2 Growth Stocks to Buy and Hold Forever

2 Growth Stocks to Buy and Hold Forever

Growth stocks can be volatile. Sometimes they are the darlings of the market, with stock prices soaring on speculation and exciting business prospects. A few months later (or sooner), the same companies may find themselves in the proverbial bargain bin as investors seek stability and proven profits in times of crisis. This corner of the stock market is not for the faint of heart.

But the same volatility that might push me to resort to antacids can only set the stage for incredible long-term gains. When shares of a large, high-growth company are on sale, it’s time to buy.

On that note, let’s look at a duo of high-flying former stock market sweethearts who faded away recently. One stock is almost back to its old highs, while the other is down 88% in three years. I’m talking about Netflix (NASDAQ:NFLX) And Year (NASDAQ:ROKU)the masters of services and platforms the world of multimedia streaming.

Here’s why you should add Roku and Netflix to your wallet and keep them forever, for all intents and purposes. Spoiler alert: both companies still have a lot of growing to do.

A booming media market

Let’s start with Netflix’s “long-term vision.” This document, found on the company’s investor relations website, describes Netflix’s long-term business plan in great detail. It also offers insight into the streaming market as a whole.

It’s a simple view, really. Linear television systems such as cable, satellite, and broadcast services have had their day, and alternatives to video streaming are taking over globally. The streaming experience is “on-demand, personalized and available on any screen,” freeing consumers from the tyranny of broadcast schedules or DVR scheduling. The streaming market itself is growing as more people have access to high-speed internet connections and suitable viewing devices. Ultimately, the old-school linear TV experience is expected to become a rarely-used novelty, putting the trillion-dollar media market in the hands of streaming media services.

Netflix’s unwavering leadership

Netflix is ​​the reigning champion of the streaming world. With a subscriber base of 270 million accounts, rivaling the population of Indonesia, the fourth largest country in the world, Netflix has carved out a dominant position in the market. About a year ago, Netflix changed course to focus more on profitability, much to the delight of analysts and investors.

I mean, the initial reaction was panic, as the company abandoned its long-standing focus on optimized subscriber growth in search of more profitable options. But the benefits of the new strategy became clear over the next few quarters, and Netflix shares again reached all-time highs.

Roku’s Emerging Strength

Roku is still in the early stages of its growth story, as a scrappy underdog with tons of potential.

It has yet to opt for a profit-driven strategy, remaining focused on global growth and capturing more users. Netflix is ​​an important partner in this quest, alongside all the streaming services hoping to break into the streaming market.

Netflix has been a global business since 2016, but so far Roku has been almost exclusively an American growth story. The company doesn’t even publish its international business results, with one interesting exception. Around 79% of its long-term assets are located in the US, 17% in the UK and the remaining 4% in “other countries”. The world is a big place, and Roku is just beginning its plans for global expansion. Current focus areas include Canada, Mexico and Germany. Other first world markets will follow, and the ultimate ambition is to expand globally.

Roku’s success is of course not guaranteed. Rivals include local heroes in each target market as well as deep-pocketed tech giants led by the head of Fire TV. Amazon (NASDAQ:AMZN) and the brains of Chromecast/Google TV Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL). But if the forward-thinking U.S. market is anything to go by, Roku appears poised to penetrate about half of the 1.8 billion households in the global media market. That’s a far cry from Roku’s current footprint in the market, which has 81.6 million accounts.

Recovery of the digital advertising market

Both Netflix and Roku are well-positioned to benefit from the expected recovery in the digital advertising market. Roku’s stock price has been hurt by declining digital ad spending, but as the market recovers, the company is expected to see substantial gains in ad revenue. Additionally, Netflix’s recent introduction of ad-supported streaming tiers opens up new revenue streams, further improving its growth prospects.

Advertising sales make the business world tick, and these companies are ready to help it spin.

The Mature Market Leader and Undervalued Turnaround Story

Netflix is ​​like the wise elder of the streaming world. He knows the game, has proven durability and offers stability and steady growth. With its evolution toward a profit-driven model, Netflix is ​​a solid choice for investors looking for robust and reliable profit growth. You would have laughed me off the stage for a statement like that in 2019, but things have changed.

In the opposite corner, Roku is the hungry young upstart. Its number of active accounts and revenue are similar to Netflix’s numbers in 2015, just before the service leader launched a global presence. This high-octane growth stock seems extremely undervalued these days.

I can’t promise that Roku will follow Netflix’s playbook perfectly, but its trajectory should be pretty similar. And it’s also a promising path: Netflix has quintupled its sales and generated a shareholder return of 480% since the end of 2015. In comparison, the S&P500 (INDEXSNP: ^GSPC) the index only rose 160% over the same period.

Whether you prefer the stability of Netflix or the upside potential of Roku, these are two stocks to buy and hold forever. The media streaming market is booming, with Roku and Netflix at the forefront. You can also follow my lead and own both for the long term.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anders Bylund holds positions in Alphabet, Amazon, Netflix and Roku. The Motley Fool holds positions and recommends Alphabet, Amazon, Netflix and Roku. The Mad Motley has a disclosure policy.

2 Growth Stocks to Buy and Hold Forever was originally published by The Motley Fool

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