When seeking out the best stocks, investors should be keeping an eye on at least several key traits in a company. That includes track records of success, prominent positioning in an important market, and long runways for future growth. These characteristics, combined with a long-term time horizon, should lead to positive investment returns. 

Fortunately, it doesn't take a lot of money to get started. With as little as $1,000, investors can consider the two stocks below. Tech giant Microsoft (MSFT 0.21%) and up-and-comer Datadog (DDOG 3.25%) may be on opposite ends of the spectrum in size, but both show strong promise ahead. Let's dig in and see why investors should take a closer look at them.

Microsoft

The name Microsoft is likely familiar to all investors given its long and storied history as one of the most important companies in the world. While its Windows operating system and suite of productivity software are still driving business results, Microsoft has also become one of the big-three cloud infrastructure providers with its Azure Cloud business. Azure is part of the intelligent cloud segment, which is Microsoft's largest and fastest growing source of revenue.

Microsoft recently reported its earnings results for the first quarter of its fiscal 2024 and there were several trends that should excite potential investors. First of all, top- and bottom-line growth have continued their trend of accelerating each quarter.

Metric

Q2 2023

Q3 2023

Q4 2023

Q1 2024

Revenue growth (YOY)

2%

7%

8%

13%

Earnings per share growth (YOY)

(11%)

10%

21%

27%

Data source: Microsoft

The revenue growth trend has been consistent across all of Microsoft's business segments. Of particular interest in this most recent quarter was the growth in the Azure cloud businesses, which grew 29% year over year. This was driven by companies migrating to the cloud and also by increased artificial intelligence (AI) business. 

Microsoft's bottom-line growth starts with gross margin, which increased by 2 percentage points year over year. Improved business efficiency led to an operating margin increase of 5 percentage points, which is why earnings per share jumped by 27%. Put simply, Microsoft is growing its revenue and decreasing its expenses, all of which is good news for investors.

One note of caution for investors is Microsoft's valuation. While its current price-to-earnings multiple of 33 is not far above its historical average, it would be a mistake to consider the stock cheap. Buying shares at this price is reasonable but investors may want to consider dollar-cost averaging into this stock over time as the market may present more attractive buying opportunities down the road.

Datadog

While not nearly as well-known as Microsoft, Datadog is certainly making a name for itself in the IT operations market. Datadog provides companies with a simple unified platform where multiple aspects of what an IT department needs to monitor can happen in one place. The company refers to this as breaking down the silos between various IT departments.  

Like many software-as-a-service (SaaS) companies, Datadog has been focused on growth more than profitability. In its time as a publicly traded company, it has averaged year-over-year revenue growth of 65%. However, that growth rate has been declining over the past year. In the most recently reported quarter, the second quarter of 2023, revenue grew by only 25% over the prior year. To be clear, that's still very strong, but it's worth pointing out the deceleration. 

The good news is that even as revenue growth has slowed, the company has been making progress toward profitability. Datadog's net loss was $4 million in Q2 2023, improving slightly from a loss of $4.9 million in the year-ago quarter. On an adjusted basis, non-GAAP (adjusted) earnings per share grew by 50% year over year. That trend is expected to accelerate as the company is guiding for an adjusted earnings per share increase of 48% in the third quarter of 2023. 

In a world where higher interest rates mean money is considerably more expensive for companies to borrow, getting to profitability is becoming more important. The fact that Datadog is making progress toward being sustainably profitable is a good sign both for the business and its shareholders. 

Lastly, it's worth pointing out that Datadog's customer growth is still going strong and has seen less of a deceleration than its revenue growth. Total customers grew by 23% in Q2 2023 and its customers with annual recurring revenue of $100,000 or more grew by 24%. 

Datadog is also selling more products to its current customers. In Q2 2022, only 14% of customers subscribed to six or more products. One year later, that number is 21%. Selling more products to current customers should continue to help profitability as there are fewer sales and marketing expenses when selling to a customer the company has already acquired.