Sstructuring a portfolio around a core of high-quality stocks is essential, regardless of your investing experience. Having stable businesses that can weather the volatile storm of the stock market allows you to spread your wings and invest in other businesses that might be more risky.
It is important to keep certain things in mind as a new investor. First, diversity is your friend and you should aim to have at least 20-25 stocks in your portfolio. It’s also why your core holdings should consist of multiple companies (which is why I’m talking about three today), not just one. Second, time is your friend. As many investors have seen in 2022, the stock market is volatile and timing is near impossible. For this reason, investing with a time horizon of five years or longer is likely to produce higher returns compared to investing with a time horizon of five weeks.
With these principles in mind, here are three stocks that can act as strong indicators in your portfolio while delivering impressive growth over the next five years and beyond.
1. The Trading Post
The trading post (NASDAQ: TTD) has already seen incredible growth since its IPO in 2016, with the stock rising nearly 4,000% from its IPO price. However, the company has barely scratched the surface of its full potential.
The Trade Desk serves as an intermediary that helps advertisers reach their target audience through digital channels. It is the industry leader with no major competitors, so it has been able to dominate the ad tech market. About $6.2 billion in ad spend was spent on its platform last year, up 47% year-over-year.
The company’s outright dominance in the space could continue to do wonders for the company. It already has over 225 partnerships with some of the biggest advertising providers like PubMatic and magnite to offer advertising space to its customers. Since most of the offering is already available to Trade Desk clients, there would be no incentive to switch to another platform.
This allows The Trade Desk to capitalize on this vast market. Global digital ad spend in 2021 was $439 billion, meaning the company captured less than 1.5% of its total opportunities. By 2025, however, global digital ad spending is estimated at $627 billion. With such potential on the horizon, investors should consider adding this top name to their portfolio and hold it for the long term.
2. Unity Software
The gaming space is set to explode over the next few years with an estimated market of $300 billion by 2027. Unity (NYSE:U) capitalized on this huge opportunity as the number of games built on its development engine grew by 93% in 2021.
Unity is the game creation software industry’s top dog, with Epic Games’ Unreal Engine being a distant runner-up. However, it’s not a win-win scenario – both companies could be successful simultaneously given the size of the gaming market. Unity has shown the early stages of success with meteoric adoption over the past few years. It now has over 1.5 million monthly active creators and $1.1 billion in annual revenue.
Unity isn’t the perfect investment, though. The company reported negative free cash flow of $153 million last year. While this was only 14% of revenue, management needs to make progress to push this figure into positive territory. Today, however, I’m willing to ignore this issue given Unity’s leadership in this industry.
Shopify (NYSE: SHOP) provides e-commerce services to small and medium-sized enterprises (SMEs), helping them grow their physical and digital operations. It has backed over $200 billion in sales on its platform, ranging from mom-and-pop shops to publicly traded companies like all the birds.
Shopify’s unwavering focus on customer success is why it has grown to the size it is today. It offers tools for everything from payment processing to international expansion. It has even partnered with big brands like walmart to help its traders prosper. The company isn’t losing sight of its purpose, either: Shopify has long-term plans for several services, including a fulfillment network. With this innovation, it’s easy to say that Shopify will likely be much bigger in a decade.
The company’s shares are still expensive, trading at just over 19 times sales. That said, its 10% share of US e-commerce sales in 2021 is indicative of its positioning and the opportunity that awaits. Second only to AmazonShopify has a unique advantage over its competition, which is why I think it’s still worth buying today.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Jamie Louko owns Amazon, PubMatic, Inc., Shopify, The Trade Desk and Unity Software Inc. The Motley Fool owns and recommends Amazon, Magnite, Inc, PubMatic, Inc., Shopify, The Trade Desk and Unity Software Inc. Motley Fool recommends the following options: $1140 January 2023 Long Calls on Shopify and $1160 January 2023 Short Calls on Shopify. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.