If you knew there was a once-in-a-century pandemic on the horizon, you would probably expect the benchmark S&P 500 to suffer a sustained decline. But in the face of COVID-19, it actually gained 18.4% in 2020 followed by another 28.7% in 2021. Of course, U.S. government stimulus and record-low interest rates played a role.
The S&P 500 then plunged 18.1% in 2022 on the back of soaring inflation and rising interest rates, but it has since bounced back to trade at record highs this year. Simply put, it's nearly impossible to predict what the stock market will do in the short term.
Time in the market is far more important than timing the market, because the S&P 500 has delivered an average annual gain of 10.4% since it was established in 1957. That average annual return rose to 12.7% over the last 10 years thanks to the high-growth technology sector, which has an increasing share of the index.
Investors who are looking ahead to the next decade might want to consider including tech stocks in their portfolio, especially those with clear growth prospects. Here's why Palo Alto Networks (NASDAQ: PANW) and Sea Limited (NYSE: SE) could be two great picks. And just $450 can buy you one share of each today.
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1. Palo Alto Networks
With a market capitalization of $110 billion, Palo Alto is the world's largest cybersecurity provider. Companies continue to shift their operations online with technologies like cloud computing, which is making them more vulnerable to cyberthreats than ever before. Plus, artificial intelligence (AI) allows malicious actors to stage highly sophisticated attacks and strike with much greater frequency than they could in the past.
In fact, over the past year, Palo Alto has observed a tenfold increase in the number of phishing emails, which are designed to trick corporate employees into clicking malicious links and handing over sensitive information.
Palo Alto's products are split across three platforms: Cloud security, network security, and security operations, which include dozens of individual modules. The company is leaning heavily on AI to automate threat detection and incident response, ensuring organizations receive appropriate protection against modern-day threats.
The company's research suggests that 93% of security operations centers still rely on human-led processes, which means 23% of security alerts are left uninvestigated due to the growing workload. The company's new Cortex XSIAM security operations solution uses AI-powered automation to solve that problem. For one oil and gas company, XSIAM led to a 75% reduction in the number of incidents requiring manual investigation.
"Platformization" is sweeping the cybersecurity industry right now. It means customers are consolidating their cybersecurity spending with one provider (rather than using various products from different vendors). Palo Alto is enticing customers by offering fee-free periods to give them time to wrap up old contracts with competitors, at which point they could use Palo Alto exclusively.
This has led to a slowdown in the company's revenue growth recently, but it should pay off in the long term because customers who use all three of Palo Alto's platforms have a lifetime value more than 40 times higher than those using just one. In fact, $4.1 billion of Palo Alto's estimated $8 billion in revenue for fiscal 2024 (ending July 31) is expected to come from those platformization customers.
By 2030, the company projects that figure to more than triple to $15 billion, so investors who buy the stock now might be getting in on the ground floor of Palo Alto's next growth phase.
2. Sea Limited
Sea Limited is a triple threat when it comes to the digital economy thanks to its three core businesses: e-commerce, digital entertainment (gaming), and digital financial services. The company is based in Singapore and it serves the fast-growing Southeast Asia region, so it could be a great way to diversify for investors with a heavy exposure to U.S. tech stocks .
Sea Limited's e-commerce segment is led by Shopee, a hybrid consumer-to-consumer and business-to-consumer marketplace platform. It's working hard to optimize logistics and introduce automation to reduce costs and create a better customer experience. During the first quarter of 2024 (ended March 31), Shopee's delivery network (SPX Express) delivered 70% of orders within three days, and reduced its cost per order by 15% across Asia.
E-commerce giant Amazon recently said that faster deliveries can lead to more orders per customer, so Shopee could reap significant long-term rewards by improving its logistics.
Sea Limited's digital financial services segment is home to SeaMoney, which has important synergies with Shopee. SeaMoney lends money to merchants to accelerate their growth, and it also offers buy now, pay later loans to consumers. In addition, it provides digital banking services to consumers, including interest-bearing accounts and money transfers. SeaMoney had $3.3 billion in loans on its books at the end of Q1, which was up 28.7% from the year-ago period.
Sea Limited's digital entertainment segment is headlined by its game development studio, Garena. It's responsible for Free Fire , which was the most downloaded mobile game in the world during Q1. Garena's quarterly active users rose 21% year over year during the quarter, which was a welcome sign following steep declines post-2021 (when pandemic restrictions ended).
Sea Limited generated $3.7 billion in total revenue during Q1, a 22.8% increase from the year-ago period. That growth rate was 4 times faster than its full-year 2023 growth rate as economic conditions improved and the company ramped up its marketing efforts to attract new customers. The rising spending did result in a first-quarter net loss of $23.4 million, giving back some of the profit it generated in 2023, but the acceleration in revenue was a very positive trade-off.
Sea Limited stock is up a whopping 90% in 2024 already, but it's still trading 79% below its all-time high that was set during the tech frenzy of 2021. Given the company's renewed momentum, this could be an ideal long-term entry point for investors.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Palo Alto Networks, and Sea Limited. The Motley Fool has a disclosure policy .
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