The stock market can be quite volatile over short periods of time, especially if you invest in growth stocks. In fact, the S&P 500 has generated a negative return in one out of every three years since 1928. In other words, even a highly diversified index loses money 33% of the time if you limit your investment time horizon to one year.
However, if you zoom out, the market looks much less volatile. The S&P 500 has produced an annualized return of roughly 10% since 1928, despite losing ground once every three years. That’s why a long-term investment strategy is so critical.
With that in mind, here are two growth stocks that will benefit someone whose portfolio operates on a buy-and-hold strategy.
1. Adobe Systems
Adobe Systems (NASDAQ:ADBE) is one of the largest enterprise software companies in the world, and its products have become the cornerstone of digital transformation for many clients. Adobe breaks its business into two key segments: digital media and digital experience.
Digital media includes Creative Cloud software like Photoshop and Premiere Pro, products that have become industry standards in image and video editing, respectively. This segment also includes Document Cloud software like Acrobat, a tool that enables over 5 million organizations worldwide to create and edit PDF documents.
Adobe’s digital experience segment builds on its best-in-class creative solutions. Specifically, Experience Cloud offers tools for analytics, marketing, and commerce, helping clients build real-time customer profiles, target creative content, and deliver personalized customer experiences across digital channels.
Adobe has been recognized as a leader in numerous industries. For instance, Forrester Research recently named Adobe the best-in-class provider for enterprise marketing software, citing its support for content management and its use of artificial intelligence as key differentiators. And research company Gartner recently recognized Adobe as the leading digital experience platform, drawing attention to its ability to personalize content in real-time.
Given its impressive portfolio, Adobe’s strong financial performance should come as no surprise.
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Going forward, management values the company’s addressable market at $147 billion by 2023, putting the company in front of an enormous opportunity. And Adobe’s strong competitive edge in both digital media and digital experience should be a strong growth driver for its business as a whole.
That’s why I plan to hold this tech stock forever.
Tesla (NASDAQ:TSLA) is the world’s leading manufacturer of electric vehicles (EVs). Through the first seven months of 2021, the company held a 13.9% market share, while the next closest competitor captured a 7.3% market share. In the most recent quarter, revenue jumped 98% to $12.0 billion, and net income skyrocketed 998%, reaching $1.1 billion.
What’s behind this success? Innovation and manufacturing efficiency. In 2017, the company introduced the 2170 battery cell, capable of storing 50% more energy than the previous 1865 model. In fact, CEO Elon Musk said it was the “highest energy density cell in the world, and also the cheapest.” Case in point: Tesla pays just $187 per kilowatt-hour for its battery packs, the most expensive part of an EV. That’s 10% less than the next closest competitor, and 24% lower than the industry average.
More recently, Tesla developed and patented new aluminum alloys, making it possible to cast the rear body of the Model Y as a single piece of metal. This technology allows the company to combine 70 different components into one part, meaning less labor is required to weld and rivet. Tesla plans to apply this technology to the front body of the Model Y when Gigafactory Texas and Gigafactory Berlin start production later this year.
Finally, Tesla’s approach to manufacturing is highly automated and scalable. For example, as the company boosted production capacity during the last few years — ramping the Model Y at its Fremont, California, plant and both the Model 3 and Model Y at Gigafactory Shanghai — Tesla’s margins have actually improved. In fact, the company posted an industry-leading operating margin of 6.3% in 2020, and that metric hit 11% in the most recent quarter.
Not surprisingly, Tesla has delivered an increasingly strong financial performance in recent years.
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Looking ahead, Tesla is well-positioned to maintain that momentum as EVs become more popular with consumers. According to forecasts from Grand View Research, demand for EVs is expected to rise at 41.5% per year through 2027. But Tesla believes it can outpace the market, growing deliveries at an annualized rate of 50% over a multi-year horizon.
Tesla is also a frontrunner in the race to build a self-driving car. The company has more driving data and better AI technology than any of its rivals, both of which give it a significant advantage. In fact, Musk believes Tesla will have a fully autonomous EV on the market within three years, at which point the company plans to launch a ride-hailing network. The financial implications of that move are immense; Tesla would be less dependent on cyclical auto sales as it transitioned toward a software and services business model.
That’s why I plan to own this growth stock forever.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.