Buying and holding stocks for the long term, at least five years, is an effective strategy to create wealth, as stocks have proven to be one of the highest-yielding asset classes over time. However, investors with a long-term view should focus primarily on shares of companies with solid growth catalysts and the ability to expand earnings at a decent pace, even at a large scale.
From this perspective, Tesla (TSLA) and Amazon (AMZN) are two great stocks to buy and hold for 5+ years. Tesla and Amazon have both generated significant returns over the past decade that considerably outperform the S&P 500 Index ($SPX), and offer notable upside potential going forward, as well.
Let’s delve deeper to understand why to buy these stocks now and hold them for 5+ years.
Tesla
Given the ongoing green energy shift, Tesla is a compelling long-term investment for investors willing to overlook near-term noise around margin contraction.
The company is the market leader in the electric vehicle (EV) space, and is poised to gain from the growing adoption of EVs due to its emphasis on innovation, a solid portfolio of high-performance fully electric vehicles, and an extensive global network of Superchargers. Moreover, its expertise in developing technologies and software to enable self-driving vehicles with its proprietary Full Self-Driving (FSD) tech bodes well for growth.
Tesla stock has more than doubled year-to-date. However, TSLA has given up some of its gains following the automaker's latest earnings report, largely due to margin concerns.
To provide a background, Tesla has shifted its focus toward volumes amid macro uncertainty and a high-interest rate environment. The company is lowering its average selling price to push volumes, which is taking a toll on its margins and share price.
The pullback in its price is a solid opportunity to buy its stock. The company is leveraging its industry-leading margins to lower average selling prices, which will accelerate volumes and pressure its competitors. Further, Tesla is sacrificing margins in the near term to drive volumes and increase its fleet. This will enable it to monetize FSD tech and software, add recurring revenue streams, and enhance margins.
In the future, Tesla’s focus on ramping up production, cost reduction, and new product introduction will support its growth. Moreover, the acceleration of artificial intelligence (AI), Supercharging services, and FSD will likely contribute meaningfully to its profitability. Also, Tesla is ramping up the production of energy storage products and improving solar roof installation capability and efficiency, further supporting its growth.
However, perhaps due to the near-term pressure on margins and the significant year-to-date rally in the share price, most analysts remain tepid on Tesla stock. Fifteen out of 26 analysts have rated TSLA stock a “Hold,” three have a “Strong Sell” rating, one has a “Moderate Buy,” and seven analysts suggest a “Strong Buy.” These analysts have a 12-month average price target of $242.42, about 8% below its current market price.
That said, TSLA is trading higher in today's session on the back of a new Street-high price target from Morgan Stanley, with analyst Adam Jonas upgrading the stock to the equivalent of “Strong Buy” and setting a $400 price target over optimism around Tesla's AI-based “Project Dojo.”
Amazon
With its leadership in e-commerce and cloud services, and a growing advertising business, Amazon is poised to deliver strong returns in the long term.
Amazon stock has already gained over 64% year-to-date. However, its focus on significantly reducing costs and boosting profitability provides a solid base for future growth.
Amazon’s focus on lowering costs allows it to invest in improving delivery speed and grow its offering of everyday essentials, which is driving traffic and basket size.
Earlier this year, the cloud-based Amazon Web Services (AWS) division was under pressure due to macro headwinds. However, AWS has maintained its leadership position in the cloud infrastructure segment. During the Q2 conference call, Amazon’s management stated that the business is seeing signs of stabilization, which is positive. In addition, the reacceleration of growth in the AWS segment and integration of generative AI capabilities in its platform bodes well for growth.
Along with AWS, the company is expected to benefit from continued momentum in its advertising business. Amazon’s advertising revenue is growing rapidly (+20% growth in the past six consecutive quarters), despite macro uncertainty. Moreover, the company is leveraging machine learning and performance-based advertising to offer value to its customers, which should support future expansion.
Overall, Amazon's rising Prime membership, strength in digital advertising, reacceleration in the AWS segment, and integration of AI into its services provide a solid foundation for long-term growth.
Given the improving operating trends, most analysts covering AMZN stock maintain a bullish outlook. In total, 33 out of the 39 analysts covering AMZN have a “Strong Buy” recommendation. Four analysts recommend a “Moderate Buy,” and two maintain a “Hold” rating. Moreover, the average price target for AMZN is $166.85, implying an expected upside of over 18% from current levels.
