I saw a pleasingly big rise in the value of my Stocks and Shares ISA this week after hopes were raised that interest rates might have peaked.
Of course, it’s far too early to tell whether this market rally has legs. What I do see lasting, though, is the long-term trajectories of these two red-hot growth stocks.
If I had a spare £5k to invest in an ISA, I’d add to my positions in both and hold them for decades.
A compounding machine
Topping my list is Games Workshop (LSE: GAW), a company that has been bringing joy to its customers through its niche fantasy wargames for nearly 50 years.
Its most popular franchise is Warhammer 40,000, which is expected to be made into films in partnership with Amazon Studios. Hollywood actor (and Warhammer fanatic) Henry Cavill is set to be executive producer and star.
Shares of the quirky Nottingham-based company are up 222% in five years. That’s come as its earnings and dividends have marched higher as international expansion continued.
The firm’s profitability metrics are incredible. It achieves a gross margin of 68% and an operating margin of 36%.
Its return on equity (ROE) — a measurement of how efficiently a company uses shareholders’ equity to generate profits — is an epic 57%. For context, a 20% ROE is usually considered good.
Meanwhile, its balance sheet is immaculate, with a healthy net cash position.
None of this has happened by accident. This is an incredibly well-run firm whose management team operates with a long-term mindset — exactly the sort of thing we Foolish investors love to see in a business.
One negative is that inflation remains an issue, both for its own costs and its customers’ disposable income. These miniature figurines are already very expensive bits of plastic. It’s an expensive hobby.
Long term though, I see its international community of loyal customers growing. And there should also be more lucrative licensing of its treasure trove of intellectual property.
The Prancing Horse
The second stock I’d buy and hold for decades is Ferrari (NYSE: RACE).
Founder Enzo Ferrari famously said that the Italian luxury brand would always produce “one less car than the market demand”. Today, as the number of ultra-rich people swells around the world, the shortfall is almost certainly greater than one car.
Evidence of this can be seen by its record order book, which is full to the end of 2025. Its approach fuels an aura of exclusivity, which gives the firm incredible pricing power and industry-leading profit margins (a 26% adjusted EBIT margin).
The firm just posted another record quarter. It sold 3,459 cars worldwide in the July-September period, an increase of 8.5% over last year.
Meanwhile, quarterly net profit surged 46% to €332 million, driven by its customers’ desire for expensive personalisation options for their new supercars. These can add hundreds of thousands of euros to the price, boosting the company’s profit per vehicle sold.
Now, Ferrari’s excellence is reflected in the stock’s high forward P/E ratio of 39. This rich valuation could create risks.
However, I’m backing Ferrari to keep growing its annual profits in double-digits for decades. If it does, the stock may one day look like a bargain at today’s price.
