A portfolio with these long-term buy stocks should do quite well over the next 5-10 years There is a lot of noise in the stock market. Every day, discrete events send stocks up and down. These discrete events can be company-specific, like earnings reports, murmurs about mergers and acquisitions, analyst upgrades and downgrades, or investor presentations. Those discrete events can also be macro-related, including economic data or geopolitical news.
Nonetheless, every day, multiple events happen, causing the stock market volatility that we’ve been seeing from day to day.
Day traders would be wise to continue paying attention to each and every crackle of noise in this market. Long-term investors, however, will find it in their best interest to ignore that noise.
With that in mind, here is a list of stocks that should, regardless of near-term noise, head significantly higher over the next several years due to secular growth tailwinds.
Apple Inc. (AAPL)
It is only fitting that this list starts with the biggest publicly traded company in the world, Apple Inc(NASDAQ:AAPL).
Apple got to this point ($930 billion market cap) by selling the world a ton of iPhones, iPads and Mac computers. But that business is drying up. Everyone who wants an iPhone, iPad or Mac already has one, so there aren’t really any new buyers in the market. Instead, Apple just gets the upgrade buyers every year.
Bears think this is a problem. But it’s not. Apple is shifting from consumer technology company to software technology company. Through various software services like iCloud, Apple Music, Apple Pay and the App Store, Apple is starting to monetize its massive iOS ecosystem. These software revenues are higher margin than the hardware revenues, and they are also more predictable (most of the money comes from subscriptions), so Apple is actually turning into a company with higher margins and more predictable revenue streams.
As this transformation plays out over the next several years, AAPL stock will head higher. The stock is pretty cheap on its face, trading at just 16-times forward earnings, and there is a bunch of cash on the balance sheet that will be weaponized over the next several years in the form of dividends, buybacks and acquisitions.
Adobe Systems Incorporated (ADBE)
One of my favorite cloud companies is Adobe Systems Incorporated (NASDAQ:ADBE).
ADBE dominates a niche part of the cloud that is dedicated to creative solutions. A few years back, the company shifted its business model from selling hardware to selling software, and shifted its core Adobe solutions to the cloud. In doing so, Adobe made its solutions subscription-based, so now consumers would have to pay repeatedly for a product that they used to only pay once for.
Naturally, Adobe users were upset. But that didn’t stop them from paying. They paid the subscription fee because there is essentially no other player in this market that is even close to offering solutions on-par with Adobe.
Consequently, Adobe has marched its way to unrivaled dominance in the creative solutions cloud market. This market is only growing, and Adobe is only growing with it. As such, ADBE stock, which is up more than 70% over the past year, will continue to be an out-performer over the next several years.
Amazon.com, Inc. (AMZN)
This list would, of course, be incomplete without including perhaps the biggest secular growth giant of them all, Amazon.com, Inc. (NASDAQ:AMZN).
The bears pound on the table about valuation regarding AMZN stock. But those bears must have sore hands, because they’ve been pounding on the table about valuation ever since AMZN was a $300 stock five years ago. Now, Amazon is near $1,600, and its current valuation (200-times trailing earnings) is actually cheaper than its valuation 5 years ago (~1000-times trailing earnings).
That is the beauty of the Amazon growth story. Amazon spends a bunch of money to grow market share in very important secular growth markets, like e-commerce and cloud services. The near-term result is super-charged revenue growth on anemic profitability, and that makes the valuation look absurd.
But then Amazon dominates a secular growth market, peels back those investments, and profitability ramps on what has become a massive revenue base. The long-term result, then, is super-charged revenue growth with super-charged profit growth. That makes the valuation look more reasonable.
Thus, as Amazon continues to grow as a company, AMZN stock will continue to grow into its valuation. Until something major knocks this secular growth company off its winning course, this is a stock to own for the next several years.
Alibaba Group Holding Ltd (BABA)
Any discussion about Amazon would incomplete without talking about its China counterpart, Alibaba Group Holding Ltd (NYSE:BABA).
For all intents and purposes, Alibaba is the China Amazon. The company dominates the digital commerce scene in China and most of Southeast Asia. They also operate a rapidly growing cloud business. Alibaba is also making huge pushes into offline retail, grocery, smart home, and artificial intelligence. Essentially, anything that Amazon is doing in the U.S., Alibaba is doing on the other side of the Pacific Ocean.
That makes Alibaba an equally big growth company as Amazon. In fact, Alibaba is actually growing more quickly than Amazon because China’s consumer class is booming right now. This boom should persist, and carry over to other parts of Southeast Asia over the next several years. Therefore, BABA should continue to be a big growth story over the next several years.
Also, Alibaba actually has really high margins considering its big-growth nature (adjusted EBITDA margins in core commerce were 43% last quarter). That means that this big revenue growth story already has big profit growth. That is the type of set-up that leads to a winning stock in a multi-year window.
Baidu Inc (BIDU)
Another hyper-growth China internet company that should out-perform over the next several years is Baidu Inc (ADR) (NASDAQ:BIDU).
Just like Alibaba is the China Amazon, Baidu is the China Google. And as the China Google, Baidu has become part of the underlying fabric of the internet in China and Southeast Asia. Thus, as internet usage continues to expand in those still developing and urbanizing markets, Baidu will benefit from higher usage and deeper engagement.
Moreover, digital advertising, which is Baidu’s core business, is booming in China. Roughly 5 years ago, less than 20% of total ad dollars in China went to digital channels. Now, nearly 60% of all ad dollars go to digital sites. Plus, the overall ad market is growing at a high single-digit pace, implying huge growth for the digital advertising segment.
Baidu is a key player in that red-hot digital advertising market in China, and as such, should be set-up for long-term success. The company also has tangential growth drivers through cloud and smart home, neither of which are priced into BIDU stock at current levels (the stock trades at just 25-times forward earnings).
Walt Disney Co (DIS)
Most of the stocks on this list have a history of success over the past several years, but not Walt Disney Co (NYSE:DIS). Owning largely to cord-cutting headwinds and persistent pain at the company’s ESPN segment, DIS stock is actually down 5% over the past three years.
The good news is that these headwinds are starting to move into the rear-view mirror. Disney is making an all-out push into the streaming world. Part 1 happened just a few weeks ago with the launch of ESPN+, which is essentially an on-demand, streaming version of ESPN with exclusive content. Part 2 will happen next year, when Disney launches its own Netflix-like service with Disney content.
Because Disney owns the best content in the world (think Stars Wars, Marvel, Pixar, Disney originals, and potentially even assets from Fox), Disney’s streaming service will be met with very high demand. At that point in time, Disney’s cord-cutting pain will take a backseat to what will be red-hot subscriber growth through Disney’s streaming service. DIS stock, which trades at just 14-times forward earnings, could explode higher on a positive sentiment shift.
Moreover, sports gambling is legal now. ESPN will certainly become a big player in what will be a large and growing sports betting market in the U.S. As that market grows, ESPN will find a way to grow with it.
All in all, despite its under-performance over the past several years, DIS stock will be a big winner over the next several years as certain tailwinds gain traction and offset current headwinds.
Facebook Inc (FB)
If you want the long and detailed explanation about why to buy Facebook Inc (NASDAQ:FB), read here. Otherwise, here’s the short of it.
Facebook shook off what was its worst PR incident in company history with the Cambridge Analytica scandal and proceeded to report arguably its best quarter ever. That is a testament to not only how good management handled the situation, but also how powerful the Facebook machine has become.
This power comes in many forms. Everyone has a Facebook account (essentially 2 out of every 3 people in the world who can have a Facebook account, do have a Facebook account). That number could move closer towards 3 out of 3 considering that Facebook’s user growth remains very strong in geographies with low internet penetration.
Moreover, because of this massive size, Facebook can replicate essentially any internet-based business and successfully operate it at scale (think Instagram Stories and WhatsApp Status, or even think Messenger, which is just a messaging component the company added to Facebook). Also because of its massive size, Facebook’s advertiser demand is sky-high, and that demand will only grow once Messenger and WhatsApp get started on monetization.
Then there is everything else happening at Facebook outside of the core social networking apps. There is Facebook Watch, which could be huge in the streaming space, and Facebook Workplace, which could be huge in the enterprise social networking market. There is also Facebook Marketplace and the build-out of native payments capability, both of which could quickly turn Facebook into an e-commerce marketplace.
All together, there are many, many reasons why FB stock is a must-own for the next several years. Considering the still cheap valuation (less than 25-times forward earnings), FB stock could be a big winner in a multi-year window.
Alphabet Inc (GOOG)
Of all the FANG names, Alphabet Inc (NASDAQ:GOOG) is currently the weakest. Digital advertising revenue growth remains robust, but the shift to mobile is hurting margins because Google search wasn’t designed for mobile, so click-through rates are lower. Moreover, margins are being dragged down even further by Google’s big investments into cloud, smart home, and AI.
The near-term result is that while revenue growth re