10 of the best long-term stocks to buy in a bear market

The best time to buy long-term growth stocks is when it looks like the sky is falling.

  • By Luke Lango,
  • InvestorPlace
  • Facebook.
  • Twitter.
  • LinkedIn.
  • Print

Financial markets across the globe are in panic mode, as the coronavirus from China — formally dubbed Covid-19 — continues to spread. Yet, while investors left and right are selling everything they own, I’m taking this opportunity to find long-term stocks to buy.

Why? Two big reasons.

First, Covid-19 is a temporary headwind. It’s an awful pandemic. We should not take it lightly, and need to do everything in our power to stop the virus.

But, like all other epidemics and pandemics, this too shall pass. My modeling, based on how the virus has spread in various countries, suggests we will hit “peak coronavirus” sometime in April or May. The virus (and consumer hysteria) should fade thereafter.

Even if it doesn’t — and the virus spreads for 6 to 12 months — the big-picture reality is that, at some point in the not-too-distant future, the coronavirus outbreak will stop. When it does, there’s enough stimulus in the economy to power a significant V-shaped recovery, and growth and innovation will power long-term winning stocks back to new highs.

Second, bear markets are the best time to buy long-term winners — and you don’t have to worry about “timing the bottom.”

In September 2008, the S&P 500 (.SPX) fully entered a bear market. The market proceeded to fall another 45% before it bottomed. But, had you bought Apple (AAPL) or Netflix (NFLX) in September 2008, you’d be up more than 1,000% on each investment today.

Meanwhile, stocks entered a bear market in March 2001. That wasn’t the bottom. Stocks fell another 20% over the next few months. But, buying Amazon (AMZN) or Nike (NKE) at any point during that panic would’ve secured you 1,000%-plus gains, too.

Lather, rinse, repeat for the 2020 bear market. In 5 to 10 years, many of the long-term winning stocks plunging today will be up 100% or more. So, if time is on your side, this is perhaps a golden opportunity to buy long-term winners.

Chegg

Year-to-date drop: 22%

Ticker: CHGG

First up on this list of long-term stocks to buy in the bear market is Chegg.

Chegg is the education company of the future. The company has built a connected learning platform that is tailored to meet the needs of modern high school and college students, by offering those students a myriad of academic help services where they want them (online), how they want them (on-demand) and at a familiar pricing structure (subscription model).

Chegg is still in the early stages of its journey. The platform, while rapidly growing, only has 3.9 million subscribers. There are 54 million high school and college level students across the U.S. and Europe who could find a use for Chegg.

As such, over the next several years as academic services become increasingly virtual, Chegg will sustain 15%-plus subscriber growth and 20%-plus revenue growth. Increased scale will drive positive operating leverage, and my modeling suggests that $2.50 in earnings per share is totally doable by fiscal 2025.

Throw an average systems software sector 25-times forward multiple on that. You arrive at a 2024 price target for CHGG stock of over $60, up more than 100% from where shares trade hands today.

Okta

Year-to-date drop: 8.5%

Ticker: OKTA

Next up, we have cloud security company Okta.

Okta is pioneering a breakthrough solution in cloud security. In essence, as opposed to building a castle of security around a company’s services, Okta outfits each individual in the ecosystem with their own body armor.

It’s a genius concept, because if everyone in the ecosystem is protected, then so is the whole ecosystem. At the same time, it’s a relevant solution, since companies require the flexibility and mobility benefits that an identity-based security system offers. It doesn’t matter where workers are, so long as they can prove their identity.

At present, Okta is the undisputed leader in this space, with a ton of momentum to further separate itself from competitors over the next few years. Consequently, I easily see this company as a double-digit revenue grower over the next decade. The software business model also features high gross margins with tremendous scalability, so that double-digit revenue growth should drive far bigger profit growth.

I see Okta as able to hit $10 in earnings per share by 2030. Based on an average application software average 35-times forward multiple, that implies a $350 price target by the end of the decade — more than triple today’s price tag.

Shopify

Year-to-date drop: 12%

Ticker: SHOP

E-commerce solutions provider Shopify is the one of the best growth stocks to own for the long haul for one very simple reason. The company is the backbone of the future of commerce.

In the days before e-commerce, every store needed to have a physical storefront. Now, though, with so many consumers doing their shopping online, physical storefronts don’t matter as much. Instead, retailers need to a have storefront on the internet, or a website.

But, not many companies are good at building these websites, enabling commerce through them, and tying them into alternative online sales channels like social media. Indeed, creating a website can be pretty complex these days. That’s where Shopify steps in. The company helps retailers and merchants of all shapes and sizes build the best website possible.

Shopify is the best in the world at building websites. Connecting the dots, Shopify will inevitably power the majority of retail websites within the next few years.

This reality paves the path for Shopify to sustain 20%-plus revenue growth into fiscal 2025, and 10%-plus revenue growth into 2030. Gross margins up near 60%, coupled with a highly scalable business model, pave the path for that double-digit revenue growth to turn into far bigger profit growth.

I see profits moving towards $25 per share by 2030. Based on an average application software sector 35-times forward multiple, that implies a 2029 price target for SHOP stock of $875. That’s almost triple the current price tag.

Pinterest

Year-to-date drop: 37%

Ticker: PINS

Visual search giant Pinterest is in the early stages of huge revenue and profit growth, the sum of which will drive PINS stock materially higher over the next four to five years.

On the revenue side, Pinterest already has a huge user base that exceeds 300 million monthly active users. And the company is in the early stages of monetizing those users.

Because Pinterest is already a collection of action-minded individuals looking for inspiration, the platform is a natural place for high-conversion, effective advertising. Consequently, over the next several years, the company will successfully ramp up its digital ad business, and the company will drive steady 15%-plus revenue growth.

On the profit side, we already know that the digital ad business model comes with big gross margins and tremendous scalability. Just look at Facebook (FB). There’s no reason Pinterest’s digital ad business be different. Thus, between now and 2025, Pinterest will expand its profit margins by leaps and bounds, and power huge profit growth.

All together, I see Pinterest ramping up towards $1.65 in 2025 earnings per share. Based on an average digital ad sector 25-times forward multiple, that implies a 2024 price target for PINS stock of over $40, or essentially quadruple today’s price tag.

Beyond Meat

Year-to-date drop: 24%

Ticker: BYND

Plant-based meat is the future. As a result, Beyond Meat stock is a long-term winner worth buying amid recent weakness.a

The story is pretty simple. Consumers these days are increasingly making consumption decisions with a focus on environmental, social and governance (ESG) impacts. Think electric cars. Or solar energy. Or even plant-based dairy products.

Plant-based meat falls perfectly into this trend. Relative to animal-based meat production, plant-based meat production reduces carbon emissions (cows contribute significantly to global warming) and respects animal welfare (no animals have to be killed). Those benefits will become increasingly attractive to a wider array of consumers, as more and more consumers adopt ESG-positive mindsets in the 2020s.

As they do, plant-based meat will follow in plant-based dairy’s footsteps. It will march towards 10%-plus penetration in the global meats market by the end of the decade.

The global meats market in 2030 will likely measure around $1.5 trillion. That implies a plant-based meat market size of $150 billion.

Beyond Meat, the most recognizable name in the space, will easily capture at least 5% of that market, leading to $7.5 billion or more in sales. The business operates at industry-high 35% gross margins, and scale will drive operating margins significantly higher on a $7.5 billion revenue base.

By 2030, I think this company can do about $15 in earnings per share. Based on an average consumer staples 20-times forward multiple, that implies a 2029 price target for BYND stock of $300.

Twilio

Year-to-date drop: 23%

Ticker: TWLO

Cloud communications platform Twilio is a long-term winner that has huge upside over the next few years.

The story at Twilio is pretty simple. Every business in the world employs email marketing to reach and sell to consumers. But, consumers don’t check those emails. They’ve developed an immunity to business emails. Besides, they don’t talk to their friends through email, they talk to their friends through texts.

Clearly, if businesses want to connect with consumers, they need to start texting.

Twilio enables businesses to do just that, in a streamlined, programmatic way. That is, Twilio has created automated software tools which enable businesses to deploy text-based business-to-consumer communications.

It’s a genius pivot which enables businesses to keep up with consumers. And Twilio is the best in the market at doing this.

As such, over the next few years, Twilio will sustain big growth. My modeling suggests that 10%-plus customer growth, 20%-plus revenue growth and significant margin expansion are all in the works.

If so, this company could easily be looking at $3.50 in earnings per share by 2025. Based on an application software 35-times forward multiple, that implies a 2024 price target for TWLO of over $120.

Roku

Year-to-date drop: 49%

Ticker: ROKU

Streaming device maker Roku is so much more than just a streaming device maker. The company has effectively turned into the “cable box” of streaming TV, and in so doing, has guaranteed itself huge growth potential over the next few years.

Everyone is pivoting from linear to streaming TV. The streaming TV landscape is starting to look a lot like the linear TV landscape, with a ton of supply and a ton of demand. In the linear TV world, the cable box connected all that supply to all that demand through a streamlined, aggregated platform. In the streaming TV world, Roku is the “cable box,” aggregating all the streaming services and offering consumers a streamlined, centralized ecosystem through which they can access all the content.

This is an exceptionally valuable position to be in.

A ton of money is spent on linear TV ads. But, ad dollars chase eyeballs, and eyeballs are running from linear TV into streaming TV. So, over the next few years, all that money will follow consumers into the streaming TV world.

In other words, as the streaming TV ad industry booms over the next several years, so will Roku.

My modeling suggests that this will ultimately be a 20%-plus revenue grower into 2025, with sizable enough gross margins to drive tremendous scalability and push profits up toward $6 per share. Based on an application software 35-times forward multiple, that implies a 2024 price target for the stock of $210.

Shares trade hands around $68 today.

Square

Year-to-date drop: 35%

Ticker: SQ

Payments processor Square is an innovative company optimally capitalizing on one of the biggest trends in the consumer world.

Across the globe, consumers are increasingly ditching cash and opting for alternative payment methods. Square is capitalizing on this cashless commerce trend in two big ways.

First, the company has built cashless payment processors for merchants and retailers, and built a robust seller ecosystem around those payment processors, offering things like payroll management, small business capital and commerce analytics.

Second, the company has built a cashless, peer-to-peer payments app — Cash App — and created a robust buyer ecosystem around that payments app, offering things like fractional stock trading and a debit card with unique promotions.

Through innovation, the company has aligned itself with the cashless revolution. This revolution is truly just getting started. By 2025, it’s quite likely that cash — which is still fairly prevalent today — will be a rarity.

Consequently, into 2025, I see Square as a 20%-plus revenue grower with the potential to scale profits towards $3.75 per share. Based on a payments stock average 30-times forward multiple, that implies a 2024 price target for SQ stock of over $110 — more than double the current stock price.

The Trade Desk

Year-to-date drop: 40%

Ticker: TTD

Programmatic advertising is the future of advertising, and as a result, The Trade Desk is a long-term winner.

What The Trade Desk does is pretty simple. The company provides programmatic advertising solutions for ad buyers. Breaking that down, The Trade Desk leverages data and algorithms to allocate demand-side ad dollars across a variety of digital ad channels. This helps optimize the reach and effectiveness of those ad dollars.

This is simply a better way to advertise. It’s faster, because it’s all automated. It’s smarter, because it’s data-driven. And it produces better outcomes, because it increases the effectiveness of each ad.

Yet, only a small fraction of the world’s $500 billion-plus ad dollars are spent programmatically, giving The Trade Desk a ton of runway to sustain big growth for a lot longer. I see this company as a 20%-plus revenue grower over the next few years, with strong and stable profit margins. My modeling suggests that $10 in earnings per share in possible by 2025.

Assuming so, then a 35-times application software multiple on that implies a 2024 price target for TTD stock of $350.

Stitch Fix

Year-to-date drop: 43%

Ticker: SFIX

When it comes shopping, less is more. This simple concept is why Stitch Fix is set to be a huge winner in the long run.

Too much choice in shopping produces undesirable outcomes. Less is more.

Yet, the shopping world remains far too complex. There are thousands of apparel brands out there, each offering thousands of products, giving consumers millions of options to chose from. That’s too many.

Insert Stitch Fix. The company offers online, on-demand personal styling services. It matches your personal style data with brand style data to shrink the shopping world from a few million random options, to a few dozen relevant options.

Stitch Fix is still in the early stages of pioneering this curated shopping model across the U.S. and Europe. But, because the platform capitalizes on the secular theme of less is more, Stitch Fix adoption rates will soar into 2025. As they do, this company will sustain double-digit customer growth and 15%-plus revenue growth.

Zooming out, I see Stitch Fix hitting around $2 in earnings per share by 2025. Based on a consumer discretionary 20-times forward multiple, that implies a 2024 price target for SFIX stock of $40.

As of this writing, Luke Lango was long CHGG, PINS, BYND, ROKU, SQ, TTD, SFIX, OKTA, SHOP, NFLX, and TWLO.

  • Facebook.
  • Twitter.
  • LinkedIn.
  • Print

For more news you can use to help guide your financial life, visit our Insights page.


Copyright 2020 © InvestorPlace L.P.
Votes are submitted voluntarily by individuals and reflect their own opinion of the article's helpfulness. A percentage value for helpfulness will display once a sufficient number of votes have been submitted.
close
Please enter a valid e-mail address
Please enter a valid e-mail address
Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

Your e-mail has been sent.
close

Your e-mail has been sent.