Institutional investors have certain advantages over retail investors. For example, they typically employ teams of experienced analysts who can provide field coverage; they also tend to have a lot more capital at their disposal.
In comparison, the greatest asset of a retail investor is a long-term mindset. You don’t have clients who rely on short-term results, so it doesn’t matter if your portfolio drops 20% (or more) in any given quarter. Of course, it’s never nice to see your net worth plummet, but over longer periods of time, high-quality stocks can outperform the market significantly. This gives an advantage to retail investors.
With that in mind, we asked three Motley Fool contributors to pick some tech stocks worth holding forever. Read on to see why Free Mercado (NASDAQ: MELI), Microsoft (NASDAQ: MSFT), and Shopify (NYSE: SHOP) made the list.
An emerging market winner
Jeremy Bowman (MercadoLibre): There are two things I look for in a permanent stock. First, the company must be a leader in its market, and second, this market must have a long growth path ahead of it. As Motley Fool co-founder David Gardner might say, you want to find the best dog and the first player – and MercadoLibre exemplifies both qualities.
The company is the leader in e-commerce and digital payments in Latin America, a market with enormous potential for future growth, and management has had the common sense to turn its leadership in e-commerce into a business advantage. digital payments, including offering mortar merchant point-of-sale devices as part of its Mercado Pago segment.
MercadoLibre’s growth has always been strong once you eliminate the currency effects of countries like Brazil. Revenue more than doubled in its most recent quarter to $ 1.7 billion, with a 72% growth in total currency neutral payments volume and a 46% increase in gross merchandise volume to $ 7 billion.
In addition to online payments, MercadoLibre is also expanding into new business sectors such as Mercado Envios, its logistics branch; Mercado Fondo, its asset management activity; and Mercado Credito, its small business lending division. A bit like the favorites of the market Square and Shopify, MercadoLibre goes beyond its core e-commerce company to become a large, diversified fintech / e-commerce company, and faces relatively little direct competition in Latin America.
MercadoLibre is profitable and its price-to-earnings ratio is well in the triple digits, but that’s typical for a high-growth stock, and profitability is expected to increase as its ecommerce and payments business matures. The stock has jumped nearly 3,000% over the past decade, but it still has plenty of room for improvement.
The old and future software center
Eric Volkman (Microsoft): It’s hard to believe, but Microsoft is almost 50 years old. The enormous power and vast resources it still holds will surely make it an important company in the tech world for at least another 50 years, in my opinion.
After all these years and many technological advances, Microsoft is still by far the number one operating system installed on desktop PCs, with a market share of 87.6%.
According to figures compiled recently by the research company Gartner, the installed base of desktop PCs this year will reach nearly 500 million. When we consider that several of these machines running Microsoft’s Windows operating system also have several of its Office modules installed, we can get a sense of the monstrous scale of the company’s activities.
Yes, the glory days of the PC are over, but operating systems for such machines are only one aspect of Microsoft’s business. The company also derives billions of dollars in cloud computing revenue, as well as subscription fees to attractive products like Microsoft 365 – the successor to Office 365 – and Xbox Game Pass.
In fact, for a company once known primarily for Windows and Office, and a handful of much lower performing products, Microsoft has done a good job of diversifying its business. Its turnover is more or less evenly distributed among its three operational divisions (productivity and business processes, more personal IT and intelligent cloud).
In short, these growth engines have enabled the company to develop rapidly in recent years. In the fourth quarter of fiscal 2021, revenue increased 21% from the previous year, reaching $ 46 billion. And generally accepted accounting principles (GAAP) net income grew even faster, nearly 50% to $ 16.5 billion. In the end, the company’s profit margin was almost 36%.
Growth could slow down a bit in the near future, but analysts believe Microsoft’s earnings will continue to rise at double-digit rates. Collectively, Wall Street is forecasting 13% year-over-year revenue growth for fiscal 2022, with earnings per share up 15%.
Microsoft has also become a very shareholder-friendly company. Recently, it increased its dividend by 11% and although this new payment still has a relatively modest return of 0.9%, the company is constantly increasing it and has enough free cash flow to keep this habit going for years to come. . Microsoft has also launched a share buyback program of up to $ 60 billion, another initiative that is expected to create shareholder value.
The future is bright for the US tech industry, but it is particularly bright for Microsoft. With its involvement in so many high-margin companies, the company appears to be a smart investment for many years to come.
The operating system for modern commerce
Trevor Jennevine (Shopify): Shopify’s mission is to improve commerce for everyone. Its software helps traders manage sales across physical and digital channels, integrating orders from online marketplaces, social media sites, and custom web pages into a single platform. Shopify complements this functionality with other services, such as payment processing, discounted shipping, and financing, giving merchants an end-to-end solution for modern commerce.
Unsurprisingly, this value proposition has helped him gain customers quickly. In fact, Shopify now powers over 1.7 million businesses globally, and it’s the most popular e-commerce software platform in the United States. This scale is a significant advantage, allowing the company to capture treasures of relevant data. For example, Shopify can provide merchants with information about which website layouts and product categories are most appealing to shoppers.
Last year, Shopify launched its consumer-oriented mobile app, Shop. This product is designed to drive engagement by enabling shoppers to discover brands, make purchases and track orders. It also simplifies the shopping experience on mobile devices and gives merchants access to automated marketing tools, helping them generate repeat purchases. More importantly, Shop already has 118 million registered users, 23 million of whom use the mobile app every month.
Collectively, Shopify’s robust platform and merchant-centric growth strategy has resulted in rapid growth. In the last quarter, Shopify processed a record gross merchandise volume of $ 42.2 billion, up 40% from the previous year. In turn, revenue soared 57% to $ 1.1 billion – this is the first time Shopify has crossed the $ 1 billion revenue threshold in a quarter.
However, Shopify’s market opportunity continues to grow. According to eMarketer, retail e-commerce spending will grow by almost 12% per year through 2025, reaching $ 7.4 trillion by the end of that period. With that in mind, I wouldn’t be surprised to see Shopify hit a $ 1,000 billion market cap in a decade. This is why this technological move looks like a smart long-term investment.
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.