digital ads.
It's no secret that Amazon's e-commerce market is the leading destination for buying nearly anything consumers need. In the first half of 2022, Amazon's share of the U.S. e-commerce market was a whopping 38%, with the next closest competitor -- retail juggernaut Walmart -- taking just 6%. That dominance translated to North American e-commerce revenue of $78.8 billion in the third quarter, up 20% from the year-ago quarter.
But that's not Amazon's only strong suit. The company is also a leading player in the cloud computing market. Amazon Web Services (AWS) holds 34% of the public cloud market, ahead of Microsoft's 21%. Spending in the cloud computing market will reach an estimated $1.5 trillion by 2030. And Amazon is already benefiting from its growth, with $20.5 billion in sales from AWS, up 27% from the year-ago quarter.
If all of that weren't impressive enough, consider that Amazon is also becoming a leading player in the digital ad space as well. The company sells ads on its e-commerce platform and has grown its advertising revenue segment into a $30 billion business annually. Not all that long ago Amazon wasn't even mentioned among the top ad companies. Now it's on track to take nearly 13% of the digital ad market by 2026.
Investors may also like the fact that Amazon's shares are trading at a relative discount right now. The company's P/S ratio is just 1.8, down from 3.7 this time last year.
The most important thing for new investors to remember
Buying shares of a company you like is the easy part, but holding onto that stock for the long term as it grows is much harder. But investors who hold onto stocks for five years or more do much better than investors who sell when a few bad quarters come along.
Achieving outsized gains in the market requires patience and the willingness to stick to your investment thesis even in rocky times.
