Markets are choppy right now. Although there are a lot of risks out there, none of them are truly that big … yet. Investors are getting more concerned by the day, and that’s why some growth stocks have taken a step back in August.
It’s also why volatility is up.
But, zooming out, the biggest investment implication of this volatility is as follows: buy the dip in growth stocks.
Stocks should broadly head higher for the foreseeable future. As investors grow more cautious on the global economy, they have piled into U.S. Treasuries. At the same time, the Federal Reserve is cutting rates. The result is that the 10-Year Treasury yield is at 1.7%. And the inflation rate is at 1.6%.
Thus, real rates are essentially zero, so if investors want any real return, they have to turn to the stock market. Concurrently, America’s consumer economy is doing just fine — it’s just the manufacturing sector that’s getting hit hard. Most of the U.S. economy is consumer-driven, so overall growth should remain healthy for the foreseeable future. This dynamic of healthy growth and low rates should keep stocks on an uptrend.
Further, low rates are great for growth stocks, since these stocks derive a majority of their value from future profits, and the value of those future profits goes up in a low-rate environment.
What all that means is that now is the time to buy the dip in growth stocks. Let’s take a look at 15 of my favorite growth stocks to buy now and hold for the long haul.
Growth Stocks to Buy for the Long Haul: Facebook (FB)
The bull thesis here is pretty simple. Facebook (NASDAQ:FB) owns all of the digital properties which consumers of all ages are addicted to — Facebook, Instagram, Messenger and WhatsApp. One of those properties is the town hall of the internet, and everyone is on it (Facebook). One of those properties is the hottest app among young consumers (Instagram). Two of those properties are must-have global communication tools (Messenger and WhatsApp).
In other words, everyone is in the Facebook ecosystem, and no one is leaving anytime soon. Because no one will leave, advertisers will continue to flock into the ecosystem. Ad revenues will march higher. The company will push forward with great success in commerce, too. That will bring in more revenue. Margins will remain high. Profits will soar.
And so will FB stock.
You buy Shopify (NYSE:SHOP) stock for the long haul because this company is rapidly revolutionizing the commerce world, and could one day become the backbone of a new form of global commerce.
Long story short, the commerce world is pivoting into a direct decentralized model, wherein anyone can sell anything to anyone else through any channel. This pivot requires technology to connect buyers and sellers. Shopify makes that technology. In so doing, Shopify is becoming the backbone of this direct decentralized retail world — the digital “store front” for all these merchants, if you will.
This world will only grow over the next several years, as the retail world increasingly decentralizes alongside the rest of the global economy. As it does, Shopify will become an increasingly important player in the multi-trillion dollar global retail market.
As that happens, SHOP’s revenues, profits and the stock will all run higher in the long term.
Luckin Coffee (LK)
Luckin Coffee (NYSE:LK) is a relatively small but rapidly expanding coffee house operator in China, which focuses on technology integration to drive sales (you basically order the coffee online, and then go pick it up in the store). Over the next several years, this company will continue to expand its real estate footprint with great success, because their tech integration fits perfectly with modern consumption habits.
As such, within the next five years, Luckin will turn into the Starbucks (NASDAQ:SBUX) of China. Starbucks has a $115 billion market cap. Luckin Coffee has a $5.5 billion market cap. That huge discrepancy means that Luckin Coffee still has a big runway ahead of it for future value creation.
Long term, then, LK stock should move higher as this company transforms into the dominant player in China’s very big retail coffee market.
The Trade Desk (TTD)
The long-term bull thesis on The Trade Desk (NASDAQ:TTD) centers around the programmatic advertising revolution.
Long story short, programmatic advertising is the future of advertising. Before, ad buying/selling was a clunky negotiation process conducted between multiple human parties. Today, the ad buying/selling process is being automated and optimized using data. This automated process is programmatic advertising. Thus, as automation and data-driven technologies become more commonly deployed, programmatic advertising will become the standard in the ad industry.
The Trade Desk is one of — if not the — most important player in the programmatic advertising market. As this industry expands over the next several years, so will The Trade Desk. The upside potential is that the global ad market is marching toward $1 trillion. The Trade Desk has a market cap of just $12 billion.
Thus, in the long run, TTD stock will march significantly higher as programmatic advertising becomes the ad industry norm.
Consumers across the world are pivoting in bulk from linear TV to streaming TV. In response, multiple media and content companies are also pivoting into the streaming TV space, and launching their own streaming services. The result is that the streaming TV world is getting really crowded — with a ton of demand and a ton of supply.
Someone needs to connect all that demand with all that supply. That’s what Roku (NASDAQ:ROKU) does. Through its content-neutral streaming ecosystem, Roku is turning into the cable box of the streaming TV world, seamlessly connecting consumers to their favorite streaming services. As the cable box of the streaming TV world, Roku stands to make a ton of high-margin revenue through subscription sharing and video ad dollars at scale.
Net net, in the long run, as the streaming TV space grows, Roku’s revenues and profits will march significantly higher. That will ultimately power ROKU stock higher in the long run, too.
The digital ad growth narrative is far from over. Consumers pretty much spend all their time in the digital channel. Yet, in 2018, digital ad spend accounted for less than 50% of total ad spend in the U.S. The market is growing at 20%-plus clip, too. The implication? The ad market still has a lot of growth firepower and a long growth runway ahead of it.
That’s great news for Pinterest (NYSE:PINS). Pinterest is a freshly public visual discovery platform with 300 million users. That’s a big user base. But, Pinterest is just now starting to monetize with ads. That ad business has been growing at a great pace. It will continue to do so because the digital ad market is a secular growth market, and because Pinterest has a unique ad value prop in that market (visual discovery lends itself very well to ads).
Over the next several years, then, Pinterest will start to monetize its users at the same rate as other major social media platforms. That creates visible runway for Pinterest to go from an $18 billion company today, to a $30 billion-plus company one day — the market cap for Twitter (NYSE:TWTR) today.
The long-term bull thesis on Square (NYSE:SQ) is all about two things: the global cash-less revolution, and Square’s innovation trajectory in the cash-less payments world.
Consumers everywhere are ditching cash. Why? Because cash is easy to lose. It’s bulky, and can take up a lot of space. Cash transactions tend to take longer. In other words, there’s a laundry list of reasons why consumers are pivoting away from cash usage, and why a cash-less world is the future of commerce. Yet, cash still accounts for 27% of all consumer payments in the United States, meaning that this secular cash-less payments growth narrative still has a ton of runway for future growth over the next several years.
That’s great news for Square, which has created an ever-expanding ecosystem in the cash-less payments world. At first, it started with Square creating hardware, which helped merchants of all sizes process non-cash payments. Ever since, Square has expanded into banking with Square Capital, peer-to-peer e-payments with Square Cash, and enterprise management services with Square Payroll and Square Orders. In other words, over the past five-plus years, Square has innovated relentlessly to expand its reach in the secular growth cash-less payments world.
This combination of secular growth market backdrop and relentless innovation is a winning combination. Ultimately, it will propel meaningful long-term revenue and profit growth, which should in turn power SQ stock higher in the long run.
Hyper-growth cloud security company Okta (NASDAQ:OKTA) is a solid long-term investment for two big reasons. First, cybersecurity is an increasingly important field that will grow by leaps and bounds over the next several years. Second, Okta has developed a unique solution in the cybersecurity world, which paves the path for Okta to gain meaningful share in this secular growth market.
On the first point, cybersecurity is everything these days, and it’ll only become more important over the next few years. Enterprises are pivoting everything to the cloud — their workflows, their documents, their data, so on and so forth. They are doing so because the cloud enables more seamless, efficient work. But, it also opens up all that important stuff to a plethora of cyber risks. As such, enterprises are investing big to protect themselves from all those cyber risks, and will continue to do so in greater frequency as more information and workloads pivot to the cloud.
On the second point, Okta has developed a unique security solution — centered on identity — which allows individuals within an enterprise to seamlessly and securely adopt any new software system (because an individual’s identity does not change from system to system). This novel solution means that one security solution can be used without friction across an enterprise’s entire ecosystem. That’s a huge plus. Consequently, Okta has been winning share in the cloud security market (50%-plus revenue growth rates for the past several quarters) and projects to continue to keep winning share for the foreseeable future as identity-based solutions gain traction.
In sum, then, Okta projects as a big revenue and profit grower over the next several years. All that growth will inevitably power a bright future for OKTA stock.
It hasn’t been all rainbows and sunshine for electric vehicle maker Tesla (NASDAQ:TSLA). Instead, it has been a very bumpy ride, with the stock ultimately going nowhere over the past several years.
But, long-term investors would be wise to zoom out and see the forest through the trees. In the big picture, electrification is the future of transportation. Consumers globally are starting to recognize the value and importance of replacing gas-powered cars with EVs, and because it has become cool to be eco-friendly, they are also increasingly adopting EVs. At the same, legislation globally is pushing for broader EV adoption. The result? EV adoption rates will go from a few percentage points of the global auto market today, to 20%-plus over the next decade.
That implies huge growth for the EV industry over the next decade. At the heart of all this growth is Tesla. Tesla owns 60% of the U.S. EV market, and that share has steadily grown over the past several years. Globally, Tesla owns over 10% of the market, and that share is also up over the past several years. With new models coming soon, it’s reasonable to assume that Tesla will remain a relevant player in this market for several years to come.
Thus, in the big picture, Tesla in a decade projects as a very important player in a huge EV market. That positioning will ultimately result in TSLA stock ending next decade significantly higher than where it trades hands today.
The long-term bull thesis on Twilio (NASDAQ:TWLO) is very simple. Communication is becoming an increasingly important part of the consumer experience, and Twilio enables that communication.
In a nutshell, we are pivoting toward an experience economy. For consumer-facing brands, this translates as: no longer is it all about the product or service you sell, but it’s also about the consumer experience that comes with buying that product or service. Thus, consumer-facing brands are increasingly looking to enhance their consumer experience. One way to do so is by integrating communication, i.e., the ability to communicate directly with consumers to improve their experience.
Twilio provides the technological backbone which powers this brand-to-consumer communication. Over the next several years, this brand-to-consumer communication will become the norm in consumer experiences everywhere. That means Twilio will become part of the budget at every consumer-facing brand, which translates into huge revenue and profit growth potential over the next several years.
As profits march higher over the next several years, so will TWLO stock.
Canopy Growth (CGC)
One of the biggest growth industries in the 2020’s will be the cannabis market, and the company that projects to be at the head of all the growth is Canopy Growth (NYSE:CGC). That’s why you buy CGC stock for the next decade.
Current ground-level consumption trends — many surveys and data-points suggest that recreational cannabis usage is nearly as common as alcoholic beverage usage — and global legislative trends — legislation everywhere is progressing towards full legalization of cannabis — together imply that the legal cannabis market could be huge one day, and that all that growth will materialize relatively soon. Realistically speaking, the bulk of the legal cannabis market growth narrative will materialize between 2020 and 2030.
The biggest company in this space right now is Canopy Growth. They have the biggest reach, the most production capacity, and the highest sales volume. They also have the widest global distribution network, the biggest balance sheet, and have been making the most aggressive expansion-oriented moves in the space. Thus, Canopy is really unrivaled in the cannabis world right now, and as such, projects to be a big grower in the 2020’s as the cannabis market goes global.
The result? Canopy’s revenues will soar over the next decade. That huge revenue growth will drive dramatic margin improvements, and will one day result in huge profits at scale. Those huge profits will translate into a CGC stock price in a decade that should be meaningfully higher than today’s stock price.
The China growth narrative has hit a major road-bump over the past two years as China’s consumer economy has dramatically slowed. But, this growth narrative is far from over, and the long-term fundamentals here imply that China’s most important consumer stock — Alibaba (NYSE:BABA) — will soar in the long run.
China’s once red-hot consumer economy has cooled recently, weighed by a combination of consumer fatigue and trade war inspired uncertainty. But, the fundamentals imply that this recent weakness is just a temporary slowdown in what still projects as a long-term growth market. Specifically, China’s internet penetration rates, per capita income levels and per capita consumption rates remain well-below developed nation averages. Thus, China still has a long way to go before its economy is as urbanized and digitized as the economies of Europe and North America.
China will get there one day. As such, China’s consumer economy will continue to expand at an impressive pace over the next decade. As it does, China’s big consumer-facing companies will continue to grow with equally impressive pace. The biggest of those consumer-facing companies is Alibaba. Consequently, Alibaba projects to remain a big grower for the next several years.
Right now, sustained big growth is not priced into BABA stock. Thus, as sustained big growth materializes over the next several years, BABA stock will soar higher.
When it comes to Chegg (NASDAQ:CHGG), the long-term bull thesis is all about the digitization of the world’s massive education market.
The story here is simple. Today’s high school and college students spend all their free time in the digital channel, with their heads buried in their phones sending Snaps, posting Instagram stories and watching YouTube videos. But, when they go into the classroom, very few things are digital — teachers still write on white boards and students still take notes on paper.
In other words, the digital transformation, which has changed the landscape of the consumer economy, has yet to hit the education market. This has created a huge disconnect between how students interact with their education materials, and how they interact with everything else.
Chegg is trying to eliminate this disconnect by creating the world’s first connected learning platform that takes the digital revolution, and applies it to the education market. This includes online textbooks, online solutions, on-demand e-tutors, on-demand writing help, online calculators, online test help, so on and so forth. Students love the Chegg ecosystem, mostly because it matches their everyday consumption habits.
Over the next several years, Chegg will become the norm for high school and college students everywhere. There are 36 million high school and college students in America alone. Chegg only has 3 million subscribers. Thus, in the long run, Chegg will grow by a tremendous amount, which should lead to equally tremendous growth in CHGG’s stock price.
Beyond Meat (BYND)
You want to buy and hold Beyond Meat (NASDAQ:BYND) meat stock for the long haul because this company is in the top of the first inning of a huge plant-based meat growth narrative that will ultimately result in BYND stock heading meaningfully higher over the next decade.
The bull thesis breaks into three parts. First, plant-based meats will one day turn into a sizable chunk of the huge global meats pie. Second, Beyond Meat will remain an important player in that soon-to-be huge global plant-based meats market. Third, realistic assumptions imply that BYND stock could be a multi-bagger.
As I’ve discussed on InvestorPlace before, the numbers are simple:
“The global meats market measures in around $1.4 trillion today. It will gradually grow to about $1.5 trillion by 2030. Global plant-based meats measure in around $12.1 billion today, or just under a percent of total meats sales. Plant-based dairy accounts for 14% of total dairy sales. That number is only growing, and current consumption trends indicate that plant-based meat can actually exceed that level of penetration at scale. By 2030, plant-based meats could account for 20% of the $1.5 trillion global meats market, or for about $300 billion in total sales.”
Let’s say Beyond Meat turns into a 5% player in that market at scale. That implies $15 billion in revenue. Management has said gross margins will run toward 35%. Given the opex rates at other big meats players, Beyond Meat could realistically push its opex rate down to 20%. Thus, operating margins of 15% on $15 billion in revenue seems doable at scale. Doing the math on that and accounting for taxes, that combination should produce around $1.8 billion in net profits. Based on a market-average 16-forward multiple, that equates to a $30 billion market cap at scale.
BYND stock has an ~$10 billion market cap today. Thus, in the long run, this stock could triple.
The long-term bull thesis on Axon (NASDAQ:AAXN) circles around this idea that, within the next several years, technology will increasingly transform the law enforcement industry in a big way, and that Axon will be the company at the heart of this technological transformation.
Much like the education market, the law enforcement industry has been somewhat slow to pivot to the digitization trend. Axon is changing this. Through its portfolio of next-gen solutions, Axon is attempting to digitize the entire law enforcement industry, from head to toe. These solutions include smart weapons, body cameras, dash cameras, cloud archiving solutions, so on and so forth.
Law enforcement agencies are increasingly adopting these solutions, partly because they have to keep up with the times and partly because they want to because they increase operational transparency and efficiency. Importantly, they are adopting Axon’s solutions, simply because there is no other viable competitor in the market.
Thus, as the law enforcement world continues to digitize over the next several years, Axon’s revenues and profits will remain on a healthy long-term uptrend. That will keep AAXN stock on an equally healthy long-term uptrend.
As of this writing, Luke Lango was long FB, SHOP, LK, TTD, ROKU, SQ, OKTA, TSLA, TWLO, CGC, BABA, CHGG, BYND and AAXN.