Finding new growth stocks to add to your portfolio usually isn’t too difficult. Finding growth stocks to buy and hold forever, however, can be a different story. The underlying company must be capable of evolving over time as its marketplace changes. Just ask Xerox, Kodak, and Blockbuster.
With that as the backdrop, here’s a rundown of three growth stocks you can comfortably buy and hold for a lifetime. These organizations not only manage businesses that are perpetually in demand, but each has proven willing and able to change as needed to continue growing.
In no particular order…
1. Amazon
It’s such a commonly suggested stock pick that it’s almost become a cliché. Nevertheless, Amazon (NASDAQ: AMZN) is an investor favorite for all the right reasons. Not only is it the leading e-commerce company in the U.S. (with roughly 40% market share, according to eMarketer), but its sales growth streak remains almost perfectly unfettered.
Granted, its cloud computing arm — Amazon Web Services — has a great deal to do with this uninterrupted growth. AWS accounts for roughly two-thirds of the company’s operating income, even though it only contributes about 18% of revenue. The e-commerce side of the business obviously isn’t wildly profitable.
It just doesn’t matter.
See, profitability (or lack thereof) isn’t a terribly important part of the argument for or against owning Amazon stock. The reason this company is such a great forever growth holding is its digital ecosystem that makes it so easy to become and remain a customer. There’s a reason Amazon Prime customers are eligible for free shipping on their online purchases, and it’s not because Amazon is interested in public service. It’s because these subscribers ultimately spend more than non-Prime shoppers do.
There’s also a reason Amazon is able to collectively charge its third-party sellers roughly $13 billion per quarter now to prominently feature their goods at Amazon.com. That’s the fact that roughly 300 million people shop at one of its websites on a (very) regular basis. Web-traffic measurement outfit Semrush reports Amazon.com alone was visited 3.23 billion times in August.
Given that well-established habits are hard to break — especially when they’re intended to be sticky — Amazon is apt to hold on to its commanding lead of North America’s e-commerce market as it continues to grow. There’s just no rival in a position to threaten the company.
And its primary market is nearly certain to keep growing. Despite the business’s maturity, the U.S. Census Bureau reports that e-commerce still only makes up around 16% of the nation’s total retail sales. That leaves tons of room for more growth.
2. MercadoLibre
While Amazon may be the dominant e-commerce name in North America, know that this dominance only applies here. Outside of the U.S., it doesn’t. Indeed, a company called MercadoLibre (NASDAQ: MELI) is frequently referred to as the “Amazon of Latin America,” acknowledging its Amazon-like control of this particular geographic market.
Just as the unofficial comparison suggests, MercadoLibre manages an online-shopping platform serving Argentina, Brazil, Mexico, and Panama, along with several other Central and South American nations that might otherwise remain untapped.
Calling it the Amazon of Latin America, however, doesn’t quite do it justice. In many ways MercadoLibre is also comparable to eBay, Shopify, and PayPal, by virtue of offering merchants a means of doing business with the region’s online shoppers. For perspective, the company’s e-commerce platforms facilitated $12.6 billion worth of product and service sales during the second quarter of this year, while its payment platform was the middleman for $46.3 billion worth of remittances and transfer. The growth pushed the company’s top line up to the tune of 42% year over year, and higher by 113% when excluding the impact of currency-exchange fluctuations. This improvement extends growth streaks that have been in place for some time now.
This growth is also expected to persist for at least a few more years, as Latin America’s e-commerce markets explode in the wake of the proliferation of broadband-capable smartphones. eMarketer predicts Latin America’s e-commerce sales will swell from $180 billion this year to more than $260 billion in 2028. MercadoLibre is positioned to at least capture its fair share of this growth, if not more than its fair share.
As for why this company is doing what Amazon and other outsider players can’t, it’s not complicated. MercadoLibre was founded by people living in this market, and built from the ground up to serve consumers who may think and act differently than U.S. consumers do. This awareness of local norms and preferences can matter in a big way.
3. PepsiCo
Last but not least, add beverage giant PepsiCo (NASDAQ: PEP) to your list of growth stocks to buy and hold forever.
It admittedly stretches the definition of what qualifies as a growth stock. It’s more often than not categorized as a value name, with its sizable forward-looking dividend yield of 3.2% only bolstering the value argument. Never even mind the fact that bigger rival Coca-Cola is the more frequently suggested pick between the two beverage companies.
Given the likely net growth you could actually achieve by reinvesting PepsiCo’s dividends in more shares of the stock, however, it might be worth a look from a different angle.
PepsiCo is, of course, parent to its namesake cola, as well as popular beverages like Mountain Dew, 7UP, Bubly water, and Gatorade, just to name a few. This is also parent to snack chip company Frito-Lay, the name behind Lay’s potato chips, Doritos, Cheetos, and others. Although PepsiCo’s chips business is the smaller of the two arms, it’s a great product mix aimed at the same basic consumer.
It’s also distinctly different than its top rival in another way. Whereas Coca-Cola punts most of its production and other frontline work to third-party bottling partners, PepsiCo owns the bulk of its bottling operations, maintaining close control of its packaging process. This ultimately translates into thinner profit margins (bottling operations are expensive to run these days), but it allows the company to fine-tune every facet of the production process. It even allows the company to perform revenue-bearing bottling duties for beverage brands other than its own.
And this flexibility is making a fiscal difference. PepsiCo’s dividend growth has quietly outpaced Coca-Cola’s for some time now. Some of the credit is given to PepsiCo’s more aggressive stock-repurchase efforts. Much of the credit, however, simply stems from the fact that PepsiCo prioritizes the growth of its dividend payments funded by predictable control of its business.
More important to investors, PepsiCo’s 52-year streak of annual dividend growth has proven very fruitful to investors who reinvested those payments. A $10,000 investment in PepsiCo stock back in 1984 would be worth nearly $1.7 million today, had you used its cash dividends to purchase more shares. Although it takes some time and patience to achieve it, the resulting average annualized net return of around 12% is certainly characteristic of a growth stock.
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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. James Brumley has positions in Coca-Cola. The Motley Fool has positions in and recommends Amazon, MercadoLibre, PayPal, and Shopify. The Motley Fool recommends eBay and recommends the following options: short September 2024 $62.50 calls on PayPal. The Motley Fool has a disclosure policy.
3 Growth Stocks to Buy and Hold Forever was originally published by The Motley Fool
