The 7 Best Long Term Stocks to Buy in 2021
A long-term mindset is one of your most powerful advantages.
Buying and holding the shares of the best companies is a proven way to build lasting wealth in the stock market. This battle-tested investment strategy comes with a host of benefits — all of which can help make you rich and secure your financial freedom.
Why is long-term investing so powerful? Well, it comes down to one word: compounding.
You can think of compound returns as a snowball rolling downhill. By earning returns on top of the returns you already earned, your wealth can grow faster than perhaps what you currently even think is possible.
(I have an example of the power of compounding at the bottom of this article and trust me, it’s mind-blowing stuff!)
A long-term buy-and-hold approach can also help you avoid taxes. You don’t need to pay taxes on your share price gains until you sell. So, the longer you hold off on selling, the longer you can defer your tax payments. This has the added benefit of allowing your gains to compound for longer periods of time, which can help you create significantly more wealth.
The key, of course, is knowing which stocks to buy. Below, we’ve assembled a list of our five best long-term stocks to buy.
Each one is a high-quality business that we’re confident is positioned to grow for years ahead. You’ll find everything from small companies that could disrupt massive industries (Redfin) to established brands that are positioning themselves to dominate the 21st century (Disney).
The 7 Best Long Term Stocks to Buy Right Now
Before we get started diving into the background on each one of these stocks, it’s important to layout the qualities we searched for when narrowing down our list to the 7 best long-term stocks to buy.
- Amazon (AMZN)
- Shopify (SHOP)
- Peloton (PTON)
- Redfin (RDFN)
- Disney (DIS)
- Zoom (ZM)
- Intuitive Surgical (ISRG)
- Competitive advantages: Warren Buffett often describes competitive advantages as a “moat.” Simply put, how entrenched is a company to preserve long-term earnings growth and maintain (or gain!) market share across the long run. An example of a high moat product is Google. It costs billions to build a new search engine, and even then, consumers who have used Google for years have little reason to switch to a competitor.
- A history of share price appreciation: More often than not in the stock market, winners keep on winning. That is to say, while many investors look for opportunities in companies whose stock prices have been beaten down, we’re looking for the opposite. Companies with strong growth in their fundamentals (free cash flow, earnings, etc.) can sustain remarkably extended runs of performance.
- Strong growth rates: Not all winning investments need to be growth stocks. However, if you’re looking for stocks that can follow in the footsteps of multi-decade winners such as Amazon or Apple (Nasdaq: AAPL), you’ll want to see high growth rates that can compound across time.
You’ll find each of these qualities in the stocks listed below. While these qualities don’t ensure they’ll be the best stocks in years to come (remember: no stock is a “sure thing” and each investment carries risk!), we’re confident each of these companies is an excellent choice for long-term investors.
Amazon (Nasdaq: AMZN)
It’s hard to imagine a company with a better position to profit from powerful long-term trends than Amazon.
After all, the e-commerce titan dominates online retail in the U.S. and many other areas of the world. Its Amazon Web Services (AWS) division is the global cloud computing leader. Add in a fast-growing digital advertising business, rapidly expanding logistics and shipping operations, a slew of popular hardware devices, and intriguing growth opportunities in grocery stores and healthcare, and it’s clear that Amazon gives its shareholders many ways to profit.
The coronavirus pandemic has accelerated the trends towards e-commerce and cloud computing, boosting Amazon’s growth in the process. More people are shopping and working online than ever before. That means more profits for Amazon — and more gains for its investors.
Shopify (NYSE: SHOP)
Shopify’s stock is another great way to profit from the migration of retail sales to online channels. It’s essentially an operating system that powers the e-commerce operations of more than 1 million businesses around the world. And there’s never been greater demand for its online retail solutions.
For just $9 per month, you can use Shopify’s tools to turn any website into a business. In just a few clicks, you can add Buy Buttons and credit card processing functionality that allows people to quickly and easily purchase your products. For $29 per month, you can gain access to additional services, such as shipping and fulfillment, as well as marketing support. Shopify’s offerings scale along from there all the way up to its enterprise-grade Shopify Plus plan, which is used by large corporations like Staples and Kraft Heinz (Nasdaq: KHC).
In this way, Shopify’s revenue grows along with that of its merchant customers. It’s a formula in which everyone wins, including shareholders. Shopify’s stock is up an incredible 4,600% since its initial public offering (IPO) in May 2015. And with so much e-commerce growth still to come, more gains could lie ahead for investors who buy Shopify’s shares today.
Peloton (Nasdaq: PTON)
The COVID-19 crisis has reminded us that health is paramount. In turn, more people are searching for ways to exercise in a safe manner during the pandemic. That’s driving them increasingly towards Peloton, the leader in home-based fitness equipment.
Peloton is building an aspirational brand. Its premium-priced stationary bikes and treadmills are modern and sleek. They’re also highly effective at getting people fit. But what truly sets Peloton apart from the competition is its digitally delivered exercise classes.
Peloton’s classes draw you in. They push you to ramp up your intensity. They help you get the results you want and in doing so, they keep you coming back for more.
In all, more than 1.3 million people have purchased a Peloton bike or tread and subscribed to its classes. Yet that’s just a small fraction of the 100 million subscribers CEO John Foley believes Peloton will eventually have, a figure he bases on the roughly 200 million people with gym memberships worldwide. If Foley is even close to being right, Peloton’s investors could enjoy exponential gains in the years ahead.
Redfin (Nasdaq: RDFN)
Demand for new homes is booming. People are fleeing cities and other crowded locales during the pandemic and heading to the suburbs. Many of these people are turning to Redfin to sell their houses and purchase a new home.
Redfin is rapidly taking share in the $80 billion U.S. real estate brokerage market. It uses an innovative compensation model and tech-powered approach that allows it to save its customers a boatload of money on commissions. By paying its agents a salary, rather than commissions, Redfin can sell homes for as little as 1%, compared to the 2.5%-3% industry average. That equates to home seller savings of as much as $10,000 on a $500,000 home.
Redfin is also building a leading presence in the rapidly expanding iBuying market. Its RedfinNow division buys homes directly from sellers, makes any needed repairs, and then sells them. It’s an appealing service for home sellers who value a quick, no-hassle sale process, and it represents another powerful growth driver for this real estate disruptor.
Yet at the moment, Redfin is still a relatively small company. Despite years of strong growth, its share of the massive U.S. housing market currently stands at only about 1%. Though with all the benefits it provides to its customers, Redfin can easily grow to be a much larger and more valuable company in the decade ahead — and create fortunes for its investors along the way.
Disney (NYSE: DIS)
Disney is one of the rare stocks that you buy and hold for a lifetime. With its timeless collection of beloved characters and storylines, the entertainment titan has rewarded its shareholders for decades. And it’s poised to continue to do so for decades to come.
Throughout its long and storied history, Disney has shown an impressive ability to adapt to changing consumer trends. Most recently, this can be seen in the blockbuster success of Disney+. More than 86 million people subscribed to Disney’s new streaming service in its first year. Management sees that figure growing to a staggering 260 million by the end of 2024.
Disney’s stock is also a great way to profit from a post-pandemic recovery. Many of its parks and resorts were forced to close during the early stages of the COVID-19 crisis. But promising new vaccines could soon help to bring about the end of the pandemic. After being cooped up at home for so long, millions of people are likely to visit Disney’s popular theme parks once again. That could help to drive the entertainment giant’s profits higher — and grow its shareholders’ wealth — in the coming years.
Zoom (Nasdaq: ZM)
I know what you’re thinking right now, “with millions getting vaccinated each day, why would I want to buy Zoom now?” And, it’s a good question!
With vaccinations reaching millions of Americans each day, it’s likely workers will be returning to the office en masse in the second half of 2021. However, the growth of video was a trend before Covid-19, and the pandemic essentially pulled forward years of growth.
Will some companies cancel or scale back their Zoom contracts after the pandemic? Surely.
Yet, with many companies now choosing to give employees more flexibility and Zoom becoming a necessity for workplaces across different offices, it’s also now firmly entrenched across most Fortune 500 companies. Zoom recently reported earnings and projected 2022 sales could reach $3.78 billion, a figure that would still constitute 43% growth from 2021.
While Zoom could continue selling off as investors move from digital stocks that boomed during Covid and into “reopening stocks,” if you’re a long-term investor content to sit on Zoom for years to come the company maintains significant upside.
Intuitive Surgical (Nasdaq: ISRG)
Intuitive Surgical was a pioneer in robotic surgeries, which is quickly become a massive industry. Thanks to its dominant market position, Intuitive grew sales more than four-fold last decade. Its profit growth did even better, expanding six-fold. Sales took a small hit in 2020 as many surgeries were delayed during Covid, but are already rebounding. In the fourth quarter of 2020, the company saw sales growth of 4% from the prior year.
The bottom line with Intuitive is that their da Vinci robotic devices are not only riding a megatrend on robotic surgeries but the company also possesses a world-class business model that produced better than 30% profit margins in 2019. If you’re looking for a stable company that could grow for decades to come, Intuitive should be near the top of your list.
Long Term Investing Tips
Of course, with thousands of companies trading across the stock market, these five long-term stocks to buy are just a fraction of the opportunities in front of you. If you’re getting started investing or looking to build out your portfolio, here are some important tips to think about.
First invented in 1975, index funds have revolutionized the investing arena. What’s so powerful about index funds? For one, they can be traded easily, just like stocks. Also, their expense fees can be extremely low.
You can buy index funds that can track indexes such as the S&P 500 or the Dow Jones Industrial Average, purchase index funds tracking short-term movements just like the Volatility Index (VIX), or even thematic ETFs such as ones that invest in innovative companies like Tesla (Nasdaq: TSLA) or Netflix (Nasdaq: NFLX).
The bottom line: while we’ve discussed some outstanding individual stocks for long-term investors, buying index funds that offer diversified exposure has never been easier or cheaper. If the idea of managing a portfolio of stocks is intimidating, then I encourage you to read our complete guide on index funds.
Risk is present in every stock you purchase. While Amazon may have a market capitalization of $1.6 trillion and a dominant market position, its valuation is considered stretched by many on Wall Street. A bear market could swiftly decrease the share price of even the most entrenched technology stocks.
So, you need to ask yourself what level of risk you’re comfortable with. Outside technology, stocks like Warren Buffett’s Berkshire Hathaway could provide excellent returns and a stable balance sheet that’s composed of businesses that are diversified across industries.
If you’re looking to maintain exposure to high-growth areas like cloud computing but also want to minimize your risk, a stock like Microsoft (Nasdaq: MSFT) could be of interest. The company sports a market cap that’s similar to Amazon’s (about $1.7 trillion). However, it also offers a dividend yield of about 1%. Investors have received dividend payments of $2.09 a share across its past fiscal year.
Microsoft isn’t without risk, but its P/E multiple of 35 is significantly lower than Amazon’s multiple of 95, for example.
Where to invest $500 right now
Before you buy Amazon, or Netflix, or Apple, consider this…
The team at Motley Fool first recommended each of those stocks more than a dozen years ago!
- They discovered Netflix for $1.85 per share, back in the days of DVDs by mail.
- And recommended Amazon at $15.31 in 2002, before most people were comfortable using credit cards online.
- And even hit Apple at $4.97 per share, about a month before the release of the very first iPhone.
Check out where those stocks are today. The bottom line: a $500 investment in all three of these stocks would be worth more than $200,000 today!
And here’s why that’s important: The Motley Fool’s flagship investing service Stock Advisor just announced their top 10 “best buys now” across the entire stock market. Whether you’re starting with $100, $500, or more, you’ll want to get the full details!
Recently, many of the market’s top-performing stocks come from areas such as SPACs, which are special acquisition companies that allow startups to begin trading without going through a traditional IPO process. While many of these opportunities are exciting, just remember that they do carry significant risks!
Earlier I discussed the power of compounding and keeping a long-term focus on your investments. So, before wrapping up this article, let’s take just a moment to look at what happens when you keep your money invested for long periods of time.
The stock market, as measured by the S&P 500 — an index of the 500 largest companies in the United States — has historically returned about 10% per year on average.
Here’s what that would look like to someone who invested $10,000 in stocks:
- After 10 years, you’d have $25,937.
- After 20 years, you’d have $67,275.
- After 30 years, you’d have $174,494.
And the numbers would continue to grow from there. The bottom line? The earlier you’re able to get your money compounded, the more you’ll have in retirement or when you need it the most.
Better still, when you invest in elite businesses with strong competitive positions and outstanding growth prospects, such as the ones listed here, you can generate even higher returns — and create a fortune for yourself along the way.
Looking for more stock ideas beyond our best long-term stocks to buy? Try our top 15 stocks for beginners that feature three times the number of stocks you just discovered above!