I’m always in search of the next forever stock.
By “forever stock,” I don’t necessarily mean a stock you’ll absolutely own forever. Rather, forever stocks are stocks you could see yourself holding forever. And the goal isn’t to identify stocks that will give you a decent, reliable return for the long term, like Johnson & Johnson (JNJ) or Pfizer (PFE). I’m talking about stocks that will make you rich!
I want to identify the next Amazon.com (AMZN), the next Apple (AAPL), the next Google (GOOG) and the next Tesla (TSLA)—all stocks that were recommended in our flagship growth advisory, Cabot Growth Investor.
[text_ad]
The key attributes I look for in forever stocks are these:
- A product or service or business model that is revolutionary
- A mass market
- A company that’s still small enough to grow rapidly
- A company that is not respected—perhaps not even known—by the majority
- And last but not least, a stock that’s trending up, indicating that investors’ perceptions of the company are improving—this is important because perceptions are always at least as important as reality
Also, I keep in mind the words of Thomas Phelps, who wrote, “Perhaps the greatest advantage of all in buying top quality stocks without visible ceilings on their growth is that when we do so we give ourselves the chance to profit by the unforeseeable and the incalculable.”
In these days where information flows so rapidly that we risk drowning in it, I like Mr. Phelps’ reminder that the unknown can be even more important. It reminds me to think long and hard about where a company might be years down the road, when it’s far out of sight of the vision of today’s analysts.
Which public company meets all the criteria of being a forever stock? I like Square (SQ).
Forever Stock to Buy Now: Square (SQ)
Square is a stock that I recommended for my Cabot Stock of the Week readers way back on Feb 8, 2017, when it was trading around 14—and just before the release of an excellent earnings report. But I didn’t hold it forever; I sold in late November of that year, at 43, as the stock suffered a sharp selloff, and readers who followed my lead took home a profit of 195%—not bad for 11 months.
But if they had held on, their profits would be even greater today!
So let’s talk about Square.
The digital payments industry is chock-full of competition, but most of that competition seems focused on big business and money transfers among individuals; that’s where firms like MasterCard, Visa and PayPal generally battle. Square, on the other hand, is mostly focused on the needs of small- and mid-sized businesses, a gigantic market that’s driving the firm’s growth.
Square, of course, was first known for its little square white dongle (great word) that attached to a smartphone or tablet, which, along with the firm’s software, effectively turned the device into an electronic cash register, allowing any sort of merchant to easily collect money from any form of credit or debit card. Today Square offers a wide range of software and hardware products, all designed to empower merchants of any size to serve their customers more effectively.
A key to the company’s growth (as with Visa and Mastercard) is the volume of payments that it processes from merchants—and from which Square takes a cut. The strategy is working well: revenues have been consistently growing and in the latest quarter hit $3.84 billion, up 27% from the year before.
As for the stock, it came public in 2015 at 13 and three years later topped 100, a bit out of trend to the upside. As you can see from the below chart, the crash of March 2020 hit the stock hard as investors worried that Square’s small merchant customers would fail, but it’s rebounded quite healthily and is still, by my measurements, an underappreciated company with great growth potential.
Put it all together, and Square stock is a strong “forever” investment. If you want to know what other forever stocks I’d recommend today, click here to read my free report on the “10 Forever Stocks to Buy Now.”
Do you invest in Square? Why or why not?
[author_ad]
*This post has been updated from a previously published version.
