The stock market is full of growth companies that can help you build lasting wealth. The best investments are those you can buy and never have to sell, because continuous compounding can lead to incredible returns over time. To help you in your search, here are two excellent growth stocks to buy today.
1. Amazon
Amazon (NASDAQ: AMZN) is an ideal stock to consider holding forever. Not only does it benefit from the repeat spending habits of millions of Prime members, but more importantly, the company is obsessed with the customer experience, pushing it to deliver more convenience and value.
After falling with the market indices in 2022, the stock has reached new all-time highs this year. The company has made significant improvements in inventory management, which is now delivering record free cash flow and earnings. This effort is ongoing, which could lead to significant shareholder gains in the years to come.
Amazon will deliver more than 7 billion items to customers on the same or next day in 2023. Faster delivery speeds come as fulfillment centers reorganize inventory to get items closer to customers. This has lowered delivery costs and encouraged customers to buy more often.
Amazon’s free cash flow totaled nearly $53 billion last year. Operating profit nearly doubled in the second quarter from a year ago, and it should continue to see growing earnings contributions from its highly lucrative non-retail businesses, including cloud services and sponsored advertising, which generate the bulk of the company’s operating profit.
Even after last year’s monster rally, the stock is still fairly priced. Using Amazon’s trailing earnings, the stock trades on a price-to-sales ratio of 3.1, which compares with the 10-year average of 3.2 times trailing sales. It also trades on a price-to-free cash flow ratio of 39, which is consistent with the stock’s trading history.
Overall, these numbers indicate that the stock is fairly priced and that returns will continue to be comparable to Amazon’s growth.
2. Netflix
Subscription-based businesses can be very rewarding investments because of the built-in repeat spending from subscribers and the lucrative profits the business generates over time. Here’s why Netflix (NASDAQ: NFLX) is a resilient company that can provide investors with years of compound returns.
Netflix is ​​benefiting from a growing paying membership of 277 million, which rose 16% in Q2 versus the same quarter a year ago. It has built a top brand in digital entertainment, but the real benefit for Netflix is ​​the billions it has had to spend over several years to achieve this status.
Between 2021 and 2023, Netflix will have spent nearly $50 billion on content. Building a large library of original films and series is very capital intensive, which is why Walt Disney is still trying to make a profit from his streaming business.
However, Netflix can afford to do this and still show healthy profits to boost shareholder returns. Its profit over the past 12 months was $7 billion on revenue of $36 billion, and management is committed to further margin expansion over the long term.
Netflix has years of data on what subscribers like to watch and for how many hours. Management can predict how many hours viewers will watch each show or movie over its lifetime. The brand equity and data science capabilities explain why Netflix continues to grow its subscriber base and reward shareholders.
The stock is currently close to new highs, but is still trading at a fair valuation relative to the company’s fundamentals. The stock’s price-free cash flow ratio is 44 and its forward price-earnings ratio is currently 35.
Given the company’s potential for margin expansion and its ability to reach millions of households worldwide, Netflix is ​​a solid buy-and-hold investment.
Should You Invest $1,000 in Amazon Now?
Before you buy stock on Amazon, here are some things to consider:
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Netflix and Walt Disney. The Motley Fool has a disclosure policy.
2 Growth Stocks to Buy and Hold Forever was originally published by The Motley Fool
