In this article, we will look at the 5 best long-term growth stocks to invest in. If you want to see similar stocks, you can also take a look at the 10 Best Long-Term Growth Stocks To Invest In.
5. Adobe Inc. (NASDAQ:ADBE)
Number of Hedge Fund Holders: 92
Adobe Inc. (NASDAQ:ADBE) is a San Jose, California-based software company excelling in the design and graphics segment through its offerings like InDesign, Illustrator, and Photoshop.
Adobe Inc. (NASDAQ:ADBE) is diversifying from its current offerings and moving into providing its services over the cloud. In an attempt to further strengthen its position in the industry, Adobe Inc. (NASDAQ:ADBE) has agreed to buy its competitor Figma for $20 billion. The strategic acquisition will help Adobe Inc. (NASDAQ:ADBE) gain access to Figma’s total addressable market of $16.5 billion by 2025.
The company boasts strong fundamentals, with the operating income rising every year since 2014. Revenues increased by 13% from Q3 2021 to Q3 2022. The growth was primarily driven by subscriptions, demonstrating how popular Adobe’s services remain. While there may be concerns regarding the valuation of the company in the short term due to the bearish economic environment, analysts still expect Adobe Inc.’s (NASDAQ:ADBE) revenue to expand at a CAGR of 11% till 2030.
Polen Capital’s stance also reiterated the position of Adobe Inc. (NASDAQ:ADBE) as one of the best long-term stocks to own. Here’s what the investment management company said about Adobe Inc. (NASDAQ:ADBE) in its Q2 2022 investor letter:
“As an example of a valuation dislocation we’ve recently taken advantage of, we added to our position in Adobe Inc. (NASDAQ:ADBE) in the second quarter. It is now one of our top three holdings at just under 7% of the Portfolio. According to our research, Adobe has a near monopoly on digital content creation software globally and is a highly advantaged digital marketing and analytics business. The business continues to grow revenues and profits robustly, even in the face of large currency headwinds and macroeconomic weakness in parts of Europe.
We expect the company to continue to grow earnings at a highteens or better rate for the foreseeable future on the back of robust secular growth tailwinds in digital content creation and consumption. Adobe’s tools are the de facto standards for various applications such as graphics and video editing. In addition, Adobe stands to be a leader in providing tools for creators to develop aspects of the immersive internet (metaverse) as that develops as well.
Adobe’s share price has sold off considerably despite its healthy ongoing growth, similar to certain other companies commonly classified as technology businesses. It is now valued at less than 23x consensus 2023 earnings estimates. This is a discount to companies like Coca-Cola, Colgate, Clorox, McDonald’s, and Proctor & Gamble. Each of these consumer staples companies could be considered a good business by any unbiased observer. Yet, our research tells us that each one is also likely to only grow earnings at a single-digit pace because they face more competition and sell into more mature markets than Adobe. The last time we saw dominant, faster-growing businesses like Adobe trading at discounts to more challenged, slower-growing consumer staples businesses like Coca-Cola was in late 2008/early 2009 during the Financial Crisis. We are not making a market call, but we are starting to see valuation discrepancies that we can take advantage of for our Portfolio.”
4. Netflix, Inc. (NASDAQ:NFLX)
Number of Hedge Fund Holders: 95
Netflix, Inc. (NASDAQ:NFLX) is a Los Gatos, California-based streaming platform that is entering the digital advertising industry as early as next year by offering an ad-based streaming platform to its customers. Previously, the company relied on the subscriber model without any advertisement to build its business.
On September 28, Hamilton Faber at Atlantic Equities upgraded Netflix, Inc. (NASDAQ:NFLX) stock from a Neutral to an Overweight rating and also increased the target price from $211 to $283. The analyst believes that the launch of the ad-based model could be extremely beneficial for the streaming giant in its next growth phase. Faber expects Netflix, Inc. (NASDAQ:NFLX) to generate an average revenue of $26 per month from every customer through advertising. Netflix, Inc. (NASDAQ:NFLX) can be expected to add $6.7 billion to its top line in the next three years. The company’s expansion plans make it one of the best long-term stocks to hold.
Oakmark Funds also shared a positive outlook on Netflix, Inc. (NASDAQ:NFLX) in its Q3 2022 investor letter:
“Netflix, Inc. (NASDAQ:NFLX) (U.S.), a subscription streaming service and production company, was a top contributor for the quarter. Netflix’s share price reacted positively in response to second-quarter results that were strong, in our assessment, and largely better than investors expected. Although the company lost roughly one million global streaming subscribers, the loss was only about half of what management projected. Revenue in constant currency, excluding foreign currency impacts, rose 13% year-over-year, and management is projecting that third-quarter revenue will rise by 12% in constant currency. While currency exchange rates also affected earnings, margins are tracking slightly ahead of prior guidance when adjusted for currency impacts. Importantly, viewer engagement, which we see as a key metric, remains strong. In the U.S., Netflix had as much viewing time in the 2021-22 season as the top two cable networks combined (CBS and NBC), and total share of TV time reached a record in June, according to Nielsen. Along with the earnings release, management stated that the company is making progress on its advertising and password-sharing initiatives. Cash content costs for the next two to three years are expected to be unchanged at roughly $17 billion as Netflix continues to invest in high-quality content creation. Management is forecasting the net addition of one million global streaming subscribers in the third quarter, and we remain pleased with the company’s fundamental performance.”
As of Q2 2022, Netflix, Inc. (NASDAQ:NFLX) was held by 95 hedge funds.
3. Salesforce, Inc. (NYSE:CRM)
Number of Hedge Fund Holders: 116
Salesforce, Inc. (NYSE:CRM) is a San Francisco, California-based provider of cloud-based enterprise software. The company claims to be the number one provider of customer relationship management (CRM) solutions. Salesforce, Inc. (NYSE:CRM) is one of the best long-term stocks gaining investor attention currently.
Following its analyst day in September, Brent Thill at Jefferies issued an update and revealed that Salesforce, Inc. (NYSE:CRM) provided an optimistic outlook on growth, profitability, and capital returns for the coming years. The company has revealed that it intends to surpass the $50 billion sales level by 2026. This reflects a growth of 17% annually and is higher than the consensus forecast of $48 billion.
Furthermore, Salesforce, Inc. (NYSE:CRM) intends to deliver profit margins of over 25% by 2026 and intends to give back 30% to 40% of its free cash flow to shareholders either through dividends or share buyback. Following these developments, the analyst gave Salesforce, Inc. (NYSE:CRM) stock a Buy rating with a target price of $250 on September 22.
Here’s what Oakmark Funds said about Salesforce, Inc. (NYSE:CRM) in its Q3 2022 investor letter:
“Salesforce, Inc. (NYSE:CRM) has become a dominant global player in sales, customer service, commerce and marketing software over the past 20 years. The company earns 80% gross margins and grows 20% organically. Plus, virtually all of its revenue is recurring. We see Salesforce as a great business that we’ve admired from afar for a long time. More recently, the organization has made some changes at the top that prompted us to take a closer look at the stock. New CEO Bret Taylor and CFO Amy Weaver are bringing a culture of financial discipline. We believe this renewed focus on profitability and capital return, combined with Salesforce’s strong underlying business characteristics, will yield strong results. The current valuation of 3.9x next year’s revenues represents a significant discount compared to publicly traded peers and recent private market values in the software space that have similar growth profiles. We view this discount as an opportunity to invest in a great business at a good value.”
2. Alphabet Inc. (NASDAQ:GOOGL)
Number of Hedge Fund Holders: 191
Alphabet Inc. (NASDAQ:GOOGL) is a Big tech company involved in the disruptive fields of AI, autonomous driving, advancing healthcare solutions, and quantum computing through its various investments.
Alphabet Inc. (NASDAQ:GOOGL) is already an established player in the digital advertising industry and consumer products segment like smartphones and tablets. The company has now ventured into smartwatches following the launch of the Google Pixel Watch in October 2022. Analysts think Alphabet Inc. (NASDAQ:GOOGL) is amongst the best long-term stocks as the company is in a strong position to leverage the long-term digital advertising trend and make a successful shift toward cloud computing. During the economic downturn, Alphabet Inc. (NASDAQ:GOOGL) has shown outstanding capital allocation and is pushing for a further 20% improvement in operational efficiency through cost-cutting measures.
Here’s what Farrer Wealth Advisors said about Alphabet Inc. (NASDAQ:GOOGL) in its Q1 2022 investor letter:
“Alphabet: We won’t waste much time trying to explain to our clients why Alphabet is such a phenomenal business, we believe that is quite self-evident. The better explanation is why we never bought Alphabet before. The reason was a personal bias we held based on three beliefs (which we now believe to be incorrect)
Growth in YouTube would stall as the increased ad-load would turn-off viewers (the double ad-load at the beginning of videos for example). Consumers will focus on discovery rather than search to purchase new items. For example – using Instagram/TikTok to decide what new clothes to buy instead of ‘googling’ for clothes. Other Bets: In general, we felt that capital spent on “Other Bets” has been a bit wasteful with the segment earning just around $3.1bn in revenue versus nearly $21bn in operating losses over the last five years…” (Click here to see the full text)
1. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 252
Amazon.com, Inc. (NASDAQ:AMZN) is a Seattle, Washington-based e-commerce giant.
Despite the short-term weakness in the stock price, analysts consider Amazon.com, Inc. (NASDAQ:AMZN) as one of the best long-term stocks due to its growth potential. In the recent past, Amazon.com, Inc. (NASDAQ:AMZN) has diversified strongly in the cloud business through Amazon Web Services (AWS). Furthermore, the company has established its position as a digital streaming player with a strong advertising business. These segments are expected to generate significant income and free cash flow for the company as they are less cyclical than the e-commerce business.
Furthermore, experts believe that Amazon.com, Inc. (NASDAQ:AMZN) stock can continue to perform well during an adverse macroeconomic environment as a higher level of inventory and faster delivery times will become a driving force for an increased number of orders. This will play into effect during the holiday season.
Diamond Hill Capital Management discussed its stance on Amazon.com, Inc. (NASDAQ:AMZN) in its Q2 2022 investor letter. Here’s what the firm said:
“Amazon.com, Inc. (NASDAQ:AMZN)’s shares underperformed as valuations of fast-growing companies continued to compress in Q2. Amazon’s growth investments over the past two years have pressured earnings as consumer demand has been weaker than anticipated. However, we believe the company will be able to grow into its infrastructure investments over time. These investments have obscured the magnitude of sustainable free cash flow as well as the attractive valuation of the business relative to peers.”
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