At S&P 500 started this year on the right foot – confirming the existence of a bull market — and the good times continued to roll from there for all three major benchmarks. The S&P 500, Nasdaq, and Dow Jones Industrial Average are up 24%, 26%, and 14%, respectively, since the beginning of the year. And the companies that lead the gains are growth stocks, players that typically excel in a bull environment.
But that doesn’t mean you should invest in these players exclusively during bull markets. Solid growth stocks have what it takes to do so over the long term — and that may include more than one bull phase. So, it is important to find quality players, who have promising income prospects over time.
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History shows that bull markets generally last longer than bear markets, which suggests that the current bull market is more distant. And that means investing in growth stocks now can pay you off in the near term – and if you choose wisely – in the long term as well. With that in mind, let’s examine two growth players to buy and hold forever.
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Amazon(NASDAQ: AMZN) may be a major growth company, as it is a leader in two high-growth markets: e-commerce and cloud computing. On top of this, Amazon is going all in the area of ​​the latest promise that some say will revolutionize the world, like the telephone or the Internet. I am talking about artificial intelligence (AI). Amazon uses AI to improve its own business through efficiency gains, and sells AI products and services to customers through its cloud computing unit, Amazon Web Services (AWS).
All of this has helped Amazon build a solid earnings record, generally reporting billions of dollars in revenue and profit every quarter. In e-commerce, Amazon’s competitive moat is strong: It has built an extensive fulfillment network and an attractive subscription program that keeps customers loyal. And the company now continues to make delivery faster and faster – to save costs and please customers. That’s a win-win situation.
For cloud computing and AI, they go hand in hand. AI has helped AWS reach $110 billion in annual revenue. And that’s key because AWS has traditionally been Amazon’s profit driver.
Today, Amazon trades for 40x forward earnings estimates. That’s not cheap, but it’s reasonable considering the company’s strength in high-growth areas and the potential for earnings momentum to continue into the future.
chewy(NYSE: CHWY)like Amazon, is an e-commerce company, but this player specializes in one area — serving our furry friends. Chewy sells everything from pet food and toys to prescription drugs and pet health insurance. And the company recently expanded into a brick-and-mortar business by launching a veterinary clinic known as Chewy Vet Care. Finally, Chewy is also making money through sponsored advertising, a business that is in its infancy but has exceeded the company’s expectations.
What I like most about Chewy is that the program clearly shows the loyalty of its customers – and therefore provides visibility into future earnings. This is Chewy’s Autoship, a service that allows you to select items you use regularly to have them reordered and delivered to you at a specific time. Car sales have consistently made up more than 75% of total sales quarter after quarter, and in the most recent quarter that percentage was over 78%. Another number that shows the number of customers like Chewy is net sales per active customer – up 6% to reach a record $565 in the quarter.
Chewy also has a solid financial situation, with no debt and $695 million in cash, and is focused on managing operating expenses. And the company predicts that the gross margin, today about 29%, will fluctuate, but over time will widen as more parts of the business grow.
All this makes Chewy, trading today for 25x forward earnings estimates, an exciting growth player to buy and hold for the long term.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adria Cimino has a position at Amazon. The Motley Fool has positions and recommendations for Amazon and Chewy. The Motley Fool has a disclosure policy.
2 Growth Stocks to Buy and Hold Forever was originally published by The Motley Fool
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