Warren Buffett has been quoted saying that his favorite holding period is forever. The Oracle of Omaha is not suggesting he never sells, but rather that he would prefer to hold as long as the business is performing.
This is easier said than done, but individual investors would do well to set "forever" as their default holding period while evaluating the business along the way.
The next step is to identify the kinds of companies worth holding forever. Here are three such stocks. Each has competitive advantages that make it a compelling addition to a well-diversified portfolio.
1. Coupang
In the United States and many other countries, the first name that comes to mind in e-commerce is Amazon. But for consumers in South Korea, the go-to is Coupang (CPNG +1.62%).
NYSE: CPNG
Key Data Points
Coupang is following a familiar playbook. The center of its business is e-commerce, emphasizing same-day delivery and easy returns when items are simply left outside a customer's door for pickup. The company is also branching into other areas like food delivery, streaming content, and fintech.
Coupang's success has been evident in its recent results. In the third quarter, the company grew revenue by 21% year over year while generating a profit and positive free cash flow. The past two years have seen Coupang grow revenue and turn to profitability as well as positive cash generation.
|
Q3 2021 |
Q3 2023 | |
|---|---|---|
|
Revenue |
$4.6 billion |
$6.2 billion |
|
Net income (loss) |
($324 million) |
$91 million |
|
Free cash flow |
($245 million) |
$536 million |
Data source: Coupang.
The company is also seeing steady growth in its customer base, demonstrating there's still room to grow. In the third quarter, the active customer count grew by 14%, and average revenue per active customer increased by 7%.
2. Roku
Despite still trading 81% off its 2021 high, Roku (ROKU +0.42%) is positioned for better days ahead. There's no denying the steady transition from traditional linear TV to streaming. The proliferation of streaming services over the past several years is evidence that there's demand for this new way to consume content.
NASDAQ: ROKU
Key Data Points
Roku is at the center of this evolution with its streaming devices and Roku-enabled televisions, but that's not the primary revenue driver for the business. As viewers have moved to streaming, so has advertising spending, and this is where Roku hopes to shine. By growing its user base and increasing its viewing hours, Roku hopes to take advantage of the ads on its platform.
And it has seen success here. In the third quarter, the company grew active accounts by 16% while streaming hours increased by 22%. Unfortunately, Roku remains unprofitable.
That said, the company does expect to be profitable this year on the basis of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). There's certainly risk that remains with Roku, but it's a central player in a sweeping secular trend and offers compelling potential for investors with a long time horizon.
3. Celsius Holdings
It might be surprising to many investors, but energy drink company Celsius Holdings (CELH 4.15%) has been a market-crushing investment over the last five years, returning more than 4,500%, compared to the 85% return for the S&P 500.
NASDAQ: CELH
Key Data Points
The secret to this performance has been strong growth. Over the past five years, Celsius has had average quarterly year-over-year revenue growth of 96%.
There's reason to believe it will continue in the short term. The company is less than two years into a deal with PepsiCo that has streamlined Celsius' distribution network, increased its reach, and improved its placement within stores.
Even better for Celsius is that its revenue growth has been accompanied by massive improvements in the bottom line. Operating margin in the third quarter of 2022 was negative 78% and in the third quarter of 2023, it reached positive territory at 25%. That's an impressive turnaround in one year.
Net income has been on a similar trajectory, improving from a net loss of $182 million to net income of $84 million over the same time frame.
