All about Investing

1 High-Conviction Growth Stock to Buy Now and Hold Forever

Some economists think the U.S. will see a recession in the next 18 months.

Deutsche Bank recently became the first major bank to forecast a U.S. recession in late 2023, though its Chief U.S. Economist Matthew Luzzetti did note that timing a downturn is very difficult. But let's pretend Deutsche Bank is right on the money. Should you sell your portfolio now and buy it back later? The answer is no. You still don't have enough information. Let me explain why.

If you had invested $10,000 in the S&P 500 at the beginning of 2002, your net worth would have grown 517% to $61,685 by the end of 2021, according to JPMorgan. But if you had missed the 10 best days during that time period -- seven of which occurred during the Great Recession -- your portfolio would have grown just 183% to $28,260. In other words, even if you had a crystal ball that could tell exactly when the next downturn would start, you would almost certainly miss some of the market's best days, and your total returns would suffer. 

With that in mind, a buy and hold strategy makes more sense, and Amazon (AMZN 4.40%) is one of my highest-conviction growth stocks to buy now. Here's why.

Image source: Getty Images.

Amazon in the present

Brand Finance recently released its Global 500 rankings for 2022. Retail giant Amazon once again ranked as the second-most-valuable brand in the world, and it narrowed the gap with first-place Apple. Next year, I wouldn't be surprised to see Amazon take the top spot. It has already built an empire across several industries, and the company is well-positioned to disrupt others.

Let's start with its core businesses. Amazon is the world's most popular online marketplace in terms of web traffic, and it powered 41% of U.S. e-commerce sales last year, more than the next 14 online marketplaces combined. Similarly, Amazon Web Services is also the world's most popular cloud computing platform, and it captured 33% market share in the fourth quarter of 2021, more than Microsoft Azure and Alphabet's Google Cloud combined. That dominance laid the foundation for another impressive financial performance. Revenue rose 22% to $470 billion in 2021, and GAAP earnings jumped 55% to $64.78 per diluted share.

Looking ahead, Amazon's core businesses are well-positioned for future growth. Online retail sales are expected to grow at 11% per year through 2025 to reach $7.4 trillion, according to eMarketer. Over the same period, cloud computing spend is expected to grow at 19% per year to reach $917 billion, according to Gartner.

Amazon in the future

Beyond e-commerce and cloud computing, Amazon has several other options when it comes to future growth. For instance, the company captured nearly 12% of U.S. digital ad spending last year, and the company is expected to narrow the gap with the market leaders (Google and Meta Platforms) in the years ahead. Amazon could also make a push into the shipping market. The company doubled the capacity of its logistics network in the last two years, adding more trucks, planes, and warehouses, and it has already surpassed FedEx in terms of logistics market share in the U.S.

Additionally, Amazon Prime Video was the second-most-popular streaming service in terms of demand for original content in 2021, according to Parrot Analytics, and its recent acquisition of MGM could supercharge its media and entertainment business. Amazon could also disrupt healthcare with Amazon Care, a service that blends in-person appointments and telemedicine. As of February 2022, virtual services are available across the U.S., and Amazon plans to roll out in-person services in more than 20 cities this year.

The list goes on -- brick-and-mortar retail, online groceries, luxury goods, payments -- but you get the idea. Amazon is a financial powerhouse. It has a dominant market position in two high-growth industries, and the company has nearly $100 billion in cash and investments on its balance sheet. That gives Amazon an incredible amount of optionality, and with its price-to-sales ratio bouncing off a three-year low -- shares currently trade at 3.3 times sales -- this growth stock looks like a bargain.

Leave your comment
Name
E-mail
Comment