Investing in 2020 hasn’t been for the faint of heart. Wall Street has crammed about 10 years’ worth of volatility into a six-month window. In that span, we witnessed the benchmark S&P 500 collapse more than 30% in just one month, as well as rebound off of its bear market low quicker than at any other time in history.
But the thing to remember about stock market crashes and corrections is that they’re always an opportunity for long-term investors to buy into great businesses at a discount. After all, every single correction in history has eventually been wiped away by a bull market rally.
Best of all, the stock market has made it easier than ever for investors to build wealth. You don’t need seven figures to start investing. If you have, say, $5,000 at your disposal that you won’t need for bills or emergencies, you have more than enough money to buy the following four stocks that I suspect will be surefire winners over the next decade.
I’ve beaten the drum on surgical system developer Intuitive Surgical (NASDAQ: ISRG) repeatedly over the years, and it now looks to have a clear path to yearly double-digit growth.
When I say the company’s competitive edge over its peers is huge, you should believe it. In 20 years, Intuitive Surgical has installed 5,764 of its da Vinci surgical systems worldwide. That’s far more than any of its peers on a combined basis. Better yet, some of the company’s deep-pocketed competitors have run into issues that’ll significantly delay the launches of competing systems. The company has locked in its existing customers for the long haul and remains the clear go-to for robotic-assistive surgical systems.
But what makes Intuitive such a winner is its margins, which are built to improve over time. Early on, Intuitive Surgical’s revenue primarily came from its pricey systems. These are intricate to build, so their margins aren’t exactly the best. Intuitive Surgical instead nets most of its margin from selling instruments and accessories with procedures and servicing its machines. Put simply, the more systems installed, the more revenue it generates from these higher-margin segments.
Another stock that has the makings of a no-brainer long-term winner is payment facilitator Square (NYSE: SQ).
Square offers two ways to generate long-term double-digit growth potential. The first and probably best-known is the company’s seller ecosystem. Square provides point-of-sale and lending solutions that have primarily been used by smaller businesses. But larger merchants are coming around to Square’s point-of-sale technology. If these bigger businesses (i.e., those responsible for at least $125,000 in annualized gross payment volume) keep flocking to Square, the company could see a significant and sustainable uptick in merchant-fee revenue.
Perhaps the more exciting growth opportunity for this fintech stock comes from peer-to-peer payment platform Cash App. Over the past 2 1/2 years, Cash App has more than quadrupled its monthly active users to north of 30 million, and as of this writing had approximately 7 million of its users with Cash Card (a debit card that pulls from an individual’s Cash App balance). Cash App allows Square to make money via merchant fees, expedited transfers, investments, and a bitcoin exchange. I suspect it’ll be the company’s primary profit driver within the next two years.
It’s a pick that gets no points for innovation, but I don’t know a single investor who’d dare stand on the tracks with Amazon (NASDAQ: AMZN) coming through.
Amazon is probably best known for its marketplace. I mean, who doesn’t use Amazon on occasion to make an online purchase? Based on various estimates, Amazon controls in the neighborhood of 40% of all online sales in the U.S., which is a pretty enviable position in a country that relies on consumption for roughly 70% of its gross domestic product. Retail may be a relatively low-margin segment, but controlling this much market share and ensuring that more than 150 million people remain loyal to the brand via Prime membership certainly come in handy.
However, the truly drool-worthy operating segment for Amazon is its infrastructure cloud platform, Amazon Web Services (AWS). Prior to the coronavirus disease 2019 (COVID-19) pandemic, we were already seeing businesses of all sizes moving online and shifting into the cloud. The pandemic has accelerated this trend. In the coronavirus-impacted second quarter, AWS managed 29% year-over-year growth, and the segment has consistently delivered the lion’s share of Amazon’s operating income. My belief is that AWS can push Amazon to a $3 trillion valuation by mid-decade.
Palo Alto Networks
A final company with long-term success written in the cards is cybersecurity specialist Palo Alto Networks (NYSE: PANW).
In terms of compound annual growth rate over the next decade, we might see cloud computing and marijuana as two industries that outpace cybersecurity. But among these industries, there’s probably not a safer bet than in-house network and cloud protection services. After all, it’s not as if hackers take a day off just because the economy isn’t performing well. Cybersecurity has grown into a basic-need service, especially with more and more businesses pushing into the cloud.
As for Palo Alto Networks, it’s transitioning from a hybrid operating model that offered subscription protection services and physical firewall products to one that’ll focus almost entirely on subscriptions. The reasoning is simple: Subscription margins are considerably higher, more predictable, and tend to lock in customers for a long time.
Over the past two years, Palo Alto has also made numerous bolt-on acquisitions to broaden its product portfolio and attract a wider array of businesses. In other words, a sustainable double-digit growth rate is expected at this point.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Sean Williams owns shares of Amazon, Intuitive Surgical, and Square. The Motley Fool owns shares of and recommends Amazon, Intuitive Surgical, Palo Alto Networks, and Square and recommends the following options: short September 2020 $70 puts on Square, short January 2022 $1940 calls on Amazon, long January 2022 $1920 calls on Amazon, long January 2022 $580 calls on Intuitive Surgical, and short January 2022 $600 calls on Intuitive Surgical. The Motley Fool has a disclosure policy.
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