March Madness is here. But, contrary to what has happened in prior years, this year’s men’s college basketball tournament has played out largely as expected. There weren’t many upsets in the first round. Nor that many in the second round. Indeed, for just the second time ever since 1985, the tournament’s top 12 teams all advanced to the Sweet 16. That’s because this year’s top college basketball teams are just that good.
The same is true in the stock market today. The stock market’s top stocks are really good. They are supported by powerful secular growth narratives, in an economy that is still gradually expanding, with tailwinds that won’t ease anytime soon, a runway that implies several years of big growth ahead, and valuations that are largely reasonable considering the immense growth potential.
Further, the stock market’s top stocks look and act a lot like college basketball’s top teams. In college basketball, you have the consensus number one seed that is just tough to bet against. In the stock market, you have the top stock that analysts keep upgrading and investors keep buying. Meanwhile, in college basketball, you have the young team coming together at the right time. In the stock market, you have the small company that is delivering the perfect solution to the perfect market at the perfect time.
In other words, the top dogs in the stock market and the top dogs in college basketball aren’t too different in terms of underlying characteristics. With that in mind, let’s take a look at my list of Elite 8 stocks to buy, all of which I see as big winners for a lot longer.
8 Stocks to Buy: Amazon (AMZN)
March Madness Parallel: the consensus number one seed
First on this list is Amazon (NASDAQ:AMZN), which in the March Madness analogy, is the stock market’s consensus number one seed.
Over the past several years, Amazon stock has consistently been one of the stock market’s best performers thanks to the company’s never-before-seen ability to successfully execute on a hugely disruptive growth narrative, which started with e-commerce and now encompasses things like cloud, digital advertising, and logistics.
While the e-commerce businesses is in the slowdown part of its growth narrative, Amazon’s cloud, digital ad, logistics, and offline retail businesses are all in their early innings, not to mention the yet-to-be-launched pharmacy business. That means revenue growth will remain big for the foreseeable future. Also, most of those businesses operate at substantially higher margins than the e-commerce business. Thus, Amazon’s profit growth narrative is about to accelerate.
Overall, then, Amazon stock has been and will remain a big winner. This is a one seed I wouldn’t bet against.
March Madness Parallel: the young team coming together at the right time
Second on this list is Shopify (NYSE:SHOP), which in the March Madness analogy, is the young team that is coming together at the right time and playing their best basketball when it matters most.
Shopify is a relatively young (founded in 2004) and small (sub-$25 billion market cap) company. But, the company is providing a very important service at the perfect time, and could one day be very, very big. Specifically, Shopify provides e-commerce solutions to retailers of all shapes and sizes, at a time when e-commerce is in the midst of rapid growth, and when that growth is increasingly driven by smaller players not named Amazon.
In other words, the e-commerce world is finally being democratized. First, it was just the Amazons of the world that had the tools to build digital retail businesses. Now, thanks to Shopify, everyone and anyone can build a digital retail business. More than that, all retailers need to do so, since consumption is only becoming more digitally-focused than ever before.
As such, Shopify is providing the right solution at the right time. That makes this stock very much like a young and talented college basketball team that is peaking at the perfect time.
March Madness Parallel: the “been there, done that” team that is the definition of consistency
Next up we have Adobe (NASDAQ:ADBE). For Adobe, the March Madness comp is pretty simple. Adobe is the “been there, done that” team that is known for consistency. Further, while they don’t wow you with blowout wins, they are are as good as it gets on paper.
It’s fair to say that Adobe stock knows a thing or two about winning. Ever since this company pivoted to a SaaS model in 2012, it has been nothing but up, up, and away for the stock, which has gone from $30 to $270 during that stretch. What’s the secret sauce? An unparalleled suite of visual-focused creative professional tools, which have important and necessary applications across a broad array of industries.
Adobe has no competition in delivering those solutions, and their end-markets have secular growth drivers thanks to the increase in visual content consumption. Adobe is also gradually expanding their suite of cloud solutions to include marketing, commerce, and other enterprise functions. Gross margins are sky-high. Operating margins are close in on 50%. The forward price-to-earnings multiple is reasonable around 30. The balance sheet is clean.
In other words, Adobe stock is about as good as it gets on paper. As such, this stock should remain a big winner for the foreseeable future.
March Madness Parallel: the misunderstood and underrated but highly talented team
Perhaps a surprise entry on this list, Facebook (NASDAQ:FB) belongs in the Elite 8 of stocks because of the company’s unparalleled and enduring reach among the world’s internet population. In March Madness terms, Facebook is the misunderstood and underrated, but highly talented team that is starting to win games when it counts.
In 2018, everyone knocked Facebook for privacy concerns and inept management. Yet, despite all the negative press, no user left the Facebook ecosystem. Instead, the Facebook ecosystem continued to add users. Advertisers followed those users, and continued to flock to the platform in bulk. Revenues went up. Profits did, too, even amid a huge surge in expenses.
The lesson learned was that Facebook’s ecosystem is very, very sticky. It survived a 2018 public fiasco that was one of the worst I’ve ever seen. That means it will likely survive anything and everything going forward. The user base will consequently keep growing. Revenues will rise. Margins will expand as big investments normalize. Profits will surge.
All in all, Facebook stock will remain on a solid uptrend in 2019 after as it buries 2018 headwinds.
March Madness Parallel: the team that looks unstoppable right now
Alongside Facebook and Amazon, another mega-cap tech stock in the Elite 8 is Netflix (NASDAQ:NFLX), which comps most closely to the team which is on a twenty game win streak going into the tournament, and looks unstoppable right now.
There’s no denying the win streak that Netflix stock has been on over the past several years. Ever since an original content breakthrough in summer 2016 headlined by Stranger Things, Netflix has leveraged an original content-powered growth strategy to consistently add more and more subs each quarter, while concurrently raising prices without noticeable churn, and doing all against the backdrop of rising competition.
This win streak will continue. For all intents and purposes, Netflix has already won the content game. They have a bigger user base than anyone else. Therefore, they have more consumer watching data than anyone else, and also can justify big content spend better than anyone else (each original content piece on Netflix has an opportunity to reach nearly 150 million pairs of eyeballs). As such, with more data and resources, Netflix appears positioned to keep beating the competition on the content front.
If so, Netflix stock will stay in rally mode for the next several years.
March Madness Parallel: the dark horse gradually climbing back
Roku (NASDAQ:ROKU) belongs in the Elite 8 of stocks as the dark horse that is gradually climbing back into the winner’s circle.
Everyone seemingly forgot about the Roku growth narrative in late 2018. There were concerns about rising competition, which coupled with slowing economic growth concerns to put investors in a “sell first, ask questions later” mood. Roku stock tumbled.
But, Roku reminded everyone with robust holiday quarter numbers that this is a big growth company. The underlying secular drivers in steaming video adoption remain robust. Competition remains muted. Demand for over-the-top advertising real estate is only growing. Further, the number of streaming services is only going up, and all those new streaming services are using Roku to grow, implying that Roku is increasingly turning into the cable box of the streaming world.
Ultimately, the cable box of the streaming world will command tremendous value one day, as the market will have hundreds of millions of streamers and dozens of streaming services. Roku is best positioned to serve that need one day. As such, this stock projects as a big time grower for the foreseeable future.
The Trade Desk (TTD)
March Madness Parallel: the streaky team that has huge upside
One of the lesser-known stocks on this Elite 8 list is The Trade Desk (NASDAQ:TTD). But, this company comps in March Madness terms to the streaky team that has huge upside if they stay hot. As such, TTD stock may actually have the most upside of any Elite 8 stock on this list.
The Trade Desk is pioneering a market called programmatic advertising. In short, programmatic advertising is using machines, as opposed to humans, to buy ads. To be clear, this isn’t just a change. It’s an improvement. Automation in ad transactions makes the process quicker, more dynamic, less costly, more data-driven, and more real-time. Overall, programmatic advertising is simply better than traditional advertising.
Eventually, all ads will be transacted programmatically. The global ad market is marching towards $1 trillion. Thus, programmatic advertising is a trillion dollar opportunity. Gross spend on The Trade Desk, the world’s leading programmatic advertising platform, was well under $5 billion last year. As such, the growth runway ahead is huge.
If The Trade Desk can stay hot and remain on top of this market, then TTD stock truly is in the first inning of a potentially huge programmatic advertising growth narrative.
March Madness Parallel: the “remember them?” team that fans won’t forget again
Last, but not least, on this Elite 8 list is Square (NYSE:SQ), which most directly comps in March Madness terms to the team that started out hot, went cold, and is now getting hot again at just the right time.
For most of 2018, Square was a winning stock, thanks to secular growth tailwinds in non-cash payments and the company’s innovation in various subscription services. But, the payments processor cooled in late 2018 as the global economy slowed down and competition heated up, creating a double headwind which forced investors to question the staying power of Square’s big growth rates.
In early 2019, the stock has bounced back, mostly because the global economy has picked up and Square has put to rest competition concerns through continued product innovation, market expansion, and big gross merchandise value growth. This company should stay hot because it remains the innovation leader in a secular growth digital and non-cash payments market, and has a unique opportunity to disrupt the banking world over the next several years.
All in all, then, Square stock is hot again, and should remain hot for the foreseeable future given long-running growth tailwinds.
As of this writing, Luke Lango was long AMZN, SHOP, ADBE, FB, NFLX, ROKU, TTD and SQ.