3 Top Stocks to Buy and Hold for the Next Decade and Beyond

The U.S. equity market has been battling with rising inflation and interest rate hikes for the past year. Now, with stronger-than-expected jobs growth and a higher-than-expected Consumer Price Index (CPI, a metric used to gauge inflation) in January 2023, worries about further interest rate hikes seem to have gripped the minds of investors. The minutes from the Federal Open Market Committee's February meeting seem to reassert these fears since all the members are in favor of pushing up interest rates. That, coupled with fears of recession, seems to have extended the bear market.

Historically, stock market corrections have been mostly followed by strong bull rallies, though such rallies may be out a few months, or even years. Hence, this period can also prove to be a good time for bargain-hunting high-quality stocks such as Amazon (AMZN -1.65%), Snowflake (SNOW -1.61%), and Datadog (DDOG -1.43%), which are driven by secular tailwinds.

Amazon

Share prices of e-commerce, cloud computing, and digital advertising player Amazon came crashing down to earth in 2022. Although the stock performed better in early 2023, it is nowhere close to its former glory. Investors are worried about the company's weak outlook for the first quarter of 2023 in the face of slow growth, lack of profitability of the e-commerce business, and a weak cloud computing market.

Yet Amazon may soon see better days. The company is focusing on several cost-cutting initiatives such as layoffs, hiring freezes, reducing excess warehouse capacity, closing several brick-and-mortar stores, and aiming to increase the operational efficiency of the e-commerce fulfilment network. While this may not be enough to ensure profitability for the e-commerce business in the short run due to rising inflation and reduced consumer discretionary spending, it is definitely a move in the right direction.

Amazon's extensive e-commerce business is also driving its rapidly growing digital advertising business. By advertising to customers with high purchase intent and at the point of purchase, the company has reported better conversion rates (9.87% for Amazon website ads, and 1.33% for other e-commerce sites).

Amazon's cloud computing business, Amazon Web Services (AWS), is also currently facing a slowdown (expected mid-teens-percentage year-over-year growth for the next two quarters compared to 20%-plus growth for past several quarters). While enterprises are currently scaling down cloud spending amid a tough economic environment, CEO Andy Jassy believes that market leader AWS will benefit from a shift from on-premise infrastructure (currently accounts for 90% to 95% IT spending) to the cloud in the next 10 to 15 years.

Amazon is currently trading at 1.9 times trailing twelve-month sales, which is very close to its 5-year low valuation. Legendary value investor Bill Miller also considers Amazon to be one of the cheapest stocks in the market now. Coupled with its growth prospects, Amazon seems to be a bargain buy now. 

Snowflake

The rising adoption of digitization across all walks of life is now resulting in the continuous generation of astronomical amounts of data. Snowflake offers a cloud-native data platform that helps organizations integrate, share, derive meaningful insights from, and build data-driven applications from this otherwise siloed data stored in disparate sources.

Snowflake differentiates itself from many competing cloud data platforms in several aspects. First, the company's platform is agnostic about the client's cloud data provider. Second, the company has made it easier for clients to build customized applications directly on the Snowflake data cloud by launching the Snowpark developer platform. Third, beyond structured data, the company is also focusing on deriving insights from unstructured data. To that effect, the company has acquired artificial intelligence-based text and document automation company Applica. Finally, Snowflake has also announced plans to acquire Mobilize.Net's SnowConvert suite of premium tools, which will help customers efficiently migrate legacy databases to the data cloud.

Although not yet profitable on generally accepted accounting principles or GAAP basis (due to high levels of stock-based compensation), Snowflake posted a non-GAAP net income of $38.5 million in the recent quarter (third quarter of fiscal 2023 ending Oct. 31, 2022). However, with the company expecting improvements in non-GAAP operating margins (from -3% in fiscal 2022 to 3% in fiscal 2023), the company may also become GAAP positive in the coming years. 

Datadog

Datadog's cloud-native application performance and infrastructure monitoring platform enables organizations to collect diagnostic data across workloads, servers, databases, and functions onto a unified dashboard in real time. This allows the company's engineering team to identify and resolve potential pain points quickly, reducing the risk of cyber threats and business disruptions, and improving the overall user experience.

Thanks to its market-leading position in observability, Datadog has reported solid growth in the past few years. The company managed to surpass consensus revenue and earnings estimates in the fourth quarter of 2022 (ending Dec. 31, 2022). The number of large customers (those who contribute over $100,000 in annual recurring revenue, or ARR) rose 38% year over year to 2,780. With large customers accounting for 85% of the company's ARR, Datadog's business model is relatively less sensitive to economic downturns. The company has also been successful in its cross-selling and upselling strategy, as is evident from a dollar-based net retention rate of over 130% for the past 22 quarters.

Datadog's weak 2023 guidance did not impress investors. However, the company boasts a strong balance sheet -- $1.9 billion in cash and $837 million in total debt -- a major advantage in a high-interest environment. Although Datadog is already profitable on a non-GAAP basis, GAAP losses have widened due to high stock-based compensation expenses (SBC, which amounted to 22% of fiscal 2022 revenues). Datadog needs to control its SBC to become GAAP profitable in the coming years.