The great thing about investing today is that you don't have to start with a lot of money. Transaction fees are often zero for trades, and fractional shares allow you to buy small pieces of a share of expensive stocks.
But investors still need the right mindset of long-term investing and buying great companies, whether you're putting a few dollars or a few million dollars to work. If you're putting $20 to work in the market right now, I think three stocks to buy and hold forever are Spotify (SPOT 0.20%), NextEra Energy Partners (NEP -0.89%), and PayPal (PYPL 2.90%), because they have what it takes to be long-term winners.
1. Spotify
Spotify has made the economics of streaming work for the music industry, and it's built a market-leading position in the process. But the company hasn't been a big winner for investors yet, which I think will change in 2024.
After years of building a streaming giant, Spotify is finally reaching scale and proving it's the go-to place for music, podcast, and audiobook creators alike. The company's monthly active user base jumped 26% in the third quarter of 2023 to 574 million and will reach 1 billion users in a few years at this pace. Premium revenue was up 10% to 2.9 billion euros for the quarter, but that's before the impact of price increases that will start to help revenue this quarter.
As great as this momentum is, the company's profit potential is in advertising and cost reductions. On the ad side, Spotify has spent years building out advertising infrastructure, and ads grew 16% to 447 million euros last quarter, which I think will accelerate. Costs will help financials even faster, with operating expenses down 13% in the third quarter to 853 million euros, and more reductions are coming after a recent round of layoffs.
Over the next decade, I think Spotify will expand its dominance in audio products, improving monetization and profitability, which could lead to market-beating returns.
2. NextEra Energy Partners
Few companies will benefit more from falling interest rates than NextEra Energy Partners. The company owns renewable energy assets that produce cash flow and ultimately pay dividends to investors, but it uses debt to fund some of those acquisitions.
Coming into the year, the company had $2.2 billion of debt that needed to be refinanced before 2026, at higher rates. But the recent drop in rates will give a bit of a reprieve for the company's finances, which were getting stretched throughout the year.
Now, NextEra Energy Partners is facing incrementally less financing pressure. The company recently closed a $750 million 7.25% senior unsecured notes offering and cut back expected dividend growth to 5% to 8%. But with the dividend yielding 11.6%, even zero growth would make this an outstanding stock to buy and hold long-term.
3. PayPal
The payments business has been in turmoil all year, with margins falling and growth starting to slow. But PayPal has a steady business that will provide value for long-term investors.
You can see in the chart that PayPal has grown steadily over nearly a decade, and it's generating free cash flow and buying back shares. There are challenges with cash flow falling in 2023, but I think that will be remedied as the industry focuses more on profitably processing transactions and growing subscription revenue.
PYPL Revenue (TTM) data by YCharts
PayPal is riding a long-term wave of digital payments and has tacked on valuable subscription services that businesses run on. The network effects of these businesses are hard to break and will keep PayPal's cash flow strong for years to come.
Taking the long-term view
You don't have to invest a lot to start in the market, but getting started is the hardest part. Investing $20 in these stocks and holding them for decades will be the beginning of an excellent foundation for the future.
