It's natural for investors to feel a mix of happiness and worry when a stock they own surges higher. The happiness stems from the large unrealized gain that they are sitting on while the worry comes from losing these gains should the share price fall back to where it used to be. Hence, stocks that have shot up in value are normally given a wide berth as investors are afraid that these gains cannot be sustained.
Such fears may be unfounded as stocks that have done well may demonstrate the ability to continue growing. These growth stocks usually possess catalysts that can take their business to the next level and enjoy a strong competitive position that enables them to fend off the competition. Stocks like these are ideal candidates to own for the long term, as they can help to compound your wealth and enable you to retire comfortably.
Here are three stocks that have recently surged but also qualify as great long-term buy-and-hold candidates.
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Netflix
Netflix (NFLX 0.26%) is a market leader in the streaming television space, boasting 282 million paying members as of Sept. 30. Shares of Netflix have soared around 61% year to date but the company has the potential to continue growing its membership base and earnings in the future. Its solid track record speaks for itself -- Netflix's revenue increased from $29.7 billion in 2021 to $33.7 billion in 2023 while its net income climbed from $5.1 billion to $5.4 billion over the same period. Its free-cash-flow generation has also improved massively, going from a negative free cash flow of $132 million in 2021 to a positive free cash flow of $6.9 billion by 2023.
NASDAQ: NFLX
Key Data Points
The streaming giant's earnings momentum has carried into the first nine months of this year. Revenue rose 15.5% year over year to $28.8 billion while operating income surged 49% year over year to $8.1 billion. Net income stood at $6.8 billion, 53% higher than it was a year ago. Netflix continued to churn out copious amounts of free cash flow, coming in at $5.5 billion, up 4% year over year for the first three quarters of 2024. Paid memberships stood at a record high of 282.7 million, logging a 14.4% year-over-year jump after the company added close to 35 million new subscribers in just one year.
More growth is in store for Netflix as the service takes up just under 10% of TV time in some of the world's biggest countries. Management sees a huge opportunity to snag more members as it continues to invest in its broad content slate with a steady stream of new movies and TV series. As of June 2024, 40% of U.S. TV screen time is taken up by streaming TV, of which Netflix has an 8.4% share. This is much higher than competitors such as Disney's Disney+ (2%) and Amazon's Prime Video (3.1%) and implies that the business has a strong competitive moat that can help it to garner more members.
Netflix is also expanding its offerings to include large live events to attract a wider viewership, while its new ad tier is almost two years old and gaining strong traction. Management believes that the ad tier will hit critical scale in 2025, which can help Netflix further grow its ad membership in 2026 and beyond. With these multiple growth drivers, it makes sense to hold on to Netflix's shares for the long term.
Royal Caribbean Cruises
Royal Caribbean Cruises (RCL +2.82%) is a market leader in the cruise liner industry with a fleet of 68 ships across five brands that sail to approximately 1,000 destinations. The company's shares have soared 68% year to date but investors could be in store for more as there are multiple tailwinds that can help to grow the business further.
Royal Caribbean rebounded swiftly from the pandemic -- revenue for 2021 was just $1.5 billion with losses of $5.3 billion but the cruise line saw revenue soar to $13.9 billion in 2023 accompanied by net income of $1.7 billion. The company's resilience allowed it to reverse its losses to profits while its free cash flow also went from negative $4 billion in 2021 to positive $580 million in 2023.
NYSE: RCL
Key Data Points
Royal Caribbean's performance has continued to improve this year with revenue climbing 20% year over year to $12.7 billion for the first nine months of 2024. Operating profit shot up 51% year over year to $3.5 billion while net income surged 63.7% year over year to $2.3 billion. Free cash flow came in healthy at $1.1 billion, and the cruise company also paid out a quarterly dividend of $0.40, effectively reinstating the dividend that was suspended during the pandemic.
The business is gearing up for the 2026 to 2027 season with the launch of its fifth ship, Celebrity Xcel, which will set sail in Europe and is part of the company's Edge Series ships. These ships allows customers to sail through the four popular regions of the Caribbean, Europe, Alaska, and Australia. Back in August, the company signed an agreement with a Finnish shipbuilder to order a fourth Icon Class ship for delivery in 2027. The agreement also includes options for a fifth and sixth ship within the same class. These orders showcase the strong demand for Royal Caribbean's services and investors can look forward to increased bookings that should translate into higher revenue and profits.
Intuitive Surgical
Intuitive Surgical (ISRG +2.09%) is a medical equipment and device company that manufactures products and services to advance minimally invasive care. The company is well known for its da Vinci surgical system that makes surgery less invasive and more effective. Intuitive Surgical's shares have shot up around 53% year to date but the business has ample runway for further growth. Intuitive Surgical has demonstrated steady growth over the years with total revenue increasing from $5.7 billion in 2021 to $7.1 billion in 2023. Net income improved from $1.7 billion to $1.8 billion over the same period. The business also generated an average annual free cash flow of $1.2 billion over these three years.
NASDAQ: ISRG
Key Data Points
The business continued to do well in the first nine months of this year. Revenue rose 14.3% year over year to $5.9 billion while operating income jumped 22.6% year over year to $1.6 billion. Net income stood at $1.6 billion, up 37% year over year from $1.1 billion. Intuitive Surgical's da Vinci System had an installed base of 9,539 as of Sept. 30, with close to 5,600 in the U.S. and the remainder outside of the U.S.
Management reported that worldwide procedures for urology, gynecology, and general surgery are increasing rapidly, with 2023 alone seeing around 2.25 million procedures, a 22% year-over-year jump. The interesting thing to note is that the increase in procedures looks set to continue driving the growth of the installed base of machines, which bodes well for the da Vinci System.
Back in March, the company introduced its fifth-generation robotic system named da Vinci 5 that boasts improved accuracy and precision. This new iteration also allows for higher-quality 3D image display and processing. In a first, da Vinci 5 includes a force-sensing technology that resulted in 43% less force exerted on tissue, allowing surgeons to inflict less trauma on sensitive tissue. Management will continue to expand the indications for its system and look to launch new platforms in different regions to pursue growth. The addressable market for soft tissue procedures is around 21 million, giving Intuitive Surgical sufficient room to grow further.
