Growth stocks may not be at their zenith as they were in the earlier days of the pandemic, but that doesn't mean that all companies in this space have exhausted their long-term growth potential. On the contrary, even companies that are seeing share prices decline in the current environment are still recording steady business growth that portends well for a future recovery.
Here are two such stocks to consider adding to your portfolio in 2023 and holding for the next three to five years at least.
1. Amazon
Amazon (AMZN -1.65%) faced its share of murky economic waters in the past, but it should come as no surprise that the current environment, where both enterprise and consumer spending remain generally depressed, has presented growth changes for this tech giant. Even so, the company's long-standing and continued leadership in industries with superior runways for growth ahead, like e-commerce and cloud computing, can help it to withstand these near-term shifts while remaining well-poised for the future as spending in these areas recovers.
Amazon's revenue of $514 billion in the full-year 2022 represented an increase of 9% from 2021, but was up 83% from 2019, a sign that growth is still strong from pre-pandemic levels even as it normalizes from the supercharged period of gains its core businesses experienced during the pandemic. Meanwhile, one of the company's fastest-growing segments -- Amazon Web Services -- recorded year-over-year revenue growth of 30% in 2022. Bear in mind, Amazon controls approximately 34% of the entire global cloud infrastructure industry, more than any other player in this space.
And lest anyone think that the company has tapped out its growth potential in cloud computing, I would note a statement by CEO Andy Jassy in the 2022 earnings call:
90% to 95% of the global IT spend remains on-premises. And if you believe that, that equation is going to shift and flip, I don't think on-premises will ever go away, but I really do believe in the next 10 to 15 years that most of it will be in the cloud if we continue to have the best customer experience, which we have to work really hard at an event which we're working to do. It means we have a lot of growth in front of us in the AWS business.
Even with the current changes in consumer spending, the U.S. e-commerce industry alone -- a space in which Amazon boasts a market share of 40% -- is still on track to hit a valuation of $1.1 trillion in 2023. Amazon has plenty of cash and investments on hand ($70 billion at the end of 2022), and even that net loss that put so many investors off was non-operational, related instead to common stock losses from its long-standing investment in Rivian. Now could be an excellent time to scoop up more shares while it's still trading discounted.
2. Chewy
Chewy (CHWY 1.92%) continues to pursue new avenues of growth within the multi-billion-dollar pet care industry, and its strategy of rapid diversification is already paying off. In the first nine months of 2022, Chewy reported net sales of $7.4 billion, up 14% from the year-ago period. During that same nine-month stretch, the company generated earnings of $43 million, compared to a net loss of $10 million in the same period in 2021.
While the pet care space has its fair share of players, Chewy continues to differentiate its online-only brand with a rapidly evolving collection of services, products, and solutions that make it a one-stop shopping destination for pet owners. From basic supplies like food to nonprescription pet wellness products (the company even just launched its own line of pet supplements) to compounded medications to a growing selection of pet health insurance offerings, there are so many potential sources of consumer spending within the pet care market, and Chewy is targeting more of them.
Chewy is also further incentivizing vendors to sell on its platform. The company does sell its own private label products, but many of the products on its platform are from outside vendors. In the third-quarter earnings report, management noted that the company had recently launched a beta version of a new sponsored ads initiative, which would allow specific vendors to pay to advertise their products to the more than 20 million users Chewy currently boasts on its platform.
While this initiative is still in its nascent stages, the fact that Chewy is diversifying its sources of revenue beyond consumer spending alone, and into the lucrative advertising space, is just another green flag for this profitable, steadily growing business. Even if a recession does come and slows down spending, pet owners are still going to buy essentials like food and medicine for their pets, and Chewy's wide selection of products and services can help it balance out any lags in more discretionary-facing aspects of its business.
For investors searching for a growth stock they can buy and hold for the long haul, Chewy's leadership in the lucrative pet care industry and continued evolution of its business well past the pandemic-era rush of growth could make it a compelling choice for a well-diversified portfolio.
