2 smart stocks with five-fold growth potential
A recent study from Brazil suggests that only 1.1% of day traders earn more than the minimum wage. In other words, while it can be tempting to try your hand at synchronizing the market, short-term investment strategies tend to fail.
If you want to build lasting wealth, buy and hold high quality stocks over a multi-year horizon, i.e. at least five years. Investors who take this approach need not worry about fleeting market volatility or higher tax rates imposed on short-term capital gains. Most importantly, a long term strategy leaves enough time to enrich your portfolio.
With that in mind, here are two smart actions that could quintuple over the next decade.
1. The commercial counter
The commercial counter (NASDAQ: TTD) is an advertising technology company. Its demand-side platform helps marketers create, measure and optimize targeted campaigns across digital channels, such as display, mobile, and connected television (CTV). To do this, The Trade Desk relies on big data and artificial intelligence, correlating variables like viewer demographics with outcomes like clicks and conversions.
This approach creates a network effect. As more customers run campaigns on the platform, The Trade Desk captures more data, improving its understanding of viewers’ tastes and preferences. Over time, this approach makes its predictive models more effective, helping customers deliver targeted ads to the right audiences.
If you are familiar with the digital ad space, you probably know that AlphabetGoogle’s dominates the industry. So why would anyone use the Trade Desk platform? The main reason is its content neutral business model. Specifically, Alphabet owns content like Google search and YouTube, and the company sells ad space on these web properties, which means it has an incentive to direct ad buyers to its own ad inventory. It’s a conflict of interest.
By comparison, The Trade Desk is not affiliated with any content and only works on the buy side of the equation. This means that the company’s business model is better aligned with the interests of its clients. And that has been an important engine of growth.
Over the past year, revenue increased 52% and free cash flow increased 169%. Also of note, The Trade Desk has maintained its retention rate above 95% for the past seven years, a testament to the rigidity of its platform.
Looking ahead, the Trade Desk is well positioned to maintain this momentum. According to eMarketer, global digital ad spend will reach $ 645 billion by 2024, growing at 14% per year. This places the company in front of a huge market opportunity, and management is executing a strong growth strategy, which is heavily focused on CTV, international expansion and retail advertising. This is why I think this stock has a quintupled potential over the next decade.
Zscaler (NASDAQ: ZS) is a cybersecurity company. Its platform, known as the Secure Access Service Edge, is designed to replace traditional enterprise security and networking solutions. And because the company’s platform spans 150 global data centers, Zscaler’s network offers more capacity than most businesses could achieve on their own, resulting in better performance.
Likewise, Zscaler inspects far more web traffic than any company generates on its own, making its artificial intelligence models more effective at blocking threats. In short, Zscaler enables customers to quickly and securely access corporate resources and the open Internet from any device or location. And because its platform is delivered from the cloud, customers avoid the cost and complexity of on-premises hardware management.
Most importantly, Zscaler is the best secure web gateway on the market. Research company Gartner has named Zscaler an industry leader for the past 10 consecutive years, indicating greater execution capacity and a more complete vision than any of its rivals.
This advantage has translated into impressive financial measures. In the past year, Zscaler sales jumped 56% to $ 673 million, an acceleration from the 42% growth in the previous year. The company’s free cash margin also tripled in fiscal 2021, which ended July 31, to 21% of revenue, from 6% in fiscal 2020. But management still sees a lot of room for growth.
In fact, the company values its market opportunity at $ 72 billion, more than 100 times its revenue in the past 12 months. And with its recently launched tools for digital experience monitoring and cloud workload protection, Zscaler is well positioned to grow its business with new and existing customers. This is why I think this growth stock could be multiplied by five over the next decade.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.