Over the past month, the stock market has recouped around half of the record-setting losses it suffered during the first quarter's historic bear market plunge. That rebound has many investors wondering if they missed the boat and if all the best gains have already been had.
It's important to remember that bottom-feeding and buying during market declines isn't the only way to prosper from investing. Finding strong companies with distinct advantages and even stronger growth prospects and investing in them for the long haul is a time-tested method of generating lucrative returns.
Assuming you have a sufficient emergency fund built up, and $5,000 (or less) in disposable cash that you don't expect to need in the next three to five years, here are five companies that could make you a small fortune over the coming decade.
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1. The Trade Desk: the cutting edge of advertising
The business model of the advertising industry is in the midst of a paradigm shift. What was previously accomplished by in-person meetings and telephone negotiations is now handled using high-speed computer programs and algorithms, and The Trade Desk (TTD 0.65%) is at the forefront of that transformation.
While the industry has been moving toward digital advertising for some time, programmatic advertising represents a small but growing part of that trend. The Trade Desk developed a cutting-edge platform that can sift through 9 million ad impressions and quadrillions of permutations each second to match each advertisem*nt with the right consumer.
The company's ad revenue grew 39% in 2019, nearly 10 times the 4% gains averaged across the ad industry -- a reflection of the fact that The Trade Desk is stealing significant market share from its rivals. Once onboard, customers rarely leave it, as evidenced by its customer retention rate, which has remained above 95% for 24 successive quarters.
The Trade Desk's multichannel approach has been hugely successful, with some of the company's newest opportunities producing the strongest gains. Its audio revenue grew 185% in 2019, while connected TV grew 137%. It also generated impressive results from in-app and mobile video, which grew 67% and 50% respectively.
These figures help illustrate how The Trade Desk is tapping a massive opportunity that should yield impressive growth in the coming decade.
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2. Microsoft: business software and so much more
Some of the same things that make Microsoft (MSFT -0.03%) look like such a compelling opportunity over the next decade are also helping insulate the company somewhat from the current challenges.
Most businesses that were in a position to do so have transitioned to working remotely, which means millions of employees logging into their companies' systems from home. This plays to several of Microsoft's strengths. Commercial products like Office 365 (now called Microsoft 365) and Dynamics 365 are still an essential part of everyday business life, while the cloud computing infrastructure it provides via Azure has never been more critical. Even the company's personal computing segment won't suffer unduly from the impact of the pandemic, though it's important to note that Microsoft doesn't expect the segment to achieve its previously issued guidance due to supply chain constraints.
Azure was already seeing rapid adoption, up 62% year over year in the most recently reported quarter. That's an acceleration from 59% growth in its fiscal Q1 2020 (which ended Sept. 30) and makes it one of Microsoft's biggest growth drivers. The ongoing shift to cloud computing provides the company with a strong runway for the future, and the trend has likely accelerated as a result of the pandemic.
In fiscal 2019, Microsoft's revenue grew 14% year over year, while adjusted earnings per share grew 22%, which is particularly impressive given the company's $1.3 trillion market cap.
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3. Netflix: the future will be streamed
Much of the business world is reeling from the impact of the ongoing shelter-in-place orders, but Netflix (NFLX -0.14%) is one of the rare companies perfectly positioned to serve the multitudes stuck at home. The trends of cord-cutting and streaming adoption were already accelerating prior to the pandemic. Netflix's vast library of original and licensed content has provided people with some much-needed respite since restaurants, movie theaters, sporting events, and other pastimes are currently not available. And it has done so at a reasonable cost for all-you-can-watch entertainment.
Netflix's first-quarter results revealed a dramatic increase in subscribers since the pandemic began. Its subscriber growth rate rose 23% year over year as it added 15.77 million net new subscribers, more than double the company's forecast of 7 million. This brought total subscribers to nearly 183 million, dwarfing the competition. While management warned that the current surge might mean slower growth in the future, Netflix was free cash flow (FCF) positive for the quarter, something that would have been unthinkable just three months ago.
Netflix now expects FCF for the year to be a negative $1 billion, a vast improvement from the previous estimate of negative $2.5 billion. These developments will hasten the day when the company no longer relies on debt to finance the growth of its massive content library, which will also help bolster its increasing profits.
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4. Shopify: empowering small business to get online
With hundreds of millions of people being told to avoid leaving their homes except when absolutely necessary, many small shops lost large swaths of their business. One response to that sudden loss of walk-in traffic has been the accelerated adoption of e-commerce by small- and medium-sized businesses.
That's where Shopify (SHOP 0.83%) comes in.
The company provides merchants with all the tools necessary to get their businesses online -- everything from building and maintaining a website to arranging shipping, accepting payments, and tracking invoices.
Many investors believed that Shopify would be hobbled by the downturn, but it turns out that just the opposite was true. Chief Technology Officer Jean-Michel Lemieux, shared last week that business was surging, saying the company was "handling Black Friday level traffic every day." By providing merchants with a way to participate in the hard move to online shopping, Shopify is helping to secure its own success.
Things were already progressing swimmingly for the e-commerce service provider. Revenue grew 47% in 2019, while subscription revenue grew 38%, and monthly recurring revenue now accounts for 40% of the total.
Shopify continues to expand its business -- particularly in international markets -- and is currently foregoing profitability to invest in its growth. This will likely lead to its continued success over the next decade.
Image source: Getty Images.
5. Amazon -- accelerating the adoption of e-commerce
Amazon (AMZN 0.59%) is another company that consumers have turned to in record numbers to get the food and other consumer staples they needed to ride out the pandemic at home. Yet, even the company's massive logistics and fulfillment operations needed beefing up in order to handle the Herculean task. Citing unprecedented demand, Amazon went on two massive hiring sprees in recent weeks, first adding 100,000 workers to staff its warehouse and delivery operations, then seeking out another 75,000 prospective employees.
It isn't just the company's e-commerce operations that are seeing expanded use. Many are signing up for Amazon Prime not just for the expedited shipping, but also the streaming video and music services. Amazon Web Services (AWS), the company's cloud computing operation, is also likely seeing a boost as businesses look for help navigating the new normal of operating with remote workers.
Amazon was already the global leader in e-commerce prior to the pandemic, and has likely fortified its leadership position. Revenue grew 20% in 2019, which is all the more impressive considering that total net sales climbed to over $280 billion last year. This helped lift its bottom line by 15% -- even as the company invested heavily in its one-day shipping initiative.
AWS is still the company's most lucrative growth opportunity, as it's the undisputed leader in the fast-growing cloud-computing industry. The segment produces a hefty 26% operating margin and boatloads of cash that Amazon can use to fund its other growth initiatives.
In summary...
Investors may have detected a theme running through these five companies. Each is capitalizing on one or more of the hottest technology and growth trends: e-commerce, programmatic advertising, cloud computing, and streaming video. Additionally, all are leaders in their respective industries, and continue to generate impressive growth, even in the face of tough competition.
That's why investing in these category leaders now could make you a fortune in the coming decade.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Amazon, Netflix, Shopify, and The Trade Desk. The Motley Fool owns shares of and recommends Amazon, Microsoft, Netflix, Shopify, and The Trade Desk and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.
