2 Growth Stocks to Hold for the Next 10 Years | The Motley Fool (2024)

Right now could be the best time to buy growth stocks in years.

The sector plunged last year as rising interest rates led investors to rotate away from growth stocks in favor of more defensive sectors like consumer staples and bonds. The Vanguard Growth ETFplunged 34% last year, but there are signs that growth stocks could start rebounding. The recent jobs reports offered another data point showing the economy remaining strong even as inflation continues to cool.

Additionally, the Fed expects to gradually lower interest rates in the next few years, which should also favor growth stocks. If you're looking for two high-growth stocks to buy and hold for the next decade, keep reading.

1. MercadoLibre: Transforming e-commerce in Latin America

MercadoLibre(MELI 1.05%) has been the leader in e-commerce in Latin America since shortly after its founding in 1999. Although the stock has already delivered monster returns for earlier investors -- it's up more than 3,000% since its 2007 IPO -- its best days could still be ahead.

The company has posted consistently strong growth since the pandemic started, even as its American counterparts have seen growth slow dramatically. Like Amazon, MercadoLibre has also succeeded by layering more profitable businesses onto its e-commerce platform. These include a third-party marketplace, logistics, a financing arm, and a digital payments service, MercadoPago, that continues to put up rapid growth and offers point-of-sale machines to brick-and-mortar stores as well as online payments. MercadoLibre is also ramping up its ads business, following Amazon's highly successful move to allow ads on its marketplace.

As a result of those efforts, MercadoLibre's profits are soaring. In the third quarter, operating income nearly doubled from $160 million to $296 million, and its operating margin reached 11%, showing its business can be highly profitable after years of operating closer to breakeven. Even better, its free cash flow has surged, reaching $1.06 billion in the first three quarters of 2022, up from a loss of $161 million in the same period a year ago.

Not only is MercadoLibre's profitability ramping up quickly as more of its growth is driven by high-margin businesses like MercadoPago and ads, but the company still has a huge addressable market to penetrate as the middle class in Latin America continues to expand. With a market cap of $46 billion, the stock still has a lot of room for growth over the next decade.

2. BILL: Disrupting back-office payments

BILL(BILL 2.33%), the company formerly known as Bill.com, is a software-as-a-service company that automates back-office payments like accounts receivable and payable for small and medium-sized businesses (SMBs), as well as related functions like expense management.

The company has grown rapidly throughout its history, growing both organically and through acquisitions. It's acquired smaller adjacent software companies in a roll-up strategy, giving it more market share and scale.

BILL's also penetrating a highly fragmented large addressable market that it estimated to be worth more than $30 billion in its 2019 IPO. That number has expanded after recent acquisitions, including Divvy, an expense management software company it acquired in 2021.

BILL says it's often competing with paper and Excel, which helps explain its strong growth rate. Revenue nearly doubled to $230 million in its most recent quarter, and it's profitable on a free cash flow basis with FCF of $12 million, though it's still losing money on a GAAP basis as the company is spending heavily on share-based compensation.

The company also has an advantage over other software companies as it benefits from higher interest rates. It makes money through three revenue streams: Subscriptions, transactions, and float revenue. This means it collects interest on the money it holds in between receiving and distributing it, which is essentially cost-free. In the most recent quarter, float revenue made up 7% of its total, and that figure should grow over the next few quarters.

For the current fiscal year, the company is forecasting revenue growth of 55% to 57% to $1 billion. BILL should continue to deliver strong growth as it penetrates a highly fragmented industry. With the stock down two-thirds from its pandemic peak, now looks like a great time to buy.