3 Unstoppable Stocks to Buy for 2023 and Beyond

The U.S. equity market seems to be in a precarious situation. According to the January jobs report, unemployment is at a 53-year low of 3.4% (when 3.6% was expected), while wages rose by 4.4% year over year. The Consumer Price Index and Producer Price Index -- both key gauges of U.S. inflation -- also increased more than expected in January. Based on this data, the chances of the Federal Reserve pausing its interest rate hikes soon seem slim -- a major downer for the equity market.

Yet there is money to be made in the stock market by the long-term investor, especially since some fundamentally strong companies are well-positioned to face even a tough economic environment. Here's why Airbnb (ABNB -0.50%), Cloudflare (NET -0.47%), and DigitalOcean (DOCN 0.66%) could prove to be good buy-and-hold picks for 2023 and beyond.

1. Airbnb

Leading short-term rental provider Airbnb reported stellar fourth-quarter performance, with revenue and earnings surpassing analysts' consensus estimates. 2022 was also the company's first full year of generally accepted accounting principles (GAAP) profitability -- an unusual achievement for a consumer discretionary company during a period of high inflation.

Airbnb has several strong moats such as brand power and network effects, as well as a capital-light and flexible business model. A virtuous cycle in which high-quality hosts attract more customers, who in turn attract more hosts to Airbnb's network, is at the core of the company's success.

Besides vacation rentals, Airbnb is also focusing on long-term stays (28 days or more) to benefit from the increasing adoption of remote and hybrid working arrangements.

With Airbnb able to scale its network of properties cheaply and rapidly by adding more hosts across geographies, the company has been successful in catering to people's rising preferences for offbeat vacation destinations and unique experiences. Conventional hotel chains, on the other hand, do not find it financially feasible to operate in unique but less-traveled areas.

2. Cloudflare

Cloudflare has emerged as a force to be reckoned with in the cloud-native edge-based content delivery network and cybersecurity space. It handles around 17.7% of global internet traffic and provides cybersecurity services to 20%  of the web.

Thanks to its significant visibility into internet trends, Cloudflare was early to spot the signs of a looming economic slowdown. This helped it slow down its pace of hiring and avoid the degree of excessive spending that recently become problematic for many other technology companies.

In 2022, Cloudflare earned $591 million from large customers (individual clients that spend more than $100,000 annually on its services), up 67% on a year-over-year basis. Large customers accounted for 61% of the company's total annual revenue, making its business more resilient to economic downturns.

Cloudfare operates a freemium pricing model under which it offers free plans that clients can upgrade to more robust subscription plans. This helps the company attract new customers and reduce churn levels.

Cloudflare has been increasingly focusing on profitability and became free cash flow positive in Q4, with $34 million. With just a little bit of luck, this company could prove to be a solid long-term winner.

3. DigitalOcean

Cloud computing platform DigitalOcean differentiates from large cloud infrastructure providers such as Amazon, Microsoft, and Alphabet by providing cloud-native infrastructure and platform tools to developers, start-ups, and small and medium-sized businesses (companies with fewer than 500 employees).

With many businesses attempting to trim expenses, DigitalOcean reported weaker-than-expected Q4 revenue and provided a relatively muted revenue growth outlook for 2023. The company also pushed back its target of achieving $1 billion in annual revenue from 2024 to 2025.

However, DigitalOcean is also focusing on cost-cutting measures to improve profitability and free cash flows. The company is laying off 11% of its workforce and shifting some of its human resources to international locations (aligned with its revenue base), mostly to benefit from lower salaries. The company is guiding for free cash flow margins of 21% to 22% in 2023 and close to 30% in 2024, a steep rise from 13% in 2022.

Further, the company reported a net dollar retention rate of 115% in 2022, highlighting its success in upselling and cross-selling even in a difficult macroeconomic environment.

DigitalOcean estimates its target addressable market will grow annually at a compound average rate of 26% from $98 billion in 2023 to $195 billion in 2026. Given that its annual run rate is only around $600 million, that gives it plenty of room to grow rapidly.