The market has temporarily bounced back from one of the quickest-onset bear markets in history, yet many investors are left wondering if the worst is over or if there’s more pain to come. That uncertainty makes it more important than ever to have a long-term outlook, as investors should search out solid companies with strong long-term prospects.
In fact, one of the surest ways to investing success is to identify companies with a track record of success, that are riding an emerging trend that offers solid prospects for future growth, and hold those stocks for years — if not decades.
With that in mind, let’s look at three companies that check each of those boxes and will stand the test of time: Streaming giant Netflix (NASDAQ:NFLX), robotic surgery pioneer Intuitive Surgical(NASDAQ:ISRG), and tech titan Microsoft (NASDAQ:MSFT).
Even before the outbreak, Netflix was the leader in the emerging field of streaming video and was a force to be reckoned with. The shift from traditional broadcast television and cable has only just begun, and the wave of cord-cutting is accelerating. Netflix is perfectly positioned to retain its title as the king of streaming — but it’s hard to ignore the current worldwide pandemic.
Netflix already had 167 million subscribers to close out 2019 and was forecasting the addition of seven million more. Revenue grew 28% in 2019 to more than 20 billion, making it a great company to hold long-term — and that was before coronavirus struck. Recent evidence shows that adoption of streaming video is increasing as stay-at-home orders spread around the globe. In light of these events, Netflix’s growth forecast will likely prove too conservative, but the company can easily scale to accommodate more viewers.
The streaming leader has a distinct advantage over many of its ad-supported colleagues in the space. In uncertain economic times, advertising budgets are among the first to get slashed as companies rein in spending and look for ways to conserve capital. Ad agency Magna Global recently forecast that ad-spending in the U.S. would fall nearly 3% this year, after previously forecasting growth of nearly 7%, calling the current situation “unparalleled.” That will no doubt heavily affect free, ad-supported streaming services.
Since Netflix gets all its revenue from subscriptions, it doesn’t have exposure to the weakening advertising market, unlike many of its rivals.
With the current health crisis evolving and no end in sight, many are turning to streaming video for a much-needed respite, and no platform is better positioned than Netflix. Even more importantly, many customers who sign up to get through the current difficulties will likely continue to be customers after the pandemic is over.
One of the biggest trends in healthcare has been the gradual shift to robotic surgery. Procedures completed with the aid of surgical robots generally result in fewer complications, less blood loss, shorter hospital stays, and quicker recoveries.
Intuitive Surgical is the pioneer and leader in this emerging trend, with an extensive track record of success, and it shows no signs of slowing. Procedures using the company’s da Vinci Surgical System grew 18% in 2019, while the installed base grew to 5,582, up 12%. At the same time, revenue climbed 20% year over year, while net income grew 22%.
It’s also important to note that many of the procedures that utilize the da Vinci will still need to be completed in the coming months, so it’s merely the timing that comes into question.
Intuitive Surgical employs a razor-and-blade model, selling the higher-margin surgical instruments and accessories used by the da Vinci that need to be replaced, as well as recurring maintenance on these complex robotics systems. It’s worth noting that in recent years, this recurring revenue from instruments and accessories has overtaken system sales as the company’s primary breadwinner.
Yet in the face of the coronavirus pandemic, many patients will be forced to temporarily forego non-essential medical procedures, resulting in a short-term headwind for Intuitive Surgical, but that shouldn’t prevent investors with a sufficient long-term view from scooping up shares at a discount.
Intuitive Surgical has more than $3.2 billion in cash and short-term investments on its balance sheet and no debt, giving the company a war chest that will help it ride out the current storm.
Microsoft is a play on several growing trends across the technology space. In addition to its well-established Windows operating system and Office software-as-a-service business suite, the company’s Azure and commercial cloud operations make it one of the undisputed leaders in cloud computing.
Most investors would agree that Windows and Office aren’t going anywhere anytime soon, and the move to subscription-based services should provide a solid foundation of recurring revenue for the foreseeable future. Microsoft will also get an assist of other high-growth businesses like Surface, Xbox, and LinkedIn, making it a solid bet over the long term.
The company’s recent results tell the tale, as revenue grew 14% year over year in the most recent quarter, but net income grew 38%, the result of Microsoft’s high-margin businesses dropping more to the bottom line.
That said, while some of its segments will feel the ill effects of the current environment, the cloud computing business has been a clear beneficiary of the coronavirus-induced remote workforce. Earlier this week, Microsoft said in a blog, “We have seen a 775% increase of our cloud services in regions that have enforced social distancing or shelter in place orders.” Use has been so high, in fact, that the company has been slowing some “non-essential” Office 365 services in order to keep up with demand. The company went on to say that it had seen “a very significant spike” in users of its Teams business collaboration software, which now boasts 44 million daily users.
Microsoft also has a rock-solid balance sheet that will shelter it during tough times, with $134 billion in cash and less than $70 billion in debt.
DATA BY YCHARTS
Keeping a long-term perspective
While some of these businesses have a near-term catalyst related to coronavirus, others may not. It’s important to remember that regardless of how the next several weeks or months pan out, over the next couple of decades, these industry leaders will still be going strong.
It doesn’t hurt to mention, however, that each of these top-notch stocks has held up better than the overall market during the recent downturn.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.
Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Danny Vena owns shares of Intuitive Surgical and Netflix. The Motley Fool owns shares of and recommends Intuitive Surgical, Microsoft, and Netflix and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. The Motley Fool has a disclosure policy.
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The Motley Fool has been one of the industry's experts for years and is one of our contributors here at MyWallSt.