The stock market is back. At least, that seems to be the case after the worst first half in more than five decades.
Over the past two months, the S&P500, Dow Jones Industrial Averageand Nasdaq Compound are respectively up 14%, 11% and 21%. So, as market sentiment improves, where should investors look to capitalize?
For me, growth stocks are the clear answer. They caused the bulk of the losses in the first half of the year and are poised to bring the market back. Here are four names that I think are worth keeping for the long haul.
What defines the software specialist? Adobe (ADBE -3.18%) aside from its connection to the digital creator economy.
Today’s economy increasingly relies on digital content: infographics, digital video, blogs, social media posts and photography. Creating, editing, and distributing digital content requires tools, and Adobe’s apps are some of the best.
The company generated $4.4 billion in revenue last quarter, up 14% from the same period last year. However, its profitability is even more impressive than its revenue growth. Adobe has an operating margin of 36% and a return on equity of 35%.
Its current price-to-sales ratio of 12.7 is still below its five-year average of 15.3, providing potential investors with an attractive entry point.
My second growth stock to buy and hold forever is Nasdaq (NDAQ -2.61%).
Here I am not talking about Nasdaq Composite Index or the Nasdaq 100 Index. Instead, I’m referring to the company behind the Nasdaq stock exchange.
The Nasdaq stock exchange now has over 3,700 listings, but the company is more than the stock exchange itself. The Nasdaq also creates, adjusts and licenses its various indices (such as the two mentioned above). Additionally, it provides analytics, anti-fraud technology and ESG advisory services.
Nasdaq estimates the total addressable market (TAM) for its analytics segment to be $19 billion; that figure jumps to $26 billion for its anti-money laundering and surveillance software. Given that the Nasdaq captures less than 5% of each market, management sees a huge opportunity for growth.
Soft (CHWY -6.98%) is another growth stock to consider. The company operates an online pet marketplace that sells everything from kitty litter to pet insurance. It has over 20 million active users and is growing around 4% year-over-year.
Chewy’s business model benefits from two key characteristics: pet expenses are largely recurring and non-discretionary. Kitty litter is not optional; neither does dog food.
Additionally, Chewy excels at growing sales within its existing customer base. Consider a key metric, net sales per active customer (NSPAC). The company grew NSPAC to an all-time high of $446 in its latest quarter.
Chewy’s data shows that its customers are consistently increasing their annual spend. First-year customers spend around $200 per year. In a client’s second year, that number jumps to $400. And in their fifth year, it’s $700.
With this kind of growth, Chewy is likely to make a lot of pets – and investors – very happy in the years to come.
My final growth stock to buy and hold forever is Airbnb (ABNB -5.37%). There’s a lot to love about Airbnb, but here’s something you might not have considered: How do you rank this company? Is it a technological value? A stock of travel and leisure? A housing stock?
In truth, that’s all. Airbnb’s business model transcends many boundaries between these industries. Its application is based on state-of-the-art technology; its customers seek captivating travel experiences; its hosts depend on it to help pay their bills – and perhaps their mortgages.
Airbnb has emerged from the pandemic stronger than ever. The company reported 103 million nights and experiences booked in its latest quarter, its highest quarterly total on record. Additionally, free cash flow jumped to $2.9 billion over the past 12 months. The company now has more than $10 billion in cash. Management has decided to return part of it to shareholders in the form of a $2 billion buyout that it has just announced.
With a price-to-sales (P/S) ratio of 11, Airbnb is not cheap in absolute terms. But on a relative basis, it does. Since its IPO, the company’s average P/S ratio has been 20.5, almost double what it is today. Investors looking for a growth stock with a bright future ahead of it would do well to consider Airbnb now.
Jake Lerch holds positions at Adobe Inc. and Airbnb, Inc. The Motley Fool holds positions and recommends Adobe Inc., Airbnb, Inc., and Chewy, Inc. The Motley Fool recommends Nasdaq and recommends the following options: Long January 2024 $420 calls on Adobe Inc. and short $430 calls in January 2024 on Adobe Inc. The Motley Fool has a Disclosure Policy.