Deciding where to invest your hard-earned money can be difficult. There are thousands of publicly traded stocks to choose from, making the task of decision-making seem overwhelming. One strategy is to identify companies with undeniable competitive advantages to buy and hold for the long term.
Here are two companies with track records of success, strong competitive advantages, and bright futures. For investors who have $1,000 to put to work in the stock market, either one of these companies would be a great choice. For those with access to fractional shares, buying both is an option as well. Let's dig in to see why.
ASML
For anyone following business news, it's impossible to have missed the incredible run Nvidia has been on lately. The rush into artificial intelligence (AI) has led to increased demand for its chips and it doesn't seem to be slowing down. As is often the case, some of the most interesting investments are not with the company getting the headlines but with the companies elsewhere in the supply chain. ASML(NASDAQ: ASML) is one of those companies.
ASML is a manufacturer of lithography machines, which are necessary to making any semiconductor chip. Once a company like Nvidia designs a chip, it's manufactured by another company. The company making the chip needs a lithography machine for that process.
For the leading-edge chips that Nvidia designs, a more advanced machine is needed, and ASML is the only company in the world that makes them. This is a substantial competitive advantage for ASML. As the AI boom creates more demand for chips, ASML has to be part of that growth story.
It's important to note that despite Nvidia's recent results, the overall semiconductor industry is in a downturn, and ASML is expecting muted results in the near term. This is why keeping an eye on its backlog and booking metrics is important. With a backlog of 39 billion Euros, there are plenty of orders for ASML to fill during 2024 as it awaits an expected improved market in 2025.
ServiceNow
ServiceNow(NYSE: NOW) is a provider of software solutions that help companies better manage their technology, employee, and industry workflows. The company operates on a subscription model, commonly referred to as software as a service, or SaaS.
During the market bubble of 2020 and 2021, SaaS companies were all the rage as investors became enamored by their top-line growth and impressive margins. However, over the last year or so, many of these companies have seen their growth-at-all-costs strategies falter as investors have become more focused on profitability. Fortunately for ServiceNow, it has proven that its business is not your average SaaS story.
First of all, ServiceNow is growing impressively and consistently. While its year-over-year revenue growth rate has slowed over time, it has never been below 20% in its time as a publicly traded company. In fiscal 2023 it grew its subscription revenue (which is the vast majority of its overall revenue) by 26% and the company is expecting to grow it by 22% again in 2024.
This growth is also backed up by a customer base that spends more over time and is incredibly sticky. Every cohort of new customers has spent more over time, and the company's renewal rate is consistently between 98% and 99%. ServiceNow has also expanded its customer relationships over time. The number of customers with $1 million or more in annual contract value has grown 41% over the last 2 years.
While other SaaS companies have experienced significantly slowing growth rates, ServiceNow has been able to remain relatively consistent. This sends a clear message that its platform is important to many businesses. This bodes well for the future and makes ServiceNow one of the best stocks to invest in right now.
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Jeff Santoro has positions in ASML, Nvidia, and ServiceNow. The Motley Fool has positions in and recommends ASML, Nvidia, and ServiceNow. The Motley Fool has a disclosure policy.
