Investing more capital into your best ideas can lead to outsize rewards. The challenge, of course, is choosing the right stocks. To help you identify investments that are most worthy of your hard-earned money, I offer my three highest-conviction ideas right now. All are outstanding businesses that are well-positioned to generate handsome returns for their shareowners in the coming years.
1. The cloud data leader
Snowflake (NYSE: SNOW) helps businesses make better use of their data at a time when harvesting valuable insights from the cloud is becoming more important every day. It's a massive market, one that could grow to a staggering $248 billion by 2026, according to the company's estimates.
Snowflake is expanding at a blistering pace within this fast-growing market. Its revenue soared 83% year over year to $497 million in its fiscal 2023 second quarter, which ended on July 31.
The company's new, consumption-based model is proving popular, as it allows businesses to pay only for the computing resources they use. By enabling its customers to better align their costs with their usage of data transfer, storage, and computing services, Snowflake is helping them save significant amounts of money.
Companies, in turn, are flocking to Snowflake's cloud platform. It ended the second quarter with 6,808 customers, up 36% from the prior-year period. Snowflake also excels at deepening its relationships with its existing clients, as evidenced by its exceptional net revenue retention rate of 171%.
Although Snowflake is not yet profitable (it generated an operating loss of $208 million in its most recent quarter), it did produce $54 million of free cash flow. Management also expects the company to reach impressive profitability by the end of the decade, with an adjusted operating margin of roughly 20%.
With its data warehousing tools in high demand, investors can safely expect Snowflake's sales and cash flow production to grow even more impressive in the years ahead. Consider buying this cloud data leader's shares today so you, too, could cash in on its good growth prospects.
2. The e-commerce and cloud computing colossus
Few businesses stand to benefit more from the global shift to the cloud than Amazon (NASDAQ: AMZN). Sure, Amazon is famous for its e-commerce platform. But the shining star these days is its Amazon Web Services (AWS), the leading provider of cloud infrastructure services. It's an incredibly valuable position to be in because an enormous amount of capital is expected to be invested in cloud computing services in the coming decade.
AWS is already a $70 billion business. Yet only about 5% of worldwide information-technology spending is currently allocated toward cloud solutions, according to Amazon CEO Andy Jassy. Analysts expect this figure to march steadily higher, due to the security, cost, and scalability benefits that cloud computing provides compared to on-premise networks.
Grand View Research, for one, projects that the global cloud computing market will grow by more than 19% annually to over $1.2 trillion by 2028. That leaves plenty of room for AWS' sales and profits (operating income in the second quarter alone exceeded $5.7 billion) to continue to grow at a rapid pace for many years to come.
It's true that Amazon's e-commerce operations have struggled in recent quarters. Supply chain disruptions and cost inflation have taken a heavy toll. Yet Jassy and his team are acting aggressively to right the ship.
Amazon is scaling back its warehouse expansion plans and investing in automation technology, such as its recent acquisition of robotics specialist Cloostermans. These actions should help to boost the efficiency of Amazon's massive fulfillment network and drive a rebound in the segment's profitability over time.
To profit alongside the mighty Amazon, consider purchasing some shares of this cloud and e-commerce leader today.
3. The technology giant
Apple's (NASDAQ: AAPL) new iPhones are reportedly selling like hotcakes. Better still, many consumers appear to be choosing the tech titan's priciest phone, the iPhone Pro. That should help to boost Apple's already sky-high profit margins.
Strong iPhone orders also bode well for sales of the company's high-margin services. This segment -- which includes Apple Music, Apple TV+, Apple Arcade, and iCloud+, among other offerings -- is quickly approaching $100 billion in annual revenue. It's a staggering sum, one that would make Apple's services business one of the largest and most profitable companies in the world in its own right.
In all, Apple generated a stunning $98 billion in operating cash flow and over $90 billion in free cash flow during the first nine months of its fiscal 2022. Investors can expect Apple's growing installed base of iPhone users and steadily expanding service subscriptions to drive these figures even higher in the coming years. That, in turn, should result in larger dividends and further share price appreciation for its long-term investors.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Joe Tenebruso has the following options: long January 2024 $100 calls on Amazon. The Motley Fool has positions in and recommends Amazon, Apple, and Snowflake Inc. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. 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.
