When looking for high-quality growth stocks to buy for long-term gains, it is often best to find a company that represents the next generation of something. According to a recent study — “Explaining the Demise of Value Investing” — by Baruch Lev of the Stern School of Business and Anup Srivastava of the Haskayne School of Business, value investing lost its luster around 2007. Alternatively, momentum investing remains a strategy that many investors cling to.
In today’s environment, investors should look for companies that are fundamentally changing the way things work in an established industry — for the better — and which can leverage that change to grow by leaps and bounds in that industry over the next several years.
Historical examples: FANG.
Five years ago, Facebook (NASDAQ:FB) represented the next generation of advertising, leveraging a wealth of consumer data to enable brands to advertise to whoever they wanted, whenever they wanted and in whatever format they wanted. Facebook has since gone from niche to dominant player in the global ad world. As it has over the past five years, FB stock has risen 150%.
Ten years ago, Amazon (NASDAQ:AMZN) represented the next generation of commerce, leveraging technology to allow customers to shop from the convenience of their home, and do so whenever they wanted. Amazon has since gone from niche to dominant player in the global commerce world. As it has over the past ten years, AMZN stock has risen nearly 2,000%.
Lather, rinse, repeat for Netflix (NASDAQ:NFLX) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). Netflix represented the next generation of media consumption, allowing consumers to watch movies and TV shows whenever they wanted, through whatever screen they wanted. Alphabet represented the next generation of search, allowing consumers to search for anything quickly and seamlessly. Both of those stocks are up more than 400% over the past decade.
Which next-generation stocks today could follow in the footsteps of the FANG giants? Legendary tech investor Matt McCall has some thoughts on “keystone” technologies that will drive the next leg of innovation and high-powered growth.
Likewise, here’s a list of seven next-gen growth stocks that could be big winners in the long run:
Next-Gen Growth Stocks to Buy: Shopify (SHOP)
“The Next Generation of Commerce”
A decade ago, Amazon represented the future of commerce and Amazon leveraged that position to turn into a trillion dollar company. Today, e-commerce solutions provider Shopify (NYSE:SHOP) represents the future of commerce, and the implication is that with a $35 billion market cap today, this company is far from being done growing.
The logic here is simple. The e-commerce world today is one defined by marketplaces. Consumers go to centralized marketplaces like Amazon, eBay (NASDAQ:EBAY) and Etsy (NASDAQ:ETSY), where retailers list their products. Consumers buy a product from a retailer through those marketplaces. The marketplace takes a cut. It’s that simple today.
This model will never go extinct. The natural benefits of being in a marketplace are too large. But, these marketplaces also take pretty sizable cuts, so retailers and merchants are also looking to drive more traffic through their own websites. Shopify helps these merchants do that. They help them build great e-commerce sites and drive traffic to those sites. For doing this, Shopify takes a small cut of sales on these sites — but it is a tiny cut relative to what centralized marketplaces take.
Because of the economic benefits of partnering with Shopify, merchants and retailers everywhere are doing this. At the same time, consumers are increasingly discovering products through social platforms, like Instagram and that discovery leads customers to the merchant’s website, not the Amazon listing. As such, both the supply and demand sides of the commerce market are moving toward more direct, decentralized commerce.
Shopify is the backbone of this commerce model. Total retail sales in the world measure north of $20 trillion. This is a $35 billion company. Thus, the potential for long-term gains in SHOP stock is enormous.
Louis Navellier’s Portfolio Grader rates Shopify stock as a “strong buy,” earning the renowned investor’s highest quantitative grade possible. As the leader of one of the world’s leading think tanks, Louis has identified the “master key” of AI investing.
“The Next Generation of Media”
For all intents and purposes, streaming device maker Roku (NASDAQ:ROKU) represents the next generation of the media industry.
In the 2000s, the media consumption landscape comprised cable TV and movie theaters. By the early 2010s, the market had shifted some to include cable TV, movie theaters and streaming services. In the 2020s, the market will change even more. With more streaming services coming to the forefront — see the new offerings coming from Disney (NYSE:DIS), AT&T (NYSE:T) and more — the media consumption landscape will be dominated by streaming services.
In other words, the media consumption landscape is in the middle of an enormous pivot to streaming services. Roku is at the epicenter of this pivot. They provide streaming device makers which: 1) enable consumers to access those streaming services from any TV, smart or not, and 2) provide a content-neutral ecosystem for streaming services to reach consumers. In so doing, Roku is connecting all the supply in the streaming TV world, to all the demand. They are becoming the cable box of the streaming TV world.
The long-term implications here are that Roku will one day have over a hundred million consumers watching hours of content through its ecosystem. They monetize all those consumers and all those viewing hours through high-margin subscription sharing agreements and high-margin ads, which should produce robust profit growth in the long run … and all that growth should drive ROKU stock materially higher.
The Trade Desk (TTD)
“The Next Generation of Advertising”
Programmatic advertising is the future of advertising, and programmatic advertising leader The Trade Desk (NASDAQ:TTD) is the stock to buy to play the programmatic advertising trend.
Long story short, everything is in the process of being automated. There are three big drivers here. First, automation saves money, since it takes recurring human labor expense and turns it into a one-time technology hardware installation fee (and some maintenance costs thereafter). Second, automation improves efficiency, since machines and algorithms work more quickly than humans and aren’t subject to fatigue. Third, automation makes things smarter, since automated technologies leverage data to make better decisions.
Consequently, everything is being automated. This includes ad transaction processes. The automation of ad transaction processes is called programmatic advertising, and companies left and right are adopting programmatic advertising since it’s cheaper, more efficient and produces better results.
At the forefront of the programmatic advertising trend is The Trade Desk. That’s why the company has reported 40%-plus revenue growth for the past several years. This big growth will stick around for a lot longer. The global ad market is marching toward $1 trillion in size. Gross spend on TTD’s platform is between $2 and $3 billion.
Thus, there’s a long runway here for further growth — and as The Trade Desk moves down that runway, TTD stock should move higher.
“The Next Generation of Security”
Digital security is increasingly turning into one of the most important industries in the global economy, and in that increasingly important industry, Okta (NASDAQ:OKTA) represents the next-generation of superior security.
The story here is pretty simple to understand. Everything is going digital, and everything is going to the cloud. That means all-important enterprise data and workflows are migrating to the cloud. All that important information needs to be protected. So, enterprises are investing big in cloud security.
Traditionally, cloud security solutions encompass the whole ecosystem. That is, they are like castles of security surrounding all the important data and workflows. But, castles of security are limiting in terms of flexibility and mobility, and aren’t entirely ideal. As such, Okta is pioneering identity-based cloud security solutions, which is equivalent to getting rid of the castle altogether and instead outfitting each individual in the ecosystem with an armor of personal security. The logic is that, if everyone has armor, you don’t need a castle, and you can employ a fully secure cloud security system that simultaneously optimizes flexibility and mobility.
Enterprises are coming around to Okta’s identity-based cloud security solutions. As such, Okta’s customer base and revenues have soared over the past several years, and at really high gross margins. But, there’s still a lot of growth left. Okta is a $12 billion company. The global cybersecurity market is marching towards $250 billion in revenues.
As Okta continues to expand and grow share in the secular growth cybersecurity market, OKTA stock will run higher.
Stitch Fix (SFIX)
“The Next Generation of Retail”
One of the lesser known stocks on this list, personal curated stylist service Stitch Fix (NASDAQ:SFIX) is nonetheless a revolutionary company changing the way the retail market works.
At present, the clothes shopping process is highly inefficient. You either: 1) walk into a store with thousands of items, with no idea what you want, and end up spending forever trying to find the right outfit(s), 2) walk into a store with thousands of items, with an idea of what you want, but still end up spending forever trying to find that item(s), or 3) do all of it online, which saves you on the “going into the store” part, but doesn’t really cut back time in terms of deciding what you want. None of those processes are efficient.
Stitch Fix makes clothes shopping efficient. Pay Stitch Fix to be your personal stylist. Tell them the stuff you like. Let them do the rest. They will pick out outfits for you, and send them to you. You try them on, keep what you like, and send back the rest. It’s that easy, and consumers are quickly turning to it because it takes out all the thinking, time and hassle that are inherent to clothes shopping today — all for a relatively small fee.
Over the next several years, Stitch Fix will become an increasingly important part of the huge global retail machine. That is a multi-trillion dollar market. Stitch Fix is a $2 billion company. Thus, the runway for growth here in the long run is very compelling.
“The Next Generation of Transportation”
The company gets a lot of negative press thanks to its lack of profits, huge debt load and outspoken CEO, but beyond all the noise, Tesla (NASDAQ:TSLA) is transforming the transportation market in a big way. In many ways, Tesla represents the next generation of auto transportation.
Here’s the thing. The EV revolution is well on its way. It won’t stop anytime soon. Thanks to the internet, social media and the ease with which information spreads across the world, consumers today are hyper-aware of the world’s environmental issues — and they are doing everything they can to fix those issues. One of the most tangible ways to do that is by ditching your gas powered car for an electric car. Consumers are already doing this, and they will continue to do this with greater frequency as electric battery technology gets better and the EV charging network becomes more fleshed out.
Net net, by the end of next decade, it is reasonable to say that about one out of every four to five cars on the road globally will be electric. That represents huge growth from today 2% penetration rate. Tesla is at the epicenter of that huge growth, and it is the biggest electric player today in every market besides China. New car launches over the next several years should keep Tesla at the top of this booming electric industry.
In fact, Tesla CEO Elon Musk believes his company’s fully autonomous vehicles will be on the road as early as next year. As Louis Navellier puts it, “this isn’t a technology that might or might not happening. It’s happening right now!” See what Louis believes will be the “master key” to unlocking the potential of AI.
Bottom line: Tesla projects as a huge grower over the next several years. Inevitably, all that growth will lead to TSLA stock marching higher in the long run.
“The Next Generation of Education”
Last, but not least, on this list of next-gen growth stocks to buy for the long haul is digital education pioneer Chegg (NASDAQ:CHGG).
The narrative here is easy to follow. Think about your average high school or college student. They are constantly plugged into the digital channel, watching shows on Netflix, sending images on Snapchat, sharing videos on Tik Tok, sharing pictures on Instagram, messaging friends on Messenger, seeing videos on YouTube, so on and so forth. Everything they do, they do with a smartphone, tablet or smart TV.
The academic world hasn’t pivoted to the digital transformation yet. So, all these students are going from spending all their free time in the digital channel, to sticking their heads in physical textbooks when it comes learning time. That doesn’t make sense. All it says is that the academic world is behind the curve. In an ideal world, educational materials are digitized, too, and learning is done through the digital channel, like everything else.
Chegg is doing this. They are creating a digital education platform that is becoming a highly desirable learning companion for high school and college students across America. This platform is growing rapidly. But, Chegg only has 3 million subs. There are 36 million high school and college students in the U.S. alone — and many, many more internationally.
Thus, the Chegg growth narrative is really just getting started. Over the next several years, this company will continue to transform the education industry, and as they do, revenues, profits and the stock will move higher.
As of this writing, Luke Lango was long FB, NFLX, GOOG, SHOP, EBAY, DIS, T, TTD, OKTA, SFIX, TSLA and CHGG.