The best stocks are those that you can hold forever.
The kind of stocks that are both winners over the long-term, and are aligned with and are leaders within significant and long-running secular growth trends.
If you’re a long term investor, these two stocks are ones to buy and hold for the long haul.
Both may see some volatility in the near term, but in the grand scheme of things, that volatility will just be noise and these stocks will prove to head higher over the long term.
Shopify (NYSE: SHOP)
It has been an interesting week for Shopify (NYSE: SHOP).
Shares sold off hard on Monday after peaking around midday. Then on Tuesday, Shopify reported very positive Q4 results with sales at $343.86 million, a 54.3% year-over-year increase. Both top and bottom line results beat expectations. Merchant solutions soared by 63% to $210 million, and subscription services revenue jumped 42% to $134 million.
But then the market took issue with the company’s guidance and shares took a beating again as Shopify guided just a bit below consensus estimates, forecasting Q1 revenue of $307.5 million compared to estimates of $308 million. Those guidance figures, while not what was expected, still represent significant growth.
Then Wednesday, shares jumped following RBC Capital Markets analyst Ross MacMillan upgrading the stock to Outperform and boosting his target price to $230 – nearly 30% higher than Friday’s closing price. And he wasn’t the only analyst to boost their price target. Nine others did as well, including analysts from Morgan Stanley (NYSE: MS), KeyCorp (NYSE: KEY), and Wells Fargo (NYSE: WFC).
“We expect a return to net new merchant growth this year, with international a significant opportunity,” MacMillion wrote. He also sees room for Shopify to improve its monetization considering its relatively low take rate currently.
Overall, Q4 was a very, very good quarter, and it underscored that this is a company that remains on a long-term winning trajectory, which is reflected in all of the analyst upgrades this week. The weakness this week was a knee-jerk reaction that comes after the stock had rallied more than 40% over the past six weeks and had rushed into overbought territory.
Thus this represents a healthy pullback after a blistering run higher, and could be a good opportunity to buy into a company that could continue to grow by leaps and bounds for the next several years, and the stock right along with it.
Why? Because Shopify is doing the same that that companies like Uber and Airbnb are doing. It is democratizing selling services so that anyone with a product can easily sell it.
The company is also creating a web of independent buyers and sellers, and thus creating a new era of democratized commerce. One where consumers don’t just buy everything from Amazon (NASDAQ: AMZN), which can’t control 50% of the U.S. e-commerce market forever. And as this democratization process continues to play out over the coming years, Shopify’s merchant volume, revenues, and profits will soar.
Square (NYSE: SQ)
Square (NYSE: SQ) has been on a tear so far this year, and is currently up nearly 35% year-to-date. This after the stock, along with the rest of the tech sector, tumbled late last year – falling around -50% between October 1 and December 24 last year.
The long-term case for Square is that cash is history. The majority of people just don’t carry it anymore. Instead, consumers have their credit and/or debit cards and their phone to pay for things. And that’s where Square comes in.
The company has enabled small businesses to adjust to the cashless revolution by providing the means to facilitate cashless transactions. But that’s not all the company does.
While they started with just facilitating cashless transactions, Square now helps facilitate e-commerce transactions as well – thus, wherever consumers are, Square is there to facilitate their transactions. They also offer web hosting and small business loans through Square Capital, and are now integrating tools that reach into payroll, HR, and other business offerings.
Moving into these areas is dramatically expanding the company’s addressable market, and could lead to a decade or more of incredible growth.
“They are the only payments company that has a fully cohesive ecosystem,” Nomura analyst Dan Dolev said in an interview with Bloomerg late last year. “They are going after the sellers with the point of sale and the software and then they’re going after users – they’ve got more downloads for the cash app than Venmo. They’ve got 1 million more downloads for the cash app vs Venmo.”
“Similar to FANG stocks that have disrupted traditional markets with massive global total addressable markets, Square’s fully cohesive solutions and rapid rate of innovation suggest that it is en route to disrupt the global payments ecosystem,” Dolev wrote in a note titled, “Adding the ’S’ to FANG(S).”
Analysts average price target for SQ is $84.91, suggesting possible upside of 12.21% over the next twelve months. Late last month, Nomura reiterated its Buy rating on the stock and upped their twelve-month price target to $110 – 45% higher than the current price.