Secular trends are changes in the economy or business climate that develop over long periods of time. Trends that are secular transcend business cycles to reflect the overall success or decline of an industry. Secular growth trends create new dominant companies, while secular declines cause once-dominant companies to lose significant value or even cease to exist.
The best companies in which to invest are helped by secular growth trends. Even with the cyclical nature of many businesses, resulting in growth during times of economic expansion and decline during periods of economic contraction, companies in secularly growing industries are best-positioned to thrive over the long term. Secular trends occur over many years or even decades, while economic cycles are generally shorter.
Companies that benefit from secular growth trends are best able to retain value regardless of the current state of the economy. Secular growth trends enable the stocks of those companies to quickly continue gaining value following periods of market uncertainty.
Secular growth stock examples
The growth of computer technology is an example of a secular trend that has lasted for a couple of decades already and is expected to continue for the foreseeable future. The U.S. tobacco industry is a prime example of an industry in secular decline since cigarette smoking in the U.S. has become much less popular over the past few decades.
Here are two examples of companies that are benefiting from secular growth:
Following the multi-decade secular growth of computing technology, mobile devices in the 2000s emerged as a product of the latest technology advances. Apple (NASDAQ:AAPL) has significantly benefited from this secular growth trend, starting with sales of the iPod music player in 2003. Apple dominates the technology industry as one of the world's most valuable companies and now has a suite of mobile devices, including the iPhone, iPad, and Apple Watch.
Although sales of mobile devices have slowed in recent years, Apple is still benefiting from the secular growth trend by steadily increasing the number of its devices in service around the globe. With more than 1.65 billion Apple products in use at the beginning of 2021, the company is leveraging this massive installed user base to foster adoption of software-based services within its ecosystem. Apple is using the secular trend of rising digital mobility to expand its music streaming service, video game offerings, and digital payments processing, among other services.
The rise of Amazon (NASDAQ:AMZN) has occurred in tandem with the rise of e-commerce, and the company itself has accelerated the growth of the e-commerce secular trend. Amazon began as a dot-com company in the 1990s and today connects millions of shoppers to nearly every product imaginable.
As Amazon benefited from the secular growth trend of e-commerce, it also developed expertise in data centers, which are enabled by cloud computing and required to facilitate the company's online shopping experience. Cloud computing is another secular growth trend, and with Amazon leveraging its cloud computing expertise to form Amazon Web Services (AWS), the company is benefiting from two secular growth trends at the same time. AWS, not retail sales, is responsible for the vast majority of Amazon's profitability -- a trend that is likely to continue for the foreseeable future.
Using secular growth trends to your advantage
All secular growth trends eventually end, and, along the way, may decelerate or accelerate depending on the state of the economy. (For example, the COVID-19 pandemic accelerated the secular growth of e-commerce and cloud computing.) Investors who want to buy and hold quality companies should pay attention to secular growth trends and make their stock purchases accordingly.