The new 2024 bull market has reawakened many investors' interest in stocks. However, the truth is that quality businesses haven't gone anywhere. Stock prices may fluctuate, but good businesses can push forward through turbulent times and deliver results that compound investor returns.
If you're on the hunt for growth stocks to buy and hold for the long haul, you don't have to look far to find compelling businesses. Here are two stocks -- one a household name and the other a newer entrant to the cloud space -- that you might want to consider the next time you go shopping for your investment portfolio.
1. Amazon
Amazon (AMZN 2.19%) has continued to demonstrate its ability to invigorate its business amid economic thick and thin while relying on growth from its core lineup of segments. Its e-commerce platform remains one of the largest in the world and is still the single largest revenue source for Amazon.
Meanwhile, the company's Amazon Web Services (AWS) segment continues to dominate the global cloud infrastructure space. As one of Amazon's most asset-light businesses, it accounts for the lion's share of its profits.
AWS also serves as the most clearcut example of Amazon's continued deployment of generative artificial intelligence and related tools across a wide range of client use cases.
Tools like Amazon Bedrock (a service for building generative AI applications), Amazon Q (a generative AI chatbot), and Amazon Sagemaker (a platform that helps customers build and train machine learning models) are being adopted by large enterprises to drive better efficiency and improve customer experiences.
In the first quarter of 2024, Amazon's total net sales reached $143 billion, a 13% increase from the prior year. Of that total, $89 billion was attributable to e-commerce (online store sales and third-party service sales), $25 billion to AWS, and $11.8 billion to advertising. These are its three largest revenue sources.
Net income for the three-month period soared 225% year over year to $10.4 billion, while operating income jumped 219% to $15.3 billion. Of that operating income total, $9.4 billion was derived from the AWS segment.
Ever the cash machine, Amazon ended the quarter with trailing 12-month free cash flow of $50 billion. If you're looking for a no-brainer stock with an established, wide moat across its core business drivers, Amazon remains a smart buy to add to again and again as the years progress.
2. Toast
Toast (TOST) makes money from selling restaurant software, hardware, and financial technology solutions to small to midsize enterprises in the U.S., the U.K., and Ireland. While still down considerably from its all-time high, the stock is trading up roughly 40% from the start of this year.
Investors have been far more cautious of late when it comes to growth-oriented business that are not yet profitable. However, Toast operates in a fast-growing space while providing products and services that face consistent demand.
Currently, Toast makes most of its money from various financial technology solutions. These include transaction-based fees it accrues when a restaurant processes a payment using its platform solutions, as well as fees from marketing and servicing loans for restaurant customers through Toast Capital.
Those loans are originated by third-party partners, not Toast itself. The company also generates revenue from recurring subscriptions and from hardware sales, such as those of tablets and terminals.
In the first quarter of 2024, Toast delivered gross payment volume of just shy of $35 billion, a 30% increase from one year ago. Total restaurant locations jumped 32% year over year to 112,000, and its annual recurring run-rate at the end of the quarter was $1.3 billion, a 32% year-over-year hike.
Right now, Toast is not profitable according to generally accepted accounting principles (GAAP). However, it did report a gross profit of $249 million in the recent quarter, a 43% year-over-year increase, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $57 million.
In the recent quarter, Toast was not cash flow positive, but it reported $135 million in operating cash flow and $93 million in free cash flow for all of 2023. Management is also targeting the company to reach an operating profit (based on GAAP) by the first half of next year.
Growth is accelerating, and management is pursuing a defined roadmap to profitability. Toast currently controls about 13% of the restaurant software market in the U.S. That's a sizable chunk of a broad, expanding addressable market, but one that allows it plenty of room to run. This stock may pose an intriguing buy for long-term investors who want to gain exposure to this space and have a sizable buy-and-hold horizon.
