Last week marked the kickoff of this series on stocks to hold “forever,” and if you missed the intro, you can find it here. But for simplicity’s sake, I’ll touch on the main reasons to hold forever stocks, even if you don’t literally hold them forever.
One is that by holding these stocks through thick and thin, you avoid getting knocked out of good stocks during normal market corrections.
Two is that by holding for a very long time, you give these stocks a chance to grow your profits many times over, ideally turning into the next Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL) and Netflix (NFLX).
Three—for investors with taxable accounts—is that you cheat the taxman, at least for a while.
So how do you find these forever stocks?
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How to Find Forever Stocks
I’m not looking for stocks that can give you a modest long-term return, like Johnson & Johnson (JNJ) and DuPont (DD). Those stocks are fine for conservative investors working to keep their wealth, but my goal is to identify stocks that can make you rich!
I want to identify the next AMZN stock, the next AAPL stock, the next GOOGL and the next NFLX.
The key attributes I look for in forever stocks are these:
A product or service or business model that is revolutionary.
A product or service or business model that serves a mass market.
A company that’s still small enough to grow rapidly.
A company that is not respected—perhaps not even known—by most investors.
Last, but not least, I look for a chart that shows that other investors have begun to recognize the company’s potential; that tells me that my thinking is on the right track.
So, today, as the broad market works to recover from the recent correction, I have a second stock in mind that I think can be bought and held for a very long time. It is not guaranteed to succeed—there are no guarantees in investing—but in the long run, the odds look very good indeed.
The following is one of my favorite forever stocks today:
Best Forever Stocks: Axon Enterprise, Inc. (AAXN)
Axon Enterprise used to be known as Taser, which was one of the market’s (and Cabot’s) biggest winners of the 2003-2004 bull market. The attraction back then was the company’s stun guns (the firm prefers to call them electrical weapons) that enjoyed a spell of growth in police departments. However, growth slowed—revenues actually declined for a while—and the stock fell out of favor for years.
Over the past five years, however, the company has been expanding its offerings. Those stun guns still make up the majority of Axon’s revenues—68% in Q4—but growth in that segment is modest (up 10%).
The reason the stock is strong today has to do with excitement surrounding the firm’s new products, and its overall shift to a steadier, higher-margin recurring revenue business model.
Specifically, Axon has a hit on its hands with its cameras (both body-worn and in-car), which are becoming very popular among police departments. About three dozen U.S. cities are using these cameras, and these cities have seen a huge reduction in the number of complaints from citizens as a result.
And those figures are growing! In recent weeks Axon’s announced a 240 body camera order for the Reno Police, a 400-camera order from Chicago, a 520 in-car camera order for Milwaukee Police, an order for 1,060 cameras from Virginia Beach, an 1,800 in-car camera order for Montgomery County Police, and a whopping 11,000 cameras from Australia’s Victory Police! (There were many other smaller orders, too, that will likely lead to larger sales once the departments see their benefits up close.)
Newer products, and also likely to prove popular, are the firm’s Fleet in-car cameras that are connected to the network and mobile apps that sync with cameras and record evidence on a smartphone.
Most attractive of all however, is Evidence.com, which is Axon’s cloud-based, digital evidence management platform that allows investigators to easily upload, store, check and share evidence files, saving time and money. Axon licenses this system to users, and at year-end the system’s 200,000 users had more than 20 petabytes (equivalent to around six million HD movies on iTunes) on the platform.
Thus, Axon is now offering a complete system for evidence gathering and storing for police departments that brings recurring income to Axon. In the fourth quarter, while the weapons segment grew 10%, the rest of its offerings saw sales rise 27%. All told, the company’s future contracted revenue at year-end totaled $536 million, up 8.5% from the prior quarter and much larger than the firm’s total revenues of last year ($344 million). All in all, management sees total revenues lifting in the mid-teens this year, while earnings should boom more than 50%, with more growth beyond that.
As for the stock, the chart is about as bullish as you can get. AAXN peaked at 36 back in mid-2015, plunged to 14 during the market’s mini-bear market into 2016 and bounced back to 30 later that year. And then it went dead—shares bobbed and weaved between 21 and 30 for more than a year.
But the Q4 report changed all that, with AAXN soaring to 40 after earnings, holding tight during the market’s recent plunge and actually pushing to new highs since, leading the market higher. For aggressive growth investors, it’s an attractive pattern, and for “forever” investors, it may prove the beginning of a long and profitable relationship.
Note: AAXN was originally recommended by Mike Cintolo in Cabot Growth Investor, and if you’d like more great growth stock ideas, you can find them here.
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