Long-term returns are determined by a few key traits, and investors need to focus on them. Stocks with unique potential often have exceptional growth catalysts and wide economic moats. These three stocks have clear pathways for rapid growth coupled with sustainable competitive advantages, creating a huge long-term advantage.
1. Veeva Systems
Veeva Systems (NYSE: VEEV) is the leader in cloud software for the life sciences industry. Its list of more than 1,200 clients includes pharmaceutical companies, biotechnology, research organizations and device manufacturers. They range from early-stage drug candidates to the largest companies in the world, almost all of the 20 largest. pharmaceutical companies are Veeva customers.
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Veeva’s suite of products is vital to various stages of the business lifecycle in its target industries. Customers rely on the software during development and clinical trials for data collection, management, reporting, analysis and compliance. Veeva is also a leading provider of sales and marketing functions with customer relationship management software and data analysis tools.
The company has a broad economic moat, which is key to its long-term investment narrative. Its dominance of the life sciences niche helps protect it from competition from more mainstream players like salesforce.com or any smaller disruptor with the same industry focus. Veeva has clear evidence that its customers find value in its services and extend their relationship with the company. Their subscription revenue retention rate is 119% and the average number of products per customer has increased from 1.71 to 2.71 in the last five years.
On top of that, Veeva has every chance to outperform the market growth. Its revenue expanded 26% in the most recent fiscal year. The life sciences industry is outpacing global economic growth, which should translate into more opportunities for Veeva. The company can take advantage of that by adding new products for existing customers. There is also the long-term prospect of expanding into adjacent markets, although that would bring its own set of new challenges and expenses.
It’s not a cheap stock with a forward P/E of around 50, but that’s not expensive enough to stop growth investors who are in it for the long haul.
2. Service now
service now (NYSE: NOW) offers cloud-based software that automates workflows and other business processes. Your customers can unlock employee productivity and drive greater efficiency across their organizations. That’s an obvious value proposition, and ServiceNow has an especially strong presence in the IT operations space; that’s a huge space to fill as the digital transformation trend continues to dominate the business world.
The company has nearly 1,400 clients with annual contracts exceeding $1 million, which is a great sign of long-term stability. The company has a net retention rate of around 125%, demonstrating its ability to retain customers and build those relationships with additional services such as human resources, customer service, and other administrative functions. High switching costs and deep relationships are important elements of an economic moat and are a shield against competition.
ServiceNow has publicly disclosed its goal of exceed $15 billion in annual revenue by 2026, which requires 20% compound annual growth. It certainly seems possible for the company, which beat its own guidance by growing 29% in the most recent quarter. It also reported nearly 30% growth in “Current Remaining Performance Obligations,” which is a strong indicator of near-term sales growth.
The stock is expensive with a price-to-earnings ratio of 76 and a price-to-sales ratio of close to 20.
It’s no surprise investors have to pay a premium for that upside potential, but make sure you’re prepared for the risks and volatility inherent in higher-valued stocks.
3. House deposit
house deposit (New York Stock Exchange: HD) leads the home improvement retail market. The long-term bullish proposition here is a bit different from previous growth stocks.
Homebuilding has strong long-term drivers in the US Since the housing market collapse nearly 15 years ago, more than five million homes have been created than new homes built.
This problem has been further complicated by mass relocations and urban flight during the pandemic. It’s an especially serious problem for low-income individuals and families who are being priced out of their hometowns.
Rising interest rates, input price inflation, and general economic uncertainty are creating some negativity around homebuilder stocks right now, but these are all temporary issues. That is nothing new for this cyclical industry. Ultimately, the massive housing deficit should be a long-term catalyst for both homebuilders and their providers for at least a decade. Home Depot generally profits from construction and moving people; that impact should be even greater after the company reacquired the HD Supply contractor supply business in November 2020.
This is an opportunity for value investors to zigzag where others zag. Home Depot could have some rough quarters and the stock is taking a beating. However, the company will not close. You can enjoy a 2.4% dividend yieldwhile waiting for long-term cash flows to increase Home Depot’s market capitalization.
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