BBuilding a portfolio can be a daunting task, especially if you are a new investor. The US stock market alone includes thousands of publicly traded companies, and it would take many lifetimes to absorb all the available information about all of these companies. Fortunately, you don’t have to. But you will have to do some research if you want to buy individual stocks.
Generally speaking, I look for companies that share these three characteristics: strong sales growth, sustainable competitive advantage, and great market opportunity. These types of companies tend to build shareholder wealth over long periods of time.
With that in mind, here are the top four investments I would make if I had to build a portfolio from scratch.
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Airbnb: 16.7% allocation
Airbnb (NASDAQ: ABNB) has become synonymous with travel. Its platform lists properties for over four million hosts, helping people make accommodation arrangements in thousands of cities around the world. This lean business model makes Airbnb more agile than traditional hotels because it can add new properties in minutes, without spending a lot of money. Meanwhile, building a new hotel costs millions of dollars and takes years.
Airbnb’s business model also means customers have access to a wider range of accommodation options, both in terms of location and property type. For example, you can book a stay in a coastal cottage, a suburban house or an urban apartment. Or you can opt for something more exotic, like a treehouse in the Hawaiian jungle or a castle in the Spanish countryside. No hotel has this kind of range.
Collectively, this competitive advantage has made Airbnb a financial powerhouse. Last year, revenue soared 77% to $6 billion and the company generated $2.2 billion in free cash flow, compared to a loss of $667 million the previous year.
Looking ahead, management pegs its total addressable market (TAM) at $3.4 trillion, but Airbnb’s gross booking value was only $47 billion in 2021, meaning it caught only 1.4% of its TAM. To capitalize on this opportunity, Airbnb is working to engage guests through flexible personalization and search options, and is working to grow its host community through a streamlined onboarding process and insurance. end-to-end housing. Simply put, Airbnb is succeeding in disrupting a multi-trillion dollar industry.
CrowdStrike: 16.7% award
CrowdStrike Holdings (NASDAQ:CRWD) has become the benchmark for endpoint security. Its cloud platform helps customers protect their IT ecosystems by outsourcing trillions of security signals every week from millions of protected devices. It then relies on artificial intelligence and behavioral analysis to detect and prevent threats. To that end, CrowdStrike benefits from a powerful network effect as each data point makes its AI engine a little smarter, which keeps CrowdStrike at the forefront of threat intelligence.
In 2021, Gartner and Forrester Research recognized CrowdStrike as a leader in endpoint security, and the company captured an industry-leading 14.4% market share, up four percentage points from 2020. Not surprisingly, CrowdStrike has achieved another impressive financial performance. Revenue soared 66% to $1.5 billion last year, fueled by a 65% growth in its customer base, and free cash flow jumped 51% to $441 million.
Going forward, digital transformation should be a tailwind for CrowdStrike. The rise of cloud computing and the proliferation of connected devices will reinforce the need for cyber security. To that end, management estimates that its TAM will reach $116 billion by 2025, and given CrowdStrike’s leadership in the industry, this action looks like a smart long-term investment.
Image source: Getty Images.
Shopify: 16.7% attribution
Shopify (NYSE: SHOP) is the most popular e-commerce software in the world. Its technology allows businesses to manage sales across physical and digital storefronts, including custom websites, online marketplaces, and social media platforms, all from a single dashboard. Shopify supplements its basic offering with value-added services like payment processing, shipping, and financing, making it a great option for modern entrepreneurs.
Fueled by this value proposition, Shopify now powers two million businesses worldwide, more than double what it had in 2019. Even better, more of these merchants are using value-added services like payment processing and funding, which speaks to the platform’s stickiness. . As a result, revenue jumped 57% to $4.6 billion in 2021, and free cash flow jumped 18% to $454 million.
Going forward, Shopify values its TAM at $160 billion, but this figure will continue to rise as online shopping becomes more popular. To add, the company is also implementing an ambitious growth strategy that could accelerate its growth trajectory and further differentiate its business, including the launch of new products such as execution services, fund management accounts and cross-border e-commerce solutions.
Vanguard S&P 500 ETF: 50% allocation
Ultimately, your goal should be to build a diversified portfolio of at least 25 stocks. This does not mean that you have to invest in all 11 market sectors. You should invest in the industries that interest you, and you should only invest your money in businesses that you understand.
The goal of diversification is to mitigate risk by ensuring that your financial well-being is not overly dependent on one company. Of course, it will take time to research and buy 25 different stocks, and that’s okay. In the meantime, I would allocate 50% of my money to Vanguard S&P 500 ETF (NYSEMKT: VOO). This index fund is designed to track the entire S&P 500, meaning you get instant diversification. And with a expense ratio of just 0.03%, you would only pay $3 in annual fees on a portfolio of $10,000.
Better yet, the S&P500 has generated an annualized return of 7.2% over the past 20 years. Assuming this pace continues, your money would nearly quadruple over the next 20 years.
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Trevor Jennewin owns Airbnb, Inc., CrowdStrike Holdings, Inc. and Shopify. The Motley Fool owns and recommends Airbnb, Inc., CrowdStrike Holdings, Inc., Shopify, and Vanguard S&P 500 ETF. The Motley Fool recommends Gartner and recommends the following options: Shopify January 2023 $1140 Long Call and Shopify January 2023 Short Call $1160. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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