In this piece, we will take a look at the 11 best long term stocks to buy for high returns. If you want to skip our introduction to the current drivers of stock market performance, then check out 5 Best Long-term Stocks To Buy For High Returns.
The stock market is made up of thousands of stocks. Each of these belongs to separate industries and categories, which, along with the firm's management and product strengths, determines how the shares will perform. The correct execution, lady luck, and broader economic prosperity carry the potential to skyrocket a stock to meteoric new highs within a couple of months.
In fact, we don't have to look too far back to find an example of this phenomenon since one such company has already bathed in returns this year. This firm is none other than the graphics processing unit (GPU) designer NVIDIA Corporation (NASDAQ:NVDA). NVIDIA's shares are up by a stunning 221% year to date after having added $316 to their value over the year. If you think these returns are 'meh' then consider the fact that before the mega cap sell off over the past couple of months, NVIDIA's shares were up by a stunning 245% year to August.
Naturally, these are returns that any investor would give an arm and a leg to add to their portfolio. So, the next question to ask is, why have NVIDIA's shares soared in 2023, and are there any broader principles that can be generalized and then applied to other companies to gauge whether they might also post similar share price performance? After all, even if we rewind the hands of time back for just 12 months, few people would be able to confidently assert that NVIDIA's market capitalization in October 2023 would be $1.1 trillion. The reason that NVIDIA's shares have performed well can be put into two words, 'Artificial Intelligence.' NVIDIA's GPUs have traditionally been used for gaming and data center use, and they have often delivered superior performance when compared to competitor products. The firm's strengths in designing powerful products and then managing a supply chain spanning from Asia to North America to sell the products have proven key to its share price performance in 2023 since it is the only one capable of providing high performance products for use in AI applications.
Right now, there are market forces in play that could affect stock returns over the long term. The stock market of the 2022 - 2023 era is fundamentally different from one that was in flow since the 2008 Great Recession. This is because the Federal Reserve had reduced rates since then to bring them to a paltry 0.25% before the recent interest rate hiking spree. While high rates and the stock market are typically talked about in tandem with the pain that businesses and consumers are going through, another key outcome of the higher rates is its effect on hedge funds. Higher rates increase the stakes for the funds since they are highly leveraged entities that borrow multiple times their investor funds to go all in on the stock markets. So, their investment climate becomes tough too, since brokers typically lend funds with rates that add a premium over the prevailing interbank rate.
Right now, U.S. interest rates sit at 5.25% - 5.50%, and as long as they remain high, hedge funds will have to think very carefully about where they invest and how much leverage they take. The less they borrow, the less they bet, and consequently, the stock market misses out on share price growth due to major buying activity. When coupled with the effects of the high interest rate on consumers, who typically see a drop in discretionary income, and on businesses, who have to face off with expensive debt and working capital financing, it's clear that the stock market of today has entered a new era when it comes to long term investing.
When it comes to sifting stocks for long term investing, one of the more popular approaches is picking growth stocks. Typically, growth stocks are defined as those whose share prices carry a hefty premium over their earnings per share if the company is profitable. This ratio is called the price to earnings ratio, and it measures the current share price and divides it by a firm's earnings per share for the last 12 months, the latest fiscal year, or its projected earnings per share. Companies with a high P/E ratio (relative to industry benchmarks) show that investors are paying much more for the stock than the EPS would justify, and the assumption behind this added value is that the stock will grow in the future and justify the current high price.
Today, we'll take a look at some great long term stocks to buy, with the top three picks being Albemarle Corporation (NYSE:ALB), Sarepta Therapeutics, Inc. (NASDAQ:SRPT), and DexCom, Inc. (NASDAQ:DXCM).
11 Best Long-term Stocks To Buy For High Returns
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Our Methodology
To compile our list of the best long term stocks to buy, we first made a list of 40 stocks with significant share price upside based on analyst average share price targets and a Buy rating. Then, the number of hedge funds that had invested in them as of June 2023 was determined through Insider Monkey's database of 910 hedge funds and the top ten best stocks for the long term are as follows.
Illumina, Inc. (NASDAQ:ILMN) is a backend healthcare firm that provides machines and products for gene sequencing and other functions to governments and companies. The firm is currently facing some headwinds in Europe, where it has to stop its bid to re acquire a former business division.
As of Q2 2023 end, 43 out of the 910 hedge funds covered by Insider Monkey's database had held a stake in Illumina, Inc. (NASDAQ:ILMN). Out of these, the firm's largest shareholder is Robert Joseph Caruso's Select Equity Group since it owns 1.4 million shares that are worth $280 million.
Just like Sarepta Therapeutics, Inc. (NASDAQ:SRPT), Albemarle Corporation (NYSE:ALB), and DexCom, Inc. (NASDAQ:DXCM), Illumina, Inc. (NASDAQ:ILMN) is a great long term stock.
SolarEdge Technologies, Inc. (NASDAQ:SEDG) is an Israeli company that sells power management and other products for solar power systems. Its shares are rated Buy on average and analysts have penned in a whopping $157 share price upside over the current share price of $119.
During this year's second quarter, 43 out of the 910 hedge funds surveyed by Insider Monkey were the company's investors. SolarEdge Technologies, Inc. (NASDAQ:SEDG)'s biggest hedge fund stakeholder is D. E. Shaw's D E Shaw due to its $404 million stake.
Jazz Pharmaceuticals plc (NASDAQ:JAZZ) is an Ireland based pharmaceutical company that makes medicines and drugs for diseases such as cancers, tumors, and sleep disorders. Its shares are rated Strong Buy on average, and the firm scored a win in September when the EU granted approval for a cancer drug.
By the end of 2023's June quarter, 44 hedge funds among the 910 tracked by Insider Monkey had bought and owned Jazz Pharmaceuticals plc (NASDAQ:JAZZ)'s shares. Robert Pohly's Samlyn Capital is the largest investor among them since it owns $166 million worth of shares.
Inspire Medical Systems, Inc. (NYSE:INSP) is a medical equipment company that sells products to monitor breathing and deliver neural stimulation. Despite a tough macroeconomic environment and tightening budgets all around, the firm is doing well on the financial front as it has beaten analyst EPS estimates in all four of its latest quarters.
After digging through 910 hedge fund portfolios for this year's second quarter, Insider Monkey discovered that 47 had invested in the medical company. Inspire Medical Systems, Inc. (NYSE:INSP)'s biggest hedge fund investor is D. E. Shaw's D E Shaw courtesy of its $136 million investment.
RH (NYSE:RH) is an American home products retailer that sells furniture, bed sheets, and other associated products in its stores. The firm's shares are rated Buy on average, and analysts have penned in a strong $111 share price upside over the current share price of $238.
As of June 2023, 48 out of the 910 hedge funds polled by Insider Monkey had held a stake in the retailer. RH (NYSE:RH)'s largest shareholder among these is Stephen Mandel's Lone Pine Capital as it owns 1.7 million shares that are worth $584 million.
Enphase Energy, Inc. (NASDAQ:ENPH) is an American solar power company that sells products such as micro inverters and batteries to both individual customers and distributors. It is busy establishing a global footprint these days, from Europe to Africa by introducing new products in Sweden, Denmark, and South Africa.
For their Q2 2023 shareholdings, 50 out of the 910 hedge funds part of Insider Monkey's database had invested in Enphase Energy, Inc. (NASDAQ:ENPH). Philippe Laffont's Coatue Management owns the biggest stake among these which is worth $102 million.
Albemarle Corporation (NYSE:ALB), Enphase Energy, Inc. (NASDAQ:ENPH), Sarepta Therapeutics, Inc. (NASDAQ:SRPT), and DexCom, Inc. (NASDAQ:DXCM) are some top long term stocks.