The stock market is back. At least, that’s how it seems after the worst first half of a year in more than five decades.
In the past two months, the S&P 500, Dow Jones Industrial Averageand Nasdaq composite have increased by 14%, 11% and 21% respectively. So, if market sentiment improves, what should investors look to capitalize on?
For me, growth stocks are the obvious answer. They accounted for the bulk of the losses in the first half of the year and are poised to lead the market back. Here are four names I think are worth holding onto for the long haul.
What does software specialist use Adobe (ADBE -3.18%) special is the connection with the digital creator economy.
Today’s economy increasingly runs on digital content: infographics, digital video, blogs, social media posts and photography. Creating, editing, and distributing digital content requires tools, and Adobe’s applications are among the best.
The company generated revenue of $4.4 billion in the quarter, up 14% from the same period a year ago. However, profitability is even more impressive than revenue growth. Adobe has an operating margin of 36% and a return on equity of 35%.
The current P/E ratio of 12.7 is still below the five-year average of 15.3, providing an attractive entry point for potential investors.
My second growth stock to buy and hold forever is Nasdaq (NDAQ -2.61%).
I’m not talking about the Nasdaq Composite Index or the Nasdaq 100 Index. Instead, I’m referring to the company behind the Nasdaq exchange.
The Nasdaq exchange now has more than 3,700 listings, but the company is more than just the exchange itself. Nasdaq also creates, modifies, and licenses the various indexes (such as the two mentioned above). In addition, it offers analytics, anti-fraud technology and ESG advisory services.
Nasdaq estimates the total addressable market (TAM) for its analytics segment is $19 billion; that figure grows to $26 billion for its anti-money laundering and surveillance software. Since Nasdaq controls less than 5% of any market, management sees a huge opportunity for growth.
tough (CHWY -6.98%) is another growth stock worth considering. The company operates an online pet marketplace that sells everything from cat litter to pet insurance. It has over 20 million active users and is growing at about 4% year over year.
Chewy’s business model benefits from two key features: pet spending is largely recurring and non-discretionary. Cat litter is not optional; neither does dog food.
In addition, Chewy excels at growing sales within its existing customer base. Consider one important metric, net sales per active customer (NSPAC). The company grew NSPAC to an all-time high of $446 in its most recent quarter.
Chewy’s data shows that its customers are consistently increasing their annual spending. First year customers spend about $200 a year. By a customer’s second year, that figure rises to $400. And by their fifth year, it’s $700.
With that kind of growth, Chewy is likely to make a lot of pets — and investors — very happy for years to come.
My last growth stock to buy and hold forever is Airbnb (ABNB -5.37%). There’s a lot to love about Airbnb, but here’s something you might not have thought of: How do you rank this business? Is it a technology stock? A travel and leisure share? A real estate share?
In reality they are all. Airbnb’s business model transcends many of the dividing lines between these sectors. The app is based on the very latest technology; its customers are looking for exciting travel experiences; its hosts depend on it to pay their bills — and perhaps their mortgages.
Airbnb has emerged from the pandemic stronger than ever. The company reported 103 million booked nights and experiences in its most recent quarter, its highest quarterly total ever. In addition, free cash flow rose to $2.9 billion in the past 12 months. The company now sits on over $10 billion in cash. Management has decided to return some of that to shareholders in the form of a $2 billion buyback it just announced.
With a price-to-sales (P/S) ratio of 11, Airbnb is definitely not cheap. But relatively speaking, yes. Since its IPO, the company’s average P/S ratio is 20.5 – nearly double what it is today. Investors looking for a growth stock with a bright future ahead of them would be wise to consider Airbnb now.