Daily Archives: February 11, 2019

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7 Forever Stocks for Long-Term Gains

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Trying to “beat the market” is a tough game on a day-to-day basis. Financial markets are volatile. They’ll swing higher one day and then fall the next day. Sometimes, we don’t even know why they move the way they do. They just move. And, because it’s nearly impossible to explain every day-to-day move on Wall Street, it’s equally impossible for even the sharpest minds to predict day-to-day moves in stocks with great accuracy.

Thus, trying to “beat the market” on a day-to-day basis is an uphill battle. But, if you zoom out and take a long-term approach to investing, you turn that uphill battle into an even playing field. Longer-term trends in stocks are often easier to predict because they almost always track fundamentals and narratives, and fundamentals and narratives are tangible enough that investors can — with practice and discipline — predict them with great accuracy.

As such, successful investors often tend to take the Warren Buffet approach and buy stocks of companies that have healthy long-term growth prospects, under the idea that healthy long-term growth will translate into a substantially higher stock price over time.

I have a special name for the cream-of-the-crop stocks in the long-term winners basket: forever stocks. Forever stocks are the classification of stocks that are not just long-term winners, but are also aligned with powerful and long-running secular growth trends, and have proven leadership within that trend. Thus, forever stocks project with high certainty to be long-term winners for a lot longer. Theoretically, they project to be winners “forever”.

These forever stocks are the best stocks to buy and hold for long-term investors. They will be highly volatile in the near term. But, such volatility will amount to nothing more than noise in the big picture. In that big picture, forever stocks will only head higher.

With that mind, let’s take a look at seven forever stocks to consider for the long haul.

Forever Stocks to Buy: Facebook (FB)

Source: Shutterstock

Facebook (FB)

Secular Trend: Persistent internet addiction

Big Idea: The big idea behind the forever bull thesis in Facebook (NASDAQ:FB) starts with the fact that consumers are addicted to the internet. There have been multiple calls for this addiction to break over the past several years. It hasn’t. Instead, internet usage has gone up because the internet provides the easiest, most convenient and cheapest way to perform a great number of tasks.

Consumers spend most of their internet time on the digital properties that Facebook owns. That means that an addiction to the internet and an addiction to Facebook’s digital properties run parallel to one another. This will remain true for the foreseeable future. As such, the number of users on Facebook’s properties and the volume of ad dollars flowing through those properties will only go up over time. As they do, Facebook’s revenues and profits will steadily rise, and so will FB stock.

Forever Stocks to Buy: Shopify (SHOP)

Source: Shopify via Flickr

Shopify (SHOP)

Secular Trend: Democratization of e-commerce in the coordinated economy

Big Idea: The big idea behind the forever bull thesis in Shopify (NYSE:SHOP) starts with the fact that the world is becoming increasingly democratized and decentralized. This concept is very simple. Companies far and wide are leveraging technology, which allows for unprecedented connectivity, to democratize supply and distribution processes globally. Think Uber, which democratized driving services so that anyone with a car could do it, or Airbnb, which democratized accommodation services so that anyone with an extra room could do it. I like to call this movement the coordinated economy since beyond democratizing services, these companies are also coordinating these services to create optimal outcomes on both the supply and demand side of the equation.

Shopify is doing this exact same thing in the commerce world. The company is democratizing selling services so that anyone with a product can sell it. They are also coordinating such services by creating a connected web of independent buyers and sellers. In so doing, Shopify is creating the building blocks for a new era of democratized commerce where we don’t buy everything from Amazon (NASDAQ:AMZN). As this democratization process plays out over the next several years (and it most certainly will, given that Amazon can’t control 50% of the U.S. e-commerce market forever), Shopify’s merchant volume, revenues and profits will rise by leaps and bounds. As they do, SHOP stock will rise, too.

Forever Stocks to Buy: Twilio (TWLO)

Source: Web Summit Via Flickr

Twilio (TWLO)

Secular Trend: Growing demand for cloud communication services

Big Idea: The big idea behind the forever bull thesis in Twilio (NASDAQ:TWLO) is that the world is becomingly increasingly connected, and as it does, the desire for cloud-based communication services will go from “want” to “need”. This market that involves these services is broadly defined as the Communication Platforms-as-a-Service (CPaaS) market, and it consists of companies integrating real-time communication services into their operations. Perhaps the most tangible example of this is when Uber or Lyft sends you messages to communicate that your ride has arrived.

Nuanced communication services like this will be increasingly integrated at greater scale over the next several years across various industries because, no matter the industry, one theme is constant: consumers and companies alike are becoming more connected than ever. Twilio has emerged as the unchallenged leader in this space. The customer base is growing by over 30%. Revenues are growing by nearly 70%. The retention rate is 95% and up. In other words, everything is going right for this company, and it will continue to go right as the CPaaS market goes from niche to mainstream over the next several years. 

Forever Stocks to Buy: The Trade Desk (TTD)

Source: Shutterstock

The Trade Desk (TTD)

Secular Trend: Pivot toward programmatic advertising

Big Idea: The big idea behind the forever bull thesis in The Trade Desk (NASDAQ:TTD) starts with the fact that technology is rapidly automating multiple jobs and processes across the enterprise ecosystem. This includes the process of buying and selling ads. Before, the ad transaction process was laborious, lengthy and included several human parties. Today, though, enterprises can now buy ads instantaneously and without friction or the high costs using computers.

This new method of using AI and machines to buy and sell ads is called programmatic advertising. It’s the future of advertising. Eventually, given the low-friction and low-cost advantages of programmatic advertising, all $1 trillion worth of ad spend globally will be transacted programmatically. At the forefront of this market is Trade Desk, a company which has distinguished itself as the programmatic advertising leader. As such, as the programmatic advertising method goes global over the next several years, Trade Desk will remain a huge grower and TTD stock will head higher.

Forever Stocks to Buy: Amazon (AMZN)

Source: Shutterstock

Amazon (AMZN)

Secular Trend: Nearly everything

Big Idea: The big idea behind the forever bull thesis in Amazon is that this company is at the forefront of nearly every one of tomorrow’s most important markets. E-commerce? Amazon already dominates there. Cloud? Amazon already dominates there, too. Offline retail? Amazon is rapidly expanding its presence. Automation? Amazon is already automating its warehouses, and just made a big investment into self-driving car company Aurora. AI? Amazon dominates the voice assistant market. Pharma? Amazon has all the licenses it needs to launch a nation-wide e-pharmacy business. Digital advertising? Amazon’s digital ad business is the fastest growing among major players in the space. Streaming? Amazon is No. 2 in this market behind Netflix(NASDAQ:NFLX)

In other words, Amazon has its fingertips everywhere it matters. Inevitably, one or many of these growth initiatives will turn into a multi-billion dollar business (if they aren’t already). A few big breakthroughs in automation, pharma or AI will help offset slowing growth in e-commerce and keep Amazon a big growth business for a lot longer. That will push AMZN stock way higher in the long run.

Forever Stocks to Buy: Adobe (ADBE)

Source: Shutterstock

Forever Stocks to Buy: Adobe (ADBE)

Secular Trend: Shift towards a visual and experience economy

Big Idea: The big idea behind the forever bull thesis in Adobe (NASDAQ:ADBE) starts with the idea that the world is becoming increasingly visual-centric. You can thank Instagram, Snapchat and YouTube for bringing this out recently, but the desire has always been there. The saying “a picture paints a thousand words” has been around for a long time. Now, that saying is turning into action as consumers globally are becoming increasingly obsessed with visual everything.

When it comes to visual everything, there’s one company in the world that stands out above the rest in terms of creating visual everything content: Adobe. Adobe has developed a reputation as being a second-to-none provider of visual everything solutions for creative professionals. Now, the company is leveraging that experience to create visual everything cloud solutions. These cloud solutions will be met with increasing demand as enterprises increasingly seek visual everything solutions to connect with consumers. As such, Adobe will benefit from a continued visual cloud demand surge over the next several years, and that will help keep ADBE stock on a winning trajectory.

Forever Stocks to Buy: Square (SQ)

Source: Via Square

Forever Stocks to Buy: Square (SQ)

Secular Trend: Rise in card and digital payments

Big Idea: The big idea behind the forever bull thesis in Square (NYSE:SQ) starts with the fact that cash is history. A few years ago, your average consumer almost always carried a wallet or purse that had at least some cash. Today, that’s no longer true. A majority of young, 30-and-under consumers I come across don’t carry cash. Instead, they have their phone and their payment card(s), and intend to pay for things exclusively through one of those items.

Retail shops have had to adjust to this cashless revolution, and Square has helped them. Square provides machines that facilitate cashless transactions. First, they simply helped facilitate brick-and-mortar cashless transactions. Now, they are helping facilitate e-commerce transactions, too. In other words, everywhere the consumer is, Square is there, too, helping them facilitate a cashless transaction. This is an extremely valuable position to be in for the foreseeable future, as cash truly becomes a relic in the modern economy. As it does, Square’s payment volume will surge higher, and SQ stock will stay on an uptrend.

As of this writing, Luke Lango was long FB, SHOP, TWLO, TTD, AMZN, NFLX, ADBE and SQ. 

Dividends

1 Click for 35% Gains and 7.2% Dividends in 2019

If you’re like most people, you’re wondering one thing right now: can stocks keep soaring following December’s nosedive—even after spiking 8% in January?

The answer? Absolutely.

To get at why I’m so sure, we’ll first go a couple steps further than headline-driven “first-level” investors do. Then I’ll give you a way you could double (or more) your rebound gains thanks to a terrific closed-end fund (CEF) yielding 7.2%—and “spring loaded” for 35% returns this year.

The Ignored Connection Between Jobs and Stocks

To get at what’s in store for the markets in 2019, we have to go back to 2009 and zero in on one thing: jobs. Because the crisis back then triggered a lost decade that only ended in 2017, when the unemployment rate finally got back to pre-crisis levels.

Then something strange happened—unemployment kept falling. In January, payroll data rose to one of the highest levels ever, blowing away even the rosiest estimates.

In such a job market, inflation seems like a sure thing. After all, when everyone who wants a job can get one and more jobs are created every day, employers will need to pay higher wages to keep the workers they have. And consumers will open their wallets, confident they’ll be earning more. But we’re not seeing that:

Inflation Defies Expectations

This has stumped many economists, because it’s normally a given that lower unemployment stokes inflation. But there’s a simple explanation for what’s happening today, and it comes back to folks who are unwillingly out of the workforce.

Here’s what I mean: the government measures unemployment by looking at what percentage of people are in the labor force, then looking at what percentage of those people don’t have jobs. But people can choose to be in or out of the labor force at any given time—and plenty of people have made an exit in the last decade:

US Workforce Shrinks—Till Now

For much of the 2010s, the unemployment rate wasn’t falling because more people were getting jobs—it was falling because more people gave up on getting jobs. But workforce numbers flat-lined since 2015 and began rising in late 2018. In short, Americans who’d thrown up their hands are getting back in the game.

That means inflation could be a risk in the future, when all those who left the labor force have come back, but we’re a long way from that.

In sheer numbers, think of it this way: 66% of 306 million people were in the labor force in 2007. That’s 202 million men and women. We’re now down to 63.2% of 327.16 million, or 206.8 million people. Another way to think about it: in the last 12 years, our labor force is up just 1.6% while our population is up 6.9%.

This is unsustainable: America needs more workers to keep up with its bigger population.

“A Rare Time When You Can Buy Stocks at a Discount”

This all means the market recovery will likely continue, because there’s too much demand for workers—and workers have too much money to spend—to cause a market hiccup. Better still, we’re at a rare time when you can buy stocks at a discount—and an even bigger discount is on the table for us, thanks to closed-end funds (CEFs).

Let me explain.

CEFs slipped in 2018, only to start recovering in early 2019:

CEFs Tumble … Then Bounce Back

But as you can see, CEFs still haven’t fully recovered—and there’s still a big gap between their 2018 peak and where they are now, even though CEFs’ year-to-date recovery has beaten the S&P 500’s 9.1% bounce, with the CEF InsiderEquity Sub-Index up 11.1% in 2019.

That tells me that this could be another year where CEFs outperform, as they did in 2017. And they’re likely to do so for the same reason: they were oversold in the prior year.

The One Fund to Buy for 35% Gains (and 7.2% Dividends) in 2019

Which brings me to the Dividend and Income Fund (DNI), which focuses on bargain-priced US stocks like Apple (AAPL), Intel (INTC) and the Walt Disney Company (DIS). DNI is now signaling that it’s in the early stages of a huge recovery. Look at its outsized return in 2019 so far:

The Rally Is On!

But DNI still falls short of where it was in early 2018, so it has plenty of runway ahead:

DNI’s Ride Is Just Beginning

How high can DNI go? If we track its 2017 performance from when it got absurdly oversold at the end of 2016 (as it was absurdly oversold at the end of 2018), we see that a 35% return was in the cards:

History Looks Set to Repeat

And since DNI’s decline in ’16 wasn’t as severe as in ’18, there’s a good chance this year’s return will be even bigger than 35%.

One reason why I’m confident is that the fund’s unusually large 23% discount to net asset value (NAV, or the market price of its underlying portfolio) means that, just to sustain that discount, for every 1% its NAV gains, DNI’s price will have to go up 1.3%. If the market wants to make that discount disappear (as it did in 2017), its price will obviously have to go up much more than 1.3% for every 1% of NAV gains.

The kicker? DNI yields an outsized 7.2% now, so you’re getting around 20% of your potential 35% return in cash here.

Better still, DNI is far from your only choice: there are many other CEFs yielding as much or more than this fund and also look set to clobber the S&P 500. And these income wonders invest in similar top-notch (and cheap) US companies.

Which brings me to …

Source: Contrarian Outlook