There are two critical elements to identifying long-term winners in the stock market. First, find a secular growth industry, supported by secular growth trends with a massive addressable market. Second, find the top company or companies in that industry. Do those two things, and you’ve found yourself a long term-winning stock which you can buy and hold for the long haul.
What exactly makes a company in a secular growth industry a “top” company? There are a lot of factors. But, arguably the most important is innovation. Simply, a company that innovates consistently in a secular growth industry is often one that is expanding its share in that industry. Companies that expand share in secular growth industries tend to consistently produce robust revenue and profit growth.
And, ultimately, robust revenue and profit growth are what make stocks go higher. Thus, if you’re looking for a long-term winning stock, look for an innovative company expanding share in a secular growth industry.
Which stocks fit that description? Let’s take a closer at 6 innovative stocks with big long-term growth potential.
The Industry: Direct-decentralized retail
The entire retail world is pivoting towards a direct-decentralized model. Broadly, the direct part is the result of the internet connecting brands/retailers directly to their customers, thereby removing the need for a middleman. The decentralized part, meanwhile, is the result of the internet democratizing the retail process so that anyone can sell anything to anyone through the internet.
This model yields optimal outcomes for sellers (millions of new sellers can now compete with traditional sellers) and buyers (there’s more supply, which inherently means lower prices and higher convenience). Thus, direct decentralized retail will continue to grow in popularity over the next several years.
The Innovator: Shopify (NYSE:SHOP)
The pioneer and leader in this market is Shopify. The company provides commerce solutions which enable and empower the millions of new sellers which comprise this direct decentralized retail model. Over the past several years, Shopify has continued to iterate, improve, and expand its suite of offerings.
The net result is that the company has dramatically grown its market share in the commerce world, and continues to do so today. So long as this remains true, SHOP stock will remain on a long term winning trajectory.
The Trade Desk (TTD)
Industry: Programmatic advertising
The advertising world is increasingly shifting towards an automated ad transaction model. Broadly, this means that ad spend is increasingly being done using data-driven algorithms — not humans and guess-and-check work — so the ad-spend process is becoming smarter, more dynamic and more efficient than ever before. This process is called programmatic advertising. Given its multi-faceted benefits, it is the future of advertising.
The Innovator: The Trade Desk (NASDAQ:TTD)
The most exciting company in this space is The Trade Desk, a programmatic advertising company which has leveraged a differentiated product offering, aggressive product innovation, and platform neutrality to turn into the growth darling in the programmatic advertising space. Over the past several years, The Trade Desk has significantly and rapidly expanded its market share in the programmatic advertising market.
This trend will persist. As it does, The Trade Desk will continue to report great numbers, and those numbers will propel TTD stock meaningfully higher.
Industry: Digital payments
Across the global commerce space, there has been and continues to be a huge secular pivot from cash payments to non-cash payments, as consumers have increasingly adopted digital and card payment methods which are significantly more convenient. But, cash remains a big part of the global economy. Thus, there’s still a ton of room for non-card payment methods to gain share over the next several years. As they do, companies which facilitate these types of payments will benefit from robust growth.
The Innovator: Square (NYSE:SQ)
The most innovative company in this space is Square. The payments processor has made a killing facilitating physical, non-cash payments for small to medium sized retailers. But, Square didn’t stop there. Instead, they’ve subsequently expanded their physical offerings to be more attractive to bigger sellers, jumped into the digital payments space, created a suite of Services business, tested the waters in the banking world, and even built a food delivery platform.
All in all, then, Square is innovating everywhere, and this rapid innovation has produced rapid market share expansion. So long as this continues, SQ stock will trend higher in the long run.
Industry: Law-enforcement technology
The technology world is moving fast. But, the law-enforcement world has largely been left behind the technology curve. Until recently. Over the past several years, antiquated law enforcement agencies have undergone much-needed technology makeovers, which includes adopting things like smart cameras, smart weapons, cloud solutions and data-driven analytics services.
These technology upgrades are happening with greater frequency and pace across the world. Soon enough, every law enforcement agency will be equipped with the latest and greatest tech.
The Innovator: Axon (NASDAQ:AAXN)
The pioneer, largest player and most innovative company in this space is Axon. Axon started out just selling Tasers to law enforcement agencies. Then, they pivoted into body cameras and dash cameras. Realizing the potential in the law enforcement tech world extended beyond hardware, they then pivoted into servicing the law enforcement world with cloud-hosted solutions to replace archaic on-premise solutions.
Net net, the company has dramatically expanded its suite of law enforcement tech over the past several years, and in so doing, has dramatically gained law enforcement wallet share. This trend is still in its early stages, as Axon has dominated the domestic market but is only scratching the surface of its international potential. As the international growth narrative plays out, Axon’s profits will run higher, and so will AAXN stock.
Industry: Digital education
The internet has changed and continues to change many industries. One of those industries is the education world. In the education world, students are increasingly turning towards the internet for academic assistance. This includes on-demand tutoring services, online citation makers, online textbook answers and much, much more. As students turn in greater and greater frequency to the internet for academic assistance, there remains tremendous growth potential for a connected learning platform to capture and monetize all this demand.
The Innovator: Chegg (NASDAQ:CHGG)
The unprecedented leader and pioneer in the digital education space is Chegg. Broadly speaking, there wasn’t an at-scale, digital connected learning platform in the market until Chegg came around. And, Chegg didn’t start with connected learning. They started with textbook rentals and have increasingly pivoted into the digital education market over the past several years.
Chegg continues to expand its connected learning platform today, so that students of all disciplines have a reason to turn towards the platform. Assuming this value and use-case expansion continues, then Chegg is on track to tap into all 36 million high school and college students in America in the future. Right now, they only have about 10% of that, so the long-term growth runway here is quite promising.
Canopy Growth (CGC)
Cannabis is now fully legal throughout Canada. This is just beginning. Given the overwhelming volume of research which suggests that cannabis isn’t all that bad for you and the equally overwhelming volume of cannabis demand, global cannabis legalization isn’t a matter of if. It’s a matter of when.
When it does happen, the global cannabis industry will be quite big. The trends are crystal clear. Over the past two decades, cannabis consumption among U.S. high school students has steadily increased, while tobacco and alcohol consumption have steadily decreased. Today, cannabis consumption rates are nearly equal to alcohol consumption rates among high school seniors.
As such, once fully legal across the globe, the cannabis industry could measure as large as the alcoholic beverage industry, which is far in excess of $500 billion.
The Innovator: Canopy Growth (NYSE:CGC)
The leader and aggressive innovator in the cannabis space is Canopy Growth. Canopy is the biggest player in the legal Canadian cannabis market, with the largest growing footprint and the biggest volume and sales base by a wide margin. Further, Canopy is equipped with $4 billion on the balance sheet as the result of a big investment from alcoholic beverage giant Constellation Brands (NYSE:STZ).
Canopy has been very aggressive with that $4 billion, including prepping a big launch into the U.S. cannabis market with the proposed acquisition of U.S. cannabis company Acreage. These aggressive investments will pay off in the long run. Canopy is giving itself robust and high quality exposure to every niche of the global cannabis market. As all those niches scale over the next several years, Canopy will scale, too.
Big picture, the company is positioned to one day be the leader in a $500 billion industry. If that happens, CGC stock will one day be worth a lot more than $16 billion.
As of this writing, Luke Lango was long SHOP, TTD, SQ, AAXN, CHGG, and CGC.