Long-term investors prefer to ignore the short-term noise and focus on the value that a certain company will yield in the next years and decades. A type of investing that is closely associated with position trading due to the long-term focus, long-term investors are looking for stocks that have significant cash flow, operate in continuous profit, have solid balance sheets and have long-term leadership.
In this post, we’re looking for industry trends and companies that are best-positioned to capitalize on these trends.
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Tech continues to dominate other sectors
This August, Apple Inc. became the first publicly listed US company to reach the market cap of $2 trillion. The tech giant needed around 40 years to reach a $1 trillion valuation and just two more to double that figure.
It is absolutely clear that tech companies are leading the way. This revolution has created space for lots of smaller companies to show outstanding performance and gain a larger share of the market.
This gap between value and growth-focused companies continues to widen. If you look at the graph below, you can notice the difference in returns investments in the Russell 1000 Growth and Russell 1000 Value indexes would have produced in the last decade, a substantial difference of 275.3%.
10 years ago, stocks in finance and energy sectors together constituted 26.7% of the index, and right now they account for only 12.2%, marking a notable sector shift.
Obviously, the best performer by far in the last ten years has been the tech sector. Its growing weight in the index indicates that US market gains are depending on tech stocks now more than ever.
The surge in their share prices reflects their strong balance sheet as well as high demand for their products and services. However, the market is currently too dependent on tech stocks and if it loses confidence in them, it could result in a collapse.
It is clear that the composition of the index will keep evolving. Global economies and consumer preferences will always keep changing and together with them, the value of companies and their role in the index will change as well.
The Big Five
Right now, the five companies with the biggest market valuation and top 5 in the S&P 500 index are Apple, Microsoft, Amazon, Facebook and Alphabet. These 5 tech giants constitute an outstanding 22% of the S&P 500 and together have a market valuation of about $6.7trn.
All of these companies have delivered revolutionary products and services and have forever changed their respective industries. Furthermore, none of them has stopped after reaching certain landmarks, but instead are continuously adapting and taking their tech to the next level.
This trend is expected to continue as the tech revolution seems to be still in the early phases. Here, we present three stocks that are likely to gain in value and yield dividends over the long-term horizon.
3 long-term stocks to buy in November
Microsoft (NASDAQ: MSFT) had been showing impressive resilience over the last three decades. The tech giant is one of the few companies that was a part of the dot.com bubble that has managed to stay important 2 decades later.
A successful shift from desktop computing to cloud computing has allowed MSFT to attract investors’ attention. Stable management, strong revenue and profit, as well as impressive portfolios – Microsoft owns LinkedIn, Skype and GitHub among other brands – are some of the many reasons why you should buy Microsoft shares.
Nvidia (NASDAQ: NVDA) is one of the most popular stocks to own right now. The company has a dominant position in fields of the chip industry, arguably the most important sector of the tech industry at the moment.
The chip sector offers investors a way to get exposure to future technologies, such as artificial intelligence and autonomous vehicles.
“They clearly have an advantage that is so big now that it’s difficult to see how anyone can catch up with them. If I were Intel INTC, I’d be really worried,” says Pascal Costantini, the author of the ValuAnalysis report.
Tesla (NASDAQ: TSLA) is arguably the hottest stock on the planet right now. Although it trades at multiples that are significantly higher than the Wall Street average, which implies that the stock is very expensive right now, investors are betting that Tesla’s growth potential will justify the stock price.
“There’s nothing extraordinary in the assumptions that are hidden in the price of Tesla shares,” Costantini said.
The global electric vehicle market was reportedly worth over $162 billion last year, with projections that it will reach over $800 billion by 2027. From this perspective, investing in Tesla shares looks a no-brainer.
Technology stocks have become stronger than ever. Top 5 tech behemoths – Apple, Microsoft, Amazon, Facebook and Alphabet account for a remarkable 22% of the S&P 500 index. This trend is expected to continue with companies having strong and stable leadership in pole position to yield benefits of the life-changing tech revolution.