Why Invest in Forever Stocks?
Before unveiling my next top forever stock, let me first explain the concept of “forever stocks.” Of all the ways to make money as an investor, perhaps the most rewarding is buying a stock when it is young and then holding that stock for a very long time, while it grows, and grows, and grows, bringing you profits topping 100%, 500%, even 1,000%.
Most experienced investors can easily name stocks that they wish they still owned—stocks that have doubled many times over the years. These include not only today’s big winners like Alphabet (GOOG), Amazon (AMZN), Apple (AAPL) and Netflix (NFLX) but also stocks that were previously hot and are bigger and growing more slowly now, like Carnival (CCL), Cisco (CSCO), Disney (DIS), Home Depot (HD) and Microsoft (MSFT).
But most investors who once owned these stocks don’t own them anymore!
So why are so few investors able to hold winning stocks long-term?
Because they get nervous about short-term concerns. Because they lack conviction. And often, because they become seduced by other stocks, and sell their old winners for modest profits instead of hanging on for the bigger, longer-term payoff.
And then, years later, they often wake up and say, “I wish I’d held onto that stock.”
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So, this series of 10 weekly posts featuring stocks that you can buy with the intention of holding forever is designed to help you do just that.
But note this—the goal of this report is not to identify stocks that can give you a modest long-term return, like Johnson & Johnson (JNJ) and Visa (V). 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 Amazon.com (AMZN), the next Apple (AAPL), the next Alphabet (GOOG), the next Netflix (NFLX), the next Nvidia (NVDA) and the next Tesla (TSLA).
How to Find Forever Stocks
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.
For the record, stock #1 in this series was Autohome (ATHM), the Chinese company working to be the center of all consumer-oriented automobile information in China.
Stock #2 was Axon Enterprise (AAXN), formerly known as Taser. The company still sells those stun guns, but has a great new business model based on selling body cameras and in-car cameras to police departments, collecting the resulting video and storing it in the cloud, and thus generating great recurring income.
Stock #3 was Zillow (Z), the king of real estate information in the U.S., and still growing at a good pace, with revenues up 27% last year.
(Note: These are not in alphabetical order. Instead, I’ve been trying each week to highlight the stock that’s at the best short-term buy point—though as I near the end of the list the setups are growing less than ideal.)
Stock #4 was Square (SQ), the company that began by enabling small merchants to process digital transactions on a phone or tablet, and has evolved to provide a wide range of software and hardware products, all designed to empower merchants of any size to serve their customers more effectively.
Stock #5 was SiteOne (SITE), the company that was spun off from Deere & Company in May 2016, and is now the largest (and only national) supplier of landscape products in the U.S., and has huge potential to keep growing by acquisition.
Stock #6 was GrubHub (GRUB), the leading online and mobile food ordering service in the U.S.
Stock #7 was Carvana (CVNA), the online-only used car dealer that allows customers to shop, finance, and trade in cars through their website.
And Top Forever Stock #8 is:
Top Forever Stock #8: iQIYI (IQ)
iQIYI is a Chinese company that some have called “the Netflix of China,” though of course the parallel isn’t exact.
It was first recommended in Cabot Global Stocks Explorer.
The company has an online video platform that it uses to stream its own premium content as well as content from a wide web of partners. iQIYI (the name translates literally into something like “Love fantastic art”) owns the top spot for most active users and most time spent by those users on its platform; at the end of 2017, the company was averaging more than 126 million mobile daily active users (DAU). Additionally, last year the company’s original content contributed five of the top 10 original internet variety shows and six of the top 10 original internet drama series. Offerings also include live broadcasting, animations, e-commerce, games and a social platform.
This success has created a network effect for iQIYI (pronounced “ee-chee-yee”) that increases its attractiveness to both advertisers and prospective viewers. The company offers advertisers a wealth of data about users to assist in ad targeting. Primary revenue sources are online advertising (47% of 2017 revenue), membership services like premium content subscriptions (38%) and content distribution (7%).
And IQ is proving just as innovative as Netflix when it comes to rolling out new services; late last month the company announced that it was expanding into the physical movie theater industry!
The company has been a subsidiary of Chinese giant Baidu (BIDU)—which footed the bill for its development and rollout—and Baidu’s massive user base is a big reason behind iQIYI’s rapid growth. Baidu remains the majority shareholder today.
The company’s revenue history is strong, but begins only in Q1 2016. Revenue grew 104% in 2016 and 56% in 2017 and 63% in the first quarter of 2018. Earnings haven’t turned positive yet, although the trend is definitely encouraging.
As for the stock, IQ is young!
IQ came public March 29 at 18, and in its first month it built a double bottom at 16, held down in part by pressure on Chinese stocks. But in early May buyers stepped up to take charge, and the stock has hit numerous new highs since as investors just discovering this hot young stock jump on board.
Looking forward, there’s little question that volatility in this young stock may be high for a while, and that volatility will almost certainly work in both directions. The wise investor will buy after corrections have reduced risk substantially.
But long term, I am very optimistic about the prospects for this company in the decades ahead, and thus I am very happy to make it Top Forever Stock #8.
Timothy Lutts heads one of America’s most respected independent investment advisory services. Each week, Tim personally picks the single best stock in his exclusive Cabot Stock of the Week advisory. Build your wealth and reduce your risk with the top stock each week for current market conditionsLearn More