Now is a great time to start building a portfolio of growth stocks to simply hold on to for the next decade. When the market was down just over a decade ago during the financial crisis, it gave us buying opportunities in amazing companies, and there are similar opportunities emerging today.
Three industry-leading companies that I think will continue their growth trends are Spotify (SPOT -1.49%), Taiwan Semiconductor Manufacturing (TSM -4.86%), and Topgolf Callaway (MODG -1.66%). These opportunities might not last forever.
Spotify: The audio giant
No company has been more critical in the recovery of the music business than Spotify. It made streaming economical for labels and artists and built a big business in the process. But that business wasn't particularly profitable because a few record labels control most of the supply, meaning it's the labels that have pricing power, not Spotify.
To address this, Spotify has moved into podcasts and audiobooks, added advertising, and is now charging artists for discovery features in curated and artificial intelligence playlists. This is helping improve the business's economics even as the economy slows down.
You can see below that Spotify hasn't struggled for growth. But even as some of the business improves, the company has been investing in podcasts and advertising, which have yet to pay off. If they do, this company should see rapid margin improvement.
SPOT Revenue (TTM) data by YCharts
I recently highlighted how these discovery tools will help Spotify's economics long-term, and the reality is that no company is building the same features in audio. Spotify is in a class of its own, and in 10 years I think this company will be much more valuable.
Taiwan Semiconductor: THE chip company
Few companies in the world have as much power in any industry as Taiwan Semiconductor currently has in semiconductors. The company makes a majority of the high-performance chips in smartphones and computers today. It's the outsourced foundry for companies like Nvidia (NVDA 0.76%), AMD (NASDAQ: AMD), Apple (AAPL -0.57%), and even Intel (NASDAQ: INTC), and no rivals are currently close to its high-end capabilities.
Where it sits in the market, the company has the ability to command a premium price, which you can see in its nearly 50% net profit margin.
TSM Revenue (TTM) data by YCharts
Given that a new foundry costs tens of billions of dollars to build and the expertise to build advanced foundries is difficult to develop, Taiwan Semiconductor has built a multi-year lead over competitors like Intel. And with revenue continuing to grow on higher chip demand, this is a company I like for a decade or more.
Topgolf Callaway: The leader on the links
Experiential entertainment continues to grow as a category, and Topgolf Callaway is one of the leaders. It combines the Callaway brand in traditional golf with Topgolf "off-course" play and its technology solutions for modern golf. This has attracted new, younger players to a game that was aging rapidly.
In 2022, the company's revenue mix was 35% from golf equipment, 26% from active lifestyle products like clothing, and 39% from Topgolf. It's that last segment that makes this a great stock.
For a new Topgolf venue, average cash-on-cash returns are currently 49%. There were 92 venues by the end of 2022, and management thinks there's potential to grow to 500 venues worldwide. This ranges from small locations to large venues.
Companywide, income from operations was up 25.5% in 2022 to $256.8 million. The 2023 outlook is for an 11% increase in revenue to between $4.42 billion and $4.47 billion, with adjusted EBITDA increasing 13% to $620 million to $640 million.
After a recent round of financing, net debt of $2.1 billion is a concern, but it's also the right move to leverage the business to grow when the economics of a Topgolf location are this good. Long-term, I think this will be a great business to own.
Buy and hold for market-beating returns
The key with companies like this is buying and holding stocks long-term. We don't know if the next month or quarter will be good for these companies, but over the next decade, I think they will all perform well and beat the market. That's where investors can make a fortune.
