The S&P500 started this year well – confirming the presence of a bull market – and from there the good times have continued for all three major benchmarks. The S&P 500, the Nasdaq and the Dow Jones Industrial Average are each up 24%, 26% and 14%, respectively, since the start of the year. And the companies leading the gains were growth stocks, players that traditionally excel in bull environments.
But this doesn’t mean you should invest uniquely in these players during a bull market. A solid growth stock has what it takes to perform over the long term – and this can include more than one bull phase. So it’s crucial to look for quality players, players with promising earnings prospects over time.
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History shows us that bull markets generally last longer than bear markets, suggesting that the current bull market has further to go. And that means investing in growth stocks can now give you profits in the short term – and if you choose wisely – also in the long term. With this in mind, let’s take a look at two growth players that we can buy and hold forever.
Image source: Getty Images.
Amazon(NASDAQ: AMZN) can be the ultimate growth company because it is a leader in two fast-growing markets: e-commerce and cloud computing. Plus, Amazon is going all-in on the latest promising area that some say will revolutionize the world, much like the telephone or the Internet. I’m talking about artificial intelligence (AI). Amazon uses AI to improve its own operations through efficiency gains, and sells AI products and services to customers through its cloud computing unit Amazon Web Services (AWS).
All of this has helped Amazon build a solid track record, generally reporting billions of dollars in sales and profits quarter after quarter. In the field of e-commerce, Amazon’s competitive position is strong: it has built an extensive fulfillment network and an attractive subscription program that keeps customers loyal. And the company now continues to deliver faster and faster – to save costs and satisfy the customer. That’s a win-win situation.
As for cloud computing and AI, they go hand in hand. AI has helped AWS reach $110 billion in annual revenue. And this is critical because AWS has traditionally been Amazon’s profit engine.
Today, Amazon trades at 40x forward earnings estimates. This isn’t dirt cheap, but it is reasonable given the company’s strengths in such high growth areas and the potential for earnings momentum to continue well into the future.
Tough(NYSE: CHWY)just like Amazon, is an e-commerce company, but this player specializes in one specific area: serving your furry friends. Chewy sells everything from pet food and toys to prescription drugs and pet health insurance. And the company recently expanded into a brick-and-mortar business with the launch of veterinary clinics known as Chewy Vet Care. Finally, Chewy also generates revenue through sponsored ads, a business that is still in its infancy but is exceeding the company’s expectations.
What I like most about Chewy is a program that clearly shows the loyalty of its customers – and therefore gives us insight into future revenue. This is Chewy’s Autoship, a service that lets you choose items you use regularly and have them automatically reordered and shipped to you at a specific time. Autoship sales have steadily represented more than 75% of total sales, quarter after quarter, and in the most recent quarter that percentage was more than 78%. Another number that shows how much customers love Chewy is net sales per active customer, which rose 6% to a record $565 in the quarter.
Chewy also has a solid financial position, with no debt and $695 million in cash, and a focus on controlling operating costs. And the company predicts that gross margin, which currently stands at about 29%, will fluctuate but increase over time as higher-margin parts of the business grow.
All of this makes Chewy, which currently trades at 25x forward earnings estimates, an exciting growth player to buy and hold for the long term.
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*Stock Advisor returns November 18, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adria Cimino has positions in Amazon. The Motley Fool holds and recommends positions in Amazon and Chewy. The Motley Fool has a disclosure policy.
2 Growth Stocks to Buy and Hold Forever was originally published by The Motley Fool
