3 Growth Stocks to Buy for the Long Term

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growth stocks - 3 Growth Stocks to Buy for the Long Term

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This is the most resilient stock market we have ever seen. The bulls are completely in charge of the price action, and they are buying every dip. Growth stocks have led most of the way, and even when they fall out of favor, investors are temporarily rotating into something else. Case in point this happened last week as these tech stocks sold in sympathy to Netflix (NASDAQ:NFLX) earnings but Wall Street piled into other sectors. The small-capitalization stocks index rallied almost 4% for example.

This tech malaise won’t last for long, and therein lies today’s opportunity.Technology stocks, especially the mega-caps, are usually the growth stocks that attract most investors during bullish markets. In spite of the virus crisis, we are still in one. Tech stock prices seem invincible and they are rallying relentlessly setting records along the way. During the economic war with China they fell into a crater from which most investors saw doom. But then the recovery rally ensued and it was ferocious and here we are with the Nasdaq the only index setting records.

Buying the dips in tech has been foolproof. This makes sense, since the world is in the process of digitizing. Demand on their products and services is in an exponential ramp not a fad. Overtime, if the stock markets are higher these stocks are leading the way.

The three stocks we examine today are a blind buy on every significant dip. Sometimes this is easier said than done, because these are the trickiest stock market conditions of all time.

  • Amazon (NASDAQ:AMZN)
  • Netflix (NASDAQ:NFLX)
  • Facebook (NASDAQ:FB)

Growth Stocks to Buy: Amazon (AMZN)

Amazon (AMZN) Stock Chart Showing Buy-the-dip zone
Source: Charts by TradingView

If there is a poster child for a stock that benefited from the virus crisis, it is Amazon. By default, everyone flocked to using its services either because of a forced quarantine or self-imposed behavior. People who are trying to avoid contact with other humans are using Amazon almost exclusively for almost all purchases.

Furthermore, as stores were ordered shut, there sometimes were no alternatives but to get online and buy from the e-tail giant. Some people call it luck, but the fact is under the leadership of Jeff Bezos, Amazon created all of its own luck. They placed themselves in the right place and benefited at the right time. They now capitalize on the opportunities that the quarantine brought. The virus fears did not create the migration to e-tailing because the trend has been going on for years. But now it has become more urgent.

This advantage will continue for a long time for Amazon stock. The company is going to benefit from new habits that were formed during this crisis. Coming into it, a lot of people had never shopped online and they may have discovered what the hubbub is all about. The reason Amazon services are so popular is because they work.

Most importantly is that the Amazon teams are already looking for new markets. A few years ago and out of nowhere they dominated “the cloud” with Amazon Web Services. And it’s almost a guarantee that they will have another vertical just as big around the corner. They just recently announced their foray into interactive video streaming, and who knows where that will lead. They are also getting big into web advertising and video streaming so they have most hot markets covered.

Amazon has disrupted almost every vertical it entered and it quickly became the gorilla to beat. This is a stock to own for a long time … but perhaps after a small dip. The charts suggest that if the stock market has a hiccup going into or out of the November U.S. elections, Amazon would make a great buy closer to $2,700 per share. While this seems too low, consider that it was under $1,800 three months ago. Sometimes it pays to be patient, and this is one of those times.

Facebook (FB)

Facebook (FB) Stock Chart Showing Buy-the-dip Zone
Source: Charts by TradingView

Facebook on the other hand is always fighting an uphill battle, especially with pubic opinion. Maybe this is because they came out of nowhere and became a monster of a company. It is hard to service over three billion people and not ruffle a few feathers. The opinions are varied and emotions run high and this stirs up trouble. We are passionate beings and we almost always want to express our opinions loudly. Therein lies the dilemma for Facebook investors.

Management wants to be the provider of the proverbial soap boxes, but without being the police of the content. In an ideal world it should be that if the Facebook users are saying something legal, then even if it the opinions are vile they should stand. We cannot all have the same ethos, but we will definitely all fight about it. The current consensus is that Facebook is making a mistake. High-profile advertisers claim they are standing up against hate by boycotting FB services. Marketing managers that opt out of using the most lucrative ad venue are making a business mistake.

My take on this is that advertisers will come back whenever their budgets allow them. Facebook will not miss them much because they know that they have the leverage. It is hard to mess up a platform that has the constant attention of over three billion people every month. Businesses will follow the eyeballs, and for now they are on the Facebook platforms. It is easy to forget that they also own and operate at least two other platforms with over 1 billion users each.

It wasn’t long ago that all the experts also called the demise of the company over the debacles from Cambridge Analytica, and the 2016 U.S. elections. In spite of that, the stock made new highs after those, and it also made new highs last week. This flies in the face of the critics.

My opinion today is not whether Facebook is doing the right thing standing for for free speech or not, but rather that the stock doesn’t care. Business is business and money still lives on this monstrous platform. It has the best advertising reach and marketing managers would be fools not to use it. Public companies are bound by fiduciary responsibilities to their stakeholders not moral compasses. Mixing the two is in direct conflict of what management roles are.

Just like Amazon, buying Facebook stock at these altitudes carries some risk. An entry near $210 would make more sense, but it ultimately depends on the investor’s patience and time frame. We can never confidently find absolute bottoms, but we can definitely aim to be diligent to not take precarious positions on purpose. With the right entry points, going long FB stock is a sound investment move on significant dips.

Netflix (NFLX)

Netflix (NFLX) Stock Chart Showing Buy-the-dip Zone
Source: Charts by TradingView

Last week, after much jubilation, ended badly for Netflix stock. The reaction to its earnings report was negative. It wasn’t so much that it disappointed investors, because it didn’t. It crushed all expectations. But it’s what it said about the future that worried traders. Management added 10 million subscribers crushing the estimates last quarter. The problem was that they slashed forward guidance on that front by about half. I understand that forecasting skills are limited, but this wasn’t a small reduction, it was a complete obliteration of the prior estimates.

Management delivered a simple message that they see rougher times ahead. They most likely believe that the quarantine pulled forward a lot of sales into the past half. This is normal and I would confidently by the dip in Netflix stock. But the dip isn’t that big yet, albeit that a drop of 7% seems like the end of the world these days. Keep in mind that it had just rallied 30% going into the earnings. Investors need to keep proper perspective so they don’t buy the beginning of a correction in the stock.

This is not to say that there is one coming, but technically the stock is precariously perched and vulnerable. If the stock market in general stumbles for whatever reason, NFLX stock will lead it down and fast. Sentiment on Wall Street tends to carry momentum, so it is prudent to wait a few days and see how the price action unfolds in this mother of all growth stocks.

The concept has not changed. Neither has the thesis. Netflix is growing fast and consistently and they continue to use the same strategy. They overspend on content which seems crazy, but for as long as money is cheap they can continue to do so for years. Their main competition is Disney (NYSE:DIS) because their streaming platform subscription base is quickly catching the original. Moreover Disney has huge library already and a long history of making new content for a lot cheaper than Netflix.

So far, Netflix CEO Reed Hastings has consistently expressed his lackadaisical response to all of his competition. This concerns me a little bit but so far they haven’t wavered. They continue to execute on plans regardless of who is chasing them. The model works therefore Netflix stock will continue to be one that investors seek. NFLX stock is still close to $500 per share so an entry near $425 would make much more sense. There is no rush to buy-the-dip too fast.

Buying growth stocks at all-time highs definitely carries a lot of risk. Today’s three stocks are old school so they are less risky than say Zoom Video (NASDAQ:ZM) which is one of the newcomer to the segment. But this cohort carries tremendous amount of risk because unlike Amazon, Facebook, or Netflix, Zoom has over 100 years worth of sales built into today’s stock price.

Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities.

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2020/07/3-growth-stocks-to-buy-for-the-long-term/.

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