My Top 3 Stock Holdings

By Danny

One of my favorite go-to metrics when weighing stocks is total addressable market (TAM), showing the total market that may exist for a product or service. My top stock holdings all have a huge untapped market.

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Facebook, Amazon, and Netflix each has a huge addressable market. Image source: Pixabay.

Bringing entertainment to the world

Netflix, Inc. (NASDAQ: NFLX) is my largest holding. I was a satisfied customer

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And Netflix has room to grow. Since customers need broadband internet to access Netflix services, we can start there. It is estimated by ARK Invest

With 49 million members in the U.S., Netflix boasts a 40% penetration rate. If it were to achieve that level of penetration across the globe over time, its subscriber base could hit 250 million given the estimate of 625 million broadband subscribers.

Netflix continues to conquer the world. Image source: Netflix, Inc.

Connecting people

Facebook, Inc. (NASDAQ: FB) is the largest social network in the world. I use the platform because I have relatives and friends scattered across the country and it is an easy way to keep track of the important moments in their lives: births, engagements, weddings, and the like. I also see opportunity in its addressable market.

In its most recent quarter, 98% of Facebook's revenue was from advertising. The more users it has, the better the monetization. The company currently has 1.86 billion monthly active users (MAU). Trying to determine its addressable market involves a certain amount of subjectivity. We could use the entire world as its TAM, but that wouldn't be realistic. Currently, only about 50% of the population has access to the internet, so that's a good starting point. With an internet population estimated at 3.5 billion, Facebook could roughly double in size. It also has additional growth drivers in the WhatsApp messaging app and the Instagram photo-sharing platform. WhatsApp currently has 1.2 billion MAUs and Instagram has 600 million MAUs while Facebook Messenger topped 1 billion active users last year.

While this isn't meant to provide anything nearing exact figures, and the TAM is likely lower, this exercise clearly indicates that Facebook still has a formidable runway.

Helping the world shop

Worldwide e-commerce leader (NASDAQ: AMZN)is another company that I like and use quite often. I started out buying CDs and DVDs for Christmas presents, and soon found that I could find almost anything I was looking for. I am also a Prime member, mostly because of the free shipping it offers. Amazon's addressable market is essentially the world of e-commerce.

Even as the worldwide leader, Amazon is still only scratching the surface. For 2016, Amazon e-commerce sales totaled $95 billion. eMarketer

That opportunity is staggering, and doesn't include Amazon's web and cloud services, Prime video and music streaming, its entry into logistics and delivery, or advances in artificial intelligence represented by its Alexa voice-activated personal assistant and Echo and Dot speakers. The total addressable market here is truly phenomenal as more people come online and e-commerce increases.

Data by YCharts

These are three of my favorite companies for a variety of reasons. You shouldn't invest in a company based solely on addressable market -- financial and operational performance are obviously the primary factors -- but when deciding how much of your limited resources to devote to an investment, using TAM information can provide valuable insight into how much growth may still lie ahead.

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