2 growth stocks to hold for the next 20 years

Consistently buying stocks of growth companies is a proven way to build lasting wealth in the stock market. The following companies would make great stocks to own over the next few decades to protect and build wealth for a happy retirement.

1. Costco Wholesale

Costco Wholesale (COST -1.05%) it’s a no-brainer stock to hold for the long term. The business operates on thin margins, which keeps competitors at bay. Costco operates on such thin margins that half of its operating profit is generated from annual membership fees. This allows the company to sell a wide range of quality products, including high-end jewellery, at discounted prices.

Costco does retail discounts better than anyone, which is the main source of its competitive advantage. It only stocks items it can sell quickly to keep inventory flowing. This instills a loyal customer base, as evidenced by its subscription renewal rates of over 90%.

With inflation starting to cool down, the business is seeing an improvement in sales trends. In its fiscal third quarter ending in May, Costco reported comparable-store sales growth of 6.5 percent, excluding changes in gas prices and currency. But July’s 7.2% increase suggests sales are accelerating.

Longer term, Costco still has tremendous growth potential. The company plans to open new warehouses in Japan and Korea, but is also finding ways to reach new customers in the US through services such as Uber Eat. Costco recently expanded its partnership with Uber to include more states and international countries, which could become an important customer acquisition tool.

Costco’s stock is up 62% over the past 12 months and trades at a high price-to-earnings ratio relative to expected earnings growth, but investors who regularly buy the stock or dollar-cost average it can profit from future growth in Costco without worrying if the stock is too expensive now. The stock should be worth much more in 20 years than it is today.

2. Cava Group

Investors parking some money Cava Group (COFFEE -0.50%) the stock could see phenomenal returns over the next 20 years. Its Mediterranean-focused menu stands out in an industry dominated by burgers and fries. The stock has returned 160% over the past year, but that’s just the beginning.

Despite a sluggish consumer spending environment, Cava posted an impressive 14% year-over-year comparable sales growth last quarter. This helped increase total revenue by 35% over the year-ago quarter.

Importantly, Cava is already earning healthy margins to fuel shareholder returns. Profit margins at the restaurant level are expected to reach over 24% in 2024. In the second quarter, Cava’s net income tripled year-over-year to $19.7 million on revenue of 231 of millions of dollars. Further expansion of Cava’s relatively small restaurant base will generate higher profits and returns for shareholders.

Management is investing in technologies, including generative artificial intelligence (AI), to make restaurants more efficient and therefore more profitable in the long term. These investments, along with its healthy margins and focus on fast order delivery, show many similarities between Cava and Chipotle Mexican Grill — one of the best performing and most profitable restaurant brands.

With only 341 restaurants open, Cava offers years of above-average growth. As it opens more restaurants, strong revenue and earnings growth should send Cava stocks to new highs over the next 20 years.