There’s no surefire way to know which stocks will generate excellent long-term returns for their shareholders. Any such forecast is even cloudier when you’re looking at smaller time frames like a year or two.
Yet, an investor can still maximize their chances of picking long-term winners. Putting several high-performing growth stocks in your portfolio will help, especially if the companies are showing impressive operating momentum in expanding markets. Two great examples today are Amazon (AMZN 1.20%) and Shopify (SHOP 3.21%). Let’s look at a few compelling reasons to buy these tech stocks today.
Amazon has options
Amazon will issue its first official 2024 outlook as part of its fourth-quarter earnings release in early February. But investors don’t have to wait until then to buy this stellar growth stock.
Amazon is capitalizing on several huge growth avenues right now that all combined to add $16 billion to its Q3 sales footprint. Those gains came through higher demand in the e-commerce business, which has now emerged from its post-pandemic growth hangover.
The even better news came from Amazon’s cloud services division. That unit, anchored by the Amazon Web Services (AWS) platform, is growing faster than the digital storefront. It’s much more profitable and delivers extra stability thanks to its high proportion of software-as-a-service (SaaS) sales .
Amazon executives are allowing that growth to flow into higher profitability, too. Operating income soared to $11 billion last quarter from $2.5 billion a year earlier. Cash flow is up over 80% in the past year, too, indicating more earnings growth ahead.
Investors have to balance those gains against a stock price that’s become more expensive in recent months. Still, Amazon has a good shot at extending its positive momentum as its business tilts more toward services sales in 2024 and beyond.
Shopify is adding value
There are a lot of things going right for Shopify’s business right now, but the biggest reason for investors to feel optimistic about this stock is its success at delivering more value to merchants. That rising value shows up most clearly in sales volumes, which were up a blazing 22% in the most recent quarter. “We’re extremely pleased with our financial performance this quarter,” said CFO Jeff Hoffmeister, in an early November press release .
Growth trends appear to have only improved since then thanks to a successful holiday shopping season on the platform. Shopify’s Black Friday sales volumes were up 24%, year over year, the company reported in late November.
Shopify’s profit margins are still looking weak, and growth investors will want to watch that metric over the next few quarters for signs that the company can generate sustainably strong earnings. The good news is, all signs are pointing in that direction. Free cash flow has been positive in each of the last four quarters and has climbed to 16% of total revenue.
The stock rallied sharply in 2023 thanks to this good news around sales and earnings trends. Some further positive gains here could power positive returns for shareholders. Consider that eBay converts over 30% of its sales into cash flow. If Shopify can keep making progress in this direction, which seems likely, then investors have every reason to expect continued good returns from holding this growth stock in 2024 and beyond.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Demitri Kalogeropoulos has positions in Amazon and Shopify. The Motley Fool has positions in and recommends Amazon and Shopify. The Motley Fool recommends eBay and recommends the following options: short January 2024 $45 calls on eBay. The Motley Fool has a disclosure policy.
