Long -term returns are determined by several key characteristics, and investors should focus on them. Stocks with unique potential often have exceptional growth catalysts and broad economic moats. These three stocks all have clear avenues for rapid growth along with sustained competitive advantages, creating serious long -term increases.
1. Veeva Systems
Veeva Systems (VEEV -0.95% ) is the leader in cloud software for the life sciences industry. Its list of more than 1,200 customers includes pharmaceutical, biotech companies, research organizations, and device manufacturers. From early stage drug candidates to the world’s largest business – almost all of the 20 largest pharmaceutical companies are Veeva customers.
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Veeva’s range of products is important at various stages of the business lifecycle in its target industries. Customers rely on software during development and clinical trials for data collection, management, reporting, evaluation, and regulatory compliance. Veeva is also an important vendor for sales and marketing functions with customer relationship management software and data analytics tools.
The company has a broad economic moat, which is key to the long -term narrative of its investment. Its dominance in the life science niche helps protect it from competition from more general players such as Salesforce.com or any smaller distraction with the same industry focus. Veeva has clear evidence that its customers find value in its services and expand their relationship with the company. Its retention rate in subscription revenue is 119%, and the average number of products per customer has risen from 1.71 to 2.71 over the past five years.
Furthermore, Veeva has every chance to surpass the growth market. Its revenue grew by 26% in the most recent financial year. The life sciences industry is surpassing global economic growth, which should translate into more opportunities for Veeva. The company can build on that by putting out new products for existing customers. There is also the long-term prospect of expanding into neighboring markets, although that will come with its own set of new challenges and costs.
It’s not a cheap stock with a forward price-to-earnings (P/E) ratio of around 50, but that’s not expensive enough to prevent growth investors from being in it in the long run.
2. Service Today
Service Today ( NOW -3.31% ) offers cloud-based software that automates workflows and other business processes. Its customers can unlock productivity from employees and achieve better efficiency across their entire organization. That’s a clear value proposition, and ServiceNow has a particularly strong presence in the field of IT operations – that’s a great space to occupy as the trend of digital innovation continues to dominate the business world.
The company has nearly 1,400 customers with annual contracts in excess of $ 1 million – that’s a good sign for long -term stability. The company boasts a net retention rate of around 125%, proving its ability to retain its customers and build on those relationships with additional services such as HR, customer service, and other administrative functions. High relocation costs and deep relationships are important elements of an economic moat, and they are a shield against competition.
ServiceNow has publicly disclosed its goal to surpass $ 15 billion in annual revenue by 2026, which requires 20% annual compound growth. It certainly seems possible for the company, which broke its own guidance by growing 29% in the most recent quarter. It also reported nearly 30% growth in “current outstanding performance obligations,” which is a strong indicator of short -term sales growth.
The stock is expensive with a forward P/E ratio of 76 and a price-to-sales ratio close to 20.
Not surprisingly, investors have to pay a premium for increasing that potential, but make sure you’re prepared for the risks and volatility inherent in stocks with valuation premiums.
3. Home Depot
Home Depot (HD -1.62% ) leading the home improvement retail market. The long -term upside proposition here is somewhat different from the growth stocks above.
Home construction has strong long -term catalysts in the U.S. Since the housing market crashed nearly 15 years ago, there have been more than five million more households created than new homes built.
This problem was further complicated by mass relocation and urban flights throughout the pandemic. This is a severe problem for lower -income people and priced families outside their hometowns.
Rising interest rates, input price inflation, and general economic uncertainty are creating some negativity around home builder stocks right now, but these are all temporary issues. That’s not new for this cyclical industry. Ultimately, the massive housing deficit should be a long -term catalyst for both home builders and their suppliers for at least a decade. Overall, Home Depot benefits from construction and relocation of people – that impact should have been even greater after the company regained contractor HD Supply’s supply business in Nov. 2020.
This is an opportunity for value investors to zig where others zag. Home Depot may have a rough few quarters coming up, and the stock is taking a beat. However, the company will not lose business. You’ll enjoy a 2.4% dividend yield, while you wait for long-term cash flows to push Home Depot’s market cap higher.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool counseling service. Let’s be motley! Asking an investing thesis – at least one of us – helps all of us think critically about investing and make decisions that will help us become smarter, happier, and richer.