Going back to its beginnings in the 1920s, the S&P 500 index has delivered an average annual return of 9.8%. At that rate of return, an investment would nearly double every seven years. While that 9.8% figure marks the average, there have been years with better performance (2023 being one example) and there have been a lot of market sell-offs along the way (remember 2022?). Still, the market has shown it is unstoppable over the long term.
When it comes to individual companies, the same can hold true. What makes a company truly unstoppable is whether it has the financial fortitude and competitive products to keep growing over the long term. This is ultimately what allows its stock to rebound after a big drop and reach new highs.
Alphabet (GOOG 9.96%) (GOOGL 10.22%) and Adobe (ADBE 0.87%) are two growth stocks that have proven to be unstoppable. Even in a market sell-off, I wouldn't hesitate to buy on the dip because I know they will recover and grow even bigger. Let's find out why these two companies are great long-term investments.
1. Alphabet
Alphabet stock was a stellar performer for investors over the last decade. After falling by nearly half last year with the market sell-off, the stock rebounded sharply. Investors started pricing in a recovery in the online advertising market, which is the source of most of the company's revenue, as well as the potential for future growth from artificial intelligence (AI) initiatives.
While long-term investors could buy the stock now at a fair forward price-to-earnings ratio of 25, Alphabet should be one of the first stocks to consider buying if the market falls again. One reason the company is unstoppable is that it is well insulated financially from any near-term setbacks in the global economy. Over the last four quarters, it generated a whopping $71 billion of free cash flow on $289 billion of revenue. The company can keep investing in the future even if a temporary slowdown in advertising spending weakens its revenue growth, as it did recently.
Google is seen as a major beneficiary of the growing adoption of AI services that is spreading across the corporate landscape right now. Earlier this year, it introduced Google Bard, a generative AI app that can provide sophisticated responses from simple text queries and images. But investors are more optimistic about how this technology could significantly boost the effectiveness of Google Search and drive more growth over the long term.
Indeed, CEO Sundar Pichai said on the second-quarter earnings call that its new generative AI offerings are expanding the company's total addressable market and winning new customers. While Google Search should get a lot smarter and drive increased user engagement from AI, there are other areas where Alphabet is well positioned for growth. For example, Google's new AI models are already seeing exploding demand on the enterprise side. The company also has an enormous opportunity to upsell generative AI services to its large base of 9 million Google Workspace customers.
Google's lead in search and video streaming (YouTube) is a valuable asset as the digital advertising market continues to grow. Moreover, the company's cloud services business is just starting to report higher profits as AI demand picks up, which is a catalyst to watch. It's for these reasons Alphabet should be high on your wish list of stocks to buy during a market sell-off.
2. Adobe
Shares of Adobe have nearly doubled over the last five years and are up 1,000% going back 10 years. The company consistently grows revenue and earnings per share at double-digit annual rates. Professionals in many different lines of work rely on Adobe's software, which has led to many years of profitable growth for the company.
Despite a competitive market for productivity software, Adobe just capped off another quarter of double-digit growth, with earnings per share up 20% year over year and revenue surging 13% on a currency-neutral basis.
Adobe is known for its PDF file software, in addition to creativity software for artists, such as Photoshop and Illustrator. But Adobe also provides software solutions for businesses, in addition to generative AI apps like FireFly, Express, and GenStudio.
It's a highly profitable business that generates consistent revenue from subscriptions. This is why the company generates incredibly high margins that pump out robust annual free cash flows every year. Over the last year, Adobe generated $7.4 billion of free cash flow on $18.4 billion of revenue.
A high-margin, fast-growing business is going to command a premium valuation by the market -- so you might want to wait until the next market dip to add Adobe to your portfolio. At the market lows in late 2022, the stock sold for an attractive forward price-to-earnings ratio of 21, but it now trades at a more expensive 33 multiple of expected earnings.
Considering the long-term tailwinds fueling the digital economy, Adobe should continue to grow revenue and profits for many years, so you should keep it high on your buy list.
