People reading this article right now are probably in a good mindset for investors. Based on the title, you’re looking for stocks to buy for the long term, even though the market is currently on a rollercoaster ride. The S&P500 was down more than 20% in the first half of the year – the worst first half performance in over 50 years. But then he followed that terrible performance with a 9.1% gain in July – one of his best months ever.
There’s a lot going on in the global economy right now, resulting in the aforementioned volatility. And because of that, other people want to sit on the sidelines and wait for calmer conditions. But time is one of an investor’s greatest assets. Therefore, whenever possible, we want to put time on our side by buying stocks regardless of market conditions.
For this reason, I commend you, dear reader, for willingly setting aside fear and investing in the future. And I’ll try to make it worth your time. In this article, I’m going to share my best stock for the long term, another promising but risky bet, followed by one of the safest growth stocks you can find.
My best stock for the long haul
For one of the best blends of security and benefits, home improvement retailer Floor and decoration backgrounds (NDF -5.00%) is my best stock for the next decade.
Floor & Decor is counter-positioned in the home improvement space. Its average store size is 78,000 square feet – much larger than most flooring retailers and larger than the flooring sections of companies like The Home deposit.
The company aims to expand to 500 locations over the next decade, up from just 174 today. Operating these many huge stores would be a liability for some businesses. But Floor & Decor’s unit economy makes sense. This year is poised to become its 14th consecutive year of same-store sales growth, helping to leverage the fixed cost of real estate to drive profits. His report-the profit margin is 7.2% in the first half of 2022, which is behind Home Depot’s margin of nearly 11%. But that’s still enough to show there’s a place in the market for big-box flooring warehouses – a niche occupied by Floor & Decor.
For what it’s worth, the marketplace can support over 2,300 Home Depot stores. Therefore, 500 Floor & Decor locations look very realistic. And as the company nearly triples its number of stores, I expect sales and profits to increase at least as much.
Finally, as I continue to talk about Home Depot, I’d like to note that Floor & Decor is run by Tom Taylor, a 23-year-old former Home Depot executive, which means he’s been around successful home improvement retailers for decades. decades. Since taking over in 2012, Taylor has grown Floor & Decor from less than 30 locations to where it is today. And I believe his track record shows he’s still the right CEO to grow the company now.
The riskiest action of these three purchases
Digital Advertising Supply Side Platform (SSP) PubMatic (PUBM -6.48%) carries a lot of risk, but it overcomes challenges admirably with ease.
The opportunity for programmatic digital advertising (targeted and relevant ads) is huge. According to Insider Intelligence, the entire market could grow by 50% by 2025. And you’d think this rising tide would lift all boats. But this is not necessarily the case. Consider that PubMatic’s main competitor is magnite. And Magnite only posted 7% revenue growth in the second quarter of 2022, excluding acquisitions. In comparison, PubMatic increased its revenue by 27% during this period.
Speaking of Magnite’s acquisitions, the adtech space is consolidating from dozens of smaller players to a few larger players. This is a risky environment and PubMatic chooses to forge ahead on its own, refraining from mergers and acquisitions. Management believes it can grow its market share from around 4% today to 20% in the future, which would represent astronomical revenue growth. But missing just a handful of opportunities could greatly hamper his chances.
For example, customer concentration is a common risk for adtech SSP companies and PubMatic is no exception. One of the company’s publisher clients accounted for 12% of its revenue in the second quarter. And just two demand-side platform partners (DSPs) accounted for 32% of its customer accounts. Losing any of these to a competitor would be catastrophic for PubMatic.
That said, PubMatic’s growth has always been above average so far. And management is playing it safe. In addition to being profitable under generally accepted accounting principles (GAAP) for 13 consecutive quarters, the company also has more than $180 million in cash, cash equivalents and short-term investments.
PubMatic’s growth, profitability and strong cash position mitigate some of the downside risk for investors. And buying these stocks right now gives exposure to an outsized growth opportunity as PubMatic takes market share and the overall market expands rapidly.
The safest stock of these three purchases
As the leading e-commerce portal in the United States, Amazon (AMZN -2.85%) needs no introduction. But did you know that this company still has incredible long-term benefits, even at its size? Well, it is.
For me, I own Amazon stock because of Amazon Web Services (AWS), not its e-commerce business. In the first half of 2022, this cloud computing platform represented only 16% of Amazon’s total revenue. However, he was responsible for 175% of operating profit – earning more than $12 billion as e-commerce operations in North America and around the world racked up nearly $7 billion in losses.
This isn’t a recent phenomenon for Amazon – it’s been that way for years and I think it clearly demonstrates the importance of AWS. And right now, things are looking brighter than ever for AWS. Consider that the company ended the second quarter of 2022 with contractual commitments of over $100 billion in future AWS spending. This future revenue stream was only $80 billion at the end of 2021 and less than $61 billion in the second quarter of 2021. In short, AWS growth is strong and adoption continues.
That said, let’s not underestimate Amazon’s e-commerce potential. Consider that in China, 46% of retail sales are made through e-commerce portals, according to Insider Intelligence. In the United States, it’s only 16%. Given the penetration of e-commerce sales in China, it is not outrageous to think that e-commerce sales in the United States could double or more over the next decade. And I’ll let the reader decide which e-commerce company is best positioned to capture the lion’s share of this huge opportunity.
Investing in growth despite market volatility
Because the market is volatile, it’s possible that shares of Floor & Decor, PubMatic, and even Amazon could rise and fall over the coming year. It is important to be mentally prepared for this, so that you do not sell out of fear at inopportune times. Continually check the long-term potential of each of these companies in the future. And keep your eyes on that stable horizon even if the boat encounters rough seas.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Jon Quast holds positions at Amazon, Floor & Decor Holdings, Inc., Magnite, Inc, and PubMatic, Inc. The Motley Fool holds positions and endorses Amazon, Home Depot, Magnite, Inc, and PubMatic, Inc. The Motley Fool has a disclosure policy.