The stock market is full of growing companies that can help you build lasting wealth. The best investments are those you can buy and never need to sell, since uninterrupted compound interest can lead to incredible gains down the road. To help you in your search, here are two outstanding growth stocks to buy today.
1. Amazon
Amazon (NASDAQ: AMZN) is an ideal stock to consider holding forever. It not only benefits from repeat spending behavior from millions of Prime members, but importantly, the company is obsessed with the customer experience that is pushing it to deliver more convenience and value.
After falling with the market indexes in 2022, the stock hit new all-time highs this year. The company has made significant improvements to inventory management, which is now driving record free cash flow and profits. This effort is still ongoing, which could lead to significant gains for shareholders in the coming years.
Amazon delivered more than 7 billion items to customers in 2023 in the same or next day. Faster delivery speeds follow the reorganization of inventory across its fulfillment centers to put items closer to customers. This has reduced delivery costs and encouraged customers to buy more frequently.
Amazon's free cash flow totaled nearly $53 billion over the last year. Its operating profit nearly doubled year over year in the second quarter, and it should continue to see a growing profit contribution from its highly lucrative non-retail services, including cloud services and sponsored ads, which generate most of the company's operating profit.
Even after the monster rally last year, the shares are still fairly priced. Using Amazon's trailing revenue, the stock is trading at a price-to-sales ratio of 3.1. That is right in line with its 10-year average of 3.2 times trailing sales. It's also trading at a price-to-free cash flow multiple of 39, which is consistent with the stock's trading history.
Overall, these metrics indicate a fairly priced stock that should continue to deliver a return roughly in line with the growth of Amazon's business.
2. Netflix
Subscription-based businesses can be very rewarding investments because of the built-in repeat spending of subscribers and the lucrative profits it produces for the business over time. This is why Netflix (NASDAQ: NFLX) is a resilient business that can deliver compounding returns to investors for many years.
Netflix benefits from a growing paid membership base of 277 million, which rose 16% in Q2 over the year-ago quarter. It has built a top brand in digital entertainment, but the real advantage for Netflix is the billions it had to spend over several years to reach this status.
Between 2021 and 2023, Netflix spent almost $50 billion on content. Building a large library of original movies and shows is very capital intensive, which is why Walt Disney is still trying to turn a profit in its streaming business.
However, Netflix can afford it and still show a healthy profit to fuel shareholder returns. Its trailing 12-month profit was $7 billion on $36 billion of revenue, and management is committed to further margin increases over the long term.
Netflix has years of data on what subscribers like to watch and for how many hours. Management can predict how many hours viewers will watch of each show or film over its useful life. The value of its brand and data science capabilities explains why Netflix continues to grow its subscriber base and reward shareholders.
The stock is currently sitting close to new highs but still trades at a fair valuation relative to business fundamentals. The stock's price-to-free cash flow ratio is sitting at 44, and its forward price-to-earnings ratio is currently 35.
Considering the company's margin expansion potential and opportunities to reach millions of more households globally, Netflix stock is a solid buy-and-hold investment.
Should you invest $1,000 in Amazon right now?
Before you buy stock in Amazon, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Amazon wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $787,394!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of August 22, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Netflix, and Walt Disney. The Motley Fool has a disclosure policy.
2 Growth Stocks to Buy and Hold Forever was originally published by The Motley Fool