The common perception among investors is that stocks outperform bonds. Over the past several decades, stocks have returned roughly 10% per year, while long term government bonds have returned around 5-6% per year. This higher return for stocks make sense — they are riskier assets, and in order to compensate for the additional risk, they should give additional return.
But, a recent study from Hendrik Bessembinder of Arizona State University, throws an interesting wrinkle into this stocks-versus-bonds comparison. Bessembinder essentially found that, while stocks as an asset class do outperform bonds, most individual stocks actually under-perform bonds, and only a select few number of winning stocks do all the out-performing. That is, four out of every seven common stocks since 1926 have lifetime buy-and-hold returns less than one-month U.S. Treasuries, while the best-performing 4% of stocks account for the entire net out-performance of the U.S. stock market relative to bonds since 1926.
The investment implication? Don’t just buy stocks. Buy winning stocks.
With that in mind, let’s take a look at 10 winning stocks to buy that have done a ton of winning over the past five years, are still doing a lot of winning today, and will continue to do plenty of winning for the foreseeable future.
Winning Stocks to Buy: Facebook (FB)
Trailing 5-Year Gain: 147%
Social media and digital advertising giant Facebook (NASDAQ:FB) has been a winning stock for a long time and won’t stop winning anytime soon.
Over the past five years, FB stock has rattled off a 147% gain. The company has leveraged its unparalleled digital ecosystem of apps with billions of users and tons of data on each of those users to create one of the world’s biggest digital ad businesses. That digital ad business has become an important and indispensable part of essentially every company’s marketing strategy. It’s also a very high margin business. As such, Facebook’s revenue and profit growth rates have been robust — and that robust growth has driven huge gains in FB stock.
All four of Facebook’s apps are extremely sticky. Only two of them are monetized on the ad front. None of them are fully monetized on the e-commerce front. As such, Facebook has plenty of room to expand revenue opportunities across its ecosystem of digital platforms. They will do that over the next several years, and as they do, Facebook’s revenue, profits, and stock will all continue to march higher.
Trailing 5-Year Gain: 1,012% (from May 2015 IPO Price)
Canadian e-commerce solutions provider Shopify (NYSE:SHOP) went public in May 2015 at an IPO price of $17 per share. Today, SHOP stock trades hands around $313 — marking an 1,012% gain from that IPO price in just over four years.
The huge gain in SHOP stock over the past few years can be attributed to two things. First, the entire retail world has pivoted from physical to digital, and in so doing, retailers have gone from creating impressive physical store fronts, to building impressive digital store fronts, or websites. Shopify is the best in the market at helping retailers build those websites. Second, the entire retail world has simultaneously become more decentralized, meaning more traffic directly through company websites, so the amount of sales volume flowing through Shopify-powered websites has roared higher over the past few years.
Both of these trends will continue with robust pace for the foreseeable future. E-commerce still represents a relatively small piece of total retail sales, and the direct retail trend is only gaining momentum. At the same time, the decentralized economy is gaining momentum across multiple industries, and as this trend continues to gain momentum, decentralized commerce will become more prevalent.
As such, over the next several years, Shopify will continue to become a bigger and more important player in the global retail landscape. As they do, Shopify’s revenues, profits, and stock will all run higher.
The Trade Desk (TTD)
Trailing 5-Year Gain: 592% (from September 2016 IPO price)
Programmatic advertising platform The Trade Desk (NASDAQ:TTD) hit public markets in September 2016 at an IPO price of $18 per share. Today, shares trade hands around $193, representing a climb of nearly 600% for TTD stock over the past three years.
The meteoric rise in TTD stock can be attributed almost entirely to automation and data. That is, The Trade Desk provides programmatic advertising solutions, which is essentially the process of leveraging algorithms and data to automate ad buying and selling transactions. In this sense, programmatic advertising is just one facet of the automation wave — a wave which essentially leverages algorithms and data to replace error-ridden and expensive humans, with error-free and less expensive machines. As this automation wave has gained traction over the past several years, so has the field of programmatic advertising – which has led to a robust increase in The Trade Desk’s revenues, profits, and stock price.
From the look of it, the programmatic advertising wave, and The Trade Desk, is still in the early innings of a massive long term growth narrative. At present, programmatic advertising accounts for a big chunk of digital media ad spend, but a tiny piece of the global advertising pie. Over time, this will change as automation becomes the norm across all ad formats, and eventually, most of the near $1 trillion ad market will be transacted programmatically. Thus, in the long run, there’s plenty of room for growth here, and The Trade Desk should continue to fire off big revenue and profit growth rates for a lot longer.
Trailing 5-Year Gain: 112%
Athletic apparel giant Nike (NYSE:NKE) has leveraged sizable tailwinds in the athleisure market and its strong brand positioning to turn into one of the retail world’s shining stars over the past several years. This shine should continue for the next several years.
Over the past five years, NKE stock has rattled off a 112% gain behind two big drivers. First, Nike’s core addressable athletic apparel market has been red hot, driven by increasing consumer desire to lead healthy, fit, and active lifestyles. Second, Nike has fully embraced this trend, turning into more of a lifestyle brand than a performance brand, and leveraging this lifestyle pivot to maintain leadership positioning in the red hot athletic apparel market. These two drivers have powered healthy revenue and profit growth at Nike, and NKE stock has responded well to that growth.
This will continue for the foreseeable future. The trend underlying athletic apparel market strength — increasing consumer desire to be healthy, fit, and active — isn’t going away. If anything, it’s actually gaining momentum.
Meanwhile, Nike continues to do everything to be the perfect brand for its core consumers, including taking bold, political stances which align with those consumers and enlisting the endorsement the world’s greatest athletes. Consequently, Nike should continue to maintain leadership in the secular growth athletic apparel market, and that leadership will lead to sustained gains in Nike’s revenues, profits, and stock.
Trailing 5-Year Gain: 115%
Over the past five years, Alphabet has been all about two things: digital ads and cloud. On the digital ad front, the company has leveraged its wide reach across the global internet ecosystem to become the world’s biggest and most important digital ad player. On the cloud front, the company has joined its big tech peers in capitalizing on the cloud mega-transition by providing cloud infrastructure services. Both the digital ad and cloud businesses at Alphabet have been on fire for several years. As they have been on fire, GOOG stock has risen higher.
GOOG stock will continue to march higher because: 1) both of these businesses will remain on fire, and 2) Alphabet has many nascent businesses which could turn into material drivers soon. On the first point, the global digital ad market projects as a double-digit growth market for the next several years. Alphabet projects to maintain leadership in that market through Google Search and YouTube. At the same time, the cloud pivot is far from over, and Google Cloud should continue to grow with the cloud IaaS market.
On the second point, Alphabet also owns Waymo (a self driving business), Stadia (a cloud gaming business), Wing (a drone delivery business), and much more. Any one of those businesses could take off over the next few years, and add even more firepower to the already fully loaded GOOG growth narrative.
Alphabet will sustain big revenue and profit growth for a lot longer. So long as they do, GOOG stock will stay on a secular uptrend.
Trailing 5-Year Gain: 402% (from April 2017 IPO price)
Cloud security platform Okta (NASDAQ:OKTA) went public at a $17 IPO price in April 2017. Today, OKTA is a $118 stock, meaning that over that past two and a half years, OKTA stock has risen almost 402%.
Behind the 402% gain in OKTA stock since 2017 is Okta’s novel and groundbreaking approach to cloud security, which Okta dubs the Identity Cloud. Long story short, traditional cloud security platforms act like a castle which encompasses an enterprise’s entire ecosystem of people, data, and workflows. Such castles are good at protecting what needs to be protected, but they are also limiting in terms of flexibility and mobility. Okta has addressed these flexibility and mobility shortcomings by getting rid of the castle all together, and instead outfitting each individual in an ecosystem with an armor of security, so that every individual’s data and workflows are secure. The idea is that if everyone is individually secure, then everything in total is secure, and everyone can be safe without compromising flexibility and mobility.
This novel approach to cloud security has gained significant momentum over the past several years as enterprises have increasingly valued security solutions that don’t hinder mobility. As such, Okta has rattled off huge customer and revenue growth rates over the past few years. As they have, OKTA stock has soared.
Okta is still small relative to its addressable market, and identity-based cloud security solutions are only gaining mainstream momentum. As such, Okta projects to stay on a big growth trajectory for the foreseeable future, meaning OKTA stock should stay on a big growth trajectory, too.
Trailing 5-Year Gain: 52%
Retail giant Walmart (NYSE:WMT) has been the face of the retail world for several decades — a stretch in which WMT stock has out-performed in a big way. Walmart projects to remain the face of the retail world for the next several decades, too. During that stretch, WMT stock should continue to outperform.
Since 1990, Walmart has been the most important and biggest retailer retailer in the United States. Walmart got to the top of the retail game — and has stayed on top — by doing two things: minimizing prices, and maximizing consumer convenience. Doing these two things has powered consistently positive comparable sales, revenue, and profit growth at Walmart over the past roughly 30 years. During that stretch, WMT stock has risen about 2,000%, versus a 735% gain for the S&P 500.
Walmart will continue to dominate on price and convenience going forward. On the price front, Walmart is now leveraging data to inform pricing decisions, and because they have more data than anyone else, their pricing decisions should be better than anyone else’s pricing decisions. On the convenience front, Walmart is leveraging its unparalleled physical retail footprint to build out a big digital business that should have lower delivery and in store pick up times than peers.
Net net, Walmart projects to continue to win on the price and convenience fronts, meaning that Walmart’s revenues, profits, and stock will continue to run higher over the next several years.
Trailing 5-Year Gain: 340% (from September 2017 IPO price)
Shares of streaming device maker Roku (NASDAQ:ROKU) presently trade hands around $110. In September 2017, Roku priced its IPO at $14 per share. Thus, from its IPO price roughly two years ago, ROKU stock has risen 340%.
That’s a big gain in short period of time, and it can be attributed entirely to the fact that Roku is turning into the cable box of the streaming TV world. In a nutshell, everyone is pivoting into the streaming channel. Consumers are moving consumption into the streaming channel because it’s on-demand, often cheaper, and always more convenient. Media companies are following this consumption pivot, and launching their own streaming services. Someone has to connect all these streaming services to all these consumers. That’s what Roku does — and they’ve been the best at it thus far, so ROKU stock has consequently soared over the past two years.
Roku projects to remain the best in this market over the next several years. Sure, there are a lot of companies out there that are trying to do this. But, most of them have their own paid streaming service, so their “cable box services” are biased and have friction. Roku’s ecosystem is content-neutral, unbiased, and largely without friction — meaning it offers consumers the best and easiest way to access any and all streaming services.
Consequently, as the streaming TV space grows by leaps and bounds over the next several years, Roku will grow with it as the de facto streaming box. This will result in robust revenue and profit growth for Roku, which will ultimately lead to ROKU stock staying on a winning path for a lot longer.
Winning Stocks to Buy: Chegg (CHGG)
Trailing 5-Year Gain: 435%
Digital education company Chegg (NASDAQ:CHGG) has been disrupting, still is disrupting, and will continue to disrupt the ultra-valuable education market. All this disruption has been and will continue to fuel huge gains in CHGG stock.
Chegg has created an on-demand, connected learning platform designed for today’s high school and college students. That is, students today spend all their time in the digital channel watching YouTube videos, sending Snapchats, and sharing Instagram photos. Chegg is creating a digital education platform built for those students so that they can learn and get academic help through the digital channel which they are already so comfortable with.
Students have gravitated in bulk to Chegg’s connected learning platform over the past few years, mostly because it is exactly how they want to learn. As these students have joined Chegg, Chegg’s revenues and profits have roared higher, and so has CHGG stock — which is up over 400% over the past five years.
This digital education pivot is far from over, and so is Chegg’s growth narrative. Chegg only counts 3 million students as subscribers. There are about 36 million high school and college students in the U.S. alone. Thus, this company has tremendous runway for further adoption in its core high school and college markets, meaning that big revenue and profit growth rates are here to stay for a lot longer.
Trailing 5-Year Gain: 464%
Internet giant Amazon (NASDAQ:AMZN) has leveraged exposure to multiple important internet growth verticals over the past several years to drive huge gains in AMZN stock. They will continue to do so over the next several years and produce similar results.
Over the past five years, the growth narrative at Amazon has been all about e-commerce and cloud. Amazon has been the face of e-commerce in the U.S. and globally, and as the e-commerce market has grown by leaps and bounds, so has Amazon’s e-commerce business. At the same time, Amazon has morphed into the leader in the cloud IaaS market with Amazon Web Services, and as that market has burgeoned over the past few years, so has AWS. The sum of robust growth at Amazon.com and AWS has powered sustained big gains in AMZN stock.
Over the next few years, the e-commerce and cloud growth tailwinds will remain robust, supported by the fact that only ~10% of all retail sales in the U.S. are transacted through the online channel, and that only ~20% of all enterprise workloads have migrated to the cloud. At the same time, Amazon is rapidly expanding its digital ad business which, given Amazon’s reach across the internet landscape, could turn into a sizable player in the secular growth digital ad market at scale.
E-commerce, cloud, and digital ads will power big growth at Amazon over the next several years. That big growth will ultimately help AMZN stock run higher over the next few years, too.
As of this writing, Luke Lango was long FB, SHOP, TTD, NKE, GOOG, OKTA, CHGG, adn AMZN.