Being a shrewd investor means being attuned to what's going on in business before the broader market may even realize it. Shrewd investments often look like obvious moves in hindsight, but they're not as easy to identify in the moment. We asked three of our Foolish contributors to each choose an investment that is shrewd right now, and they chose Wynn Resorts, Limited (WYNN 1.51%), Priceline Group Inc (BKNG 3.01%), and Ellie Mae Inc (ELLI). Let's look at the reasons why.
Image source: Wynn Resorts.
The casino always wins
Travis Hoium (Wynn Resorts): There are two trends shrewd investors know are taking place in the world today: the rich are getting richer as wealth consolidates in the top 1%, and economic growth is in Asia, not the U.S. And what better way to play those trends than owning the gaming company that caters to wealthy gamblers in the U.S. and China?
Wynn Resorts only runs three resorts right now, but its resort on the Las Vegas Strip is the area's most profitable, and the Wynn Macau and Wynn Cotai resorts in Macau are quickly gaining market share from competitors. And with Macau growing double digits so far in 2017, the company's results are on the rise.
The Wynn Palace resort's construction is now complete and the cash-generation machine is now starting to churn, so I think we also could be in for a big dividend increase in the next year or two. Right now, Wynn Resorts pays a $2 per-share dividend, a modest yield of just 1.5%. But the dividend has been as high as $8 per share in the past, and Wynn has a long history of special dividends when cash generation is high enough. And over the next year, well over $1.5 billion of earnings before interest, taxes, depreciation, and amortization (EBITDA), which is a proxy for cash flow, will be coming in to the company, so a higher dividend could be on the way.
Fly higher with this travel stock
Dan Caplinger (Priceline Group): Few stocks can match the track record that Priceline Group has put up over the course of its history. The online travel portal came back from the verge in the aftermath of the technology stock bust in 2000 to 2002, becoming one of the few successful users of a reverse stock split and eventually taking its share price to quadruple-digit levels. Priceline has accomplished all this by having foresight about the direction of the industry, emphasizing the importance of building an international network of hotels and other travel amenities rather than simply being content with the U.S. market. That international scope has given Priceline a competitive advantage over its peers, and rivals have had to scurry to catch up on the global front.
Some investors might think that Priceline's extensive gains make the stock too expensive for the future. Certainly, a brief drop following Priceline's most recent quarterly report suggests a lack of conviction among many traders who follow the company. Yet the online travel giant still enjoys strong growth rates in its core hotel business, with a 24% rise in gross travel bookings during the first quarter of 2017 and a 27% jump in room-nights booked. As international travelers look more to travel portals for vital services, Priceline can use its status as the provider of choice to produce even more growth going forward.
A long-term growth play on the housing market
Brian Stoffel (Ellie Mae): I don't blame investors for souring on real estate. After enjoying years of historically low mortgage rates, things are changing. The Federal Reserve will undoubtedly raise rates in the face of a sub-4.5% unemployment rate. That, of course, will lead to higher mortgage rates, and fewer people refinancing their loans.
That already is having an effect on the bottom line for Ellie Mae -- which provides the Encompass software-as-a-service (SaaS) platform for those in the home-financing market. While I have little doubt that this will weigh on results in the short term, shrewd long-term investors should focus on one thing: market-share gains.
Ellie has two powerful drivers helping to build a moat: high-switching costs and the network effect. The former comes from the fact that once an agency's employees are trained on Encompass, it's a waste of time and money to make a massive switchover to another platform.
The latter comes from the fact that Encompass helps connect mortgage professionals with bankers, appraisers, title companies, and others that are necessary to navigate the headache of buying a house. Even in the face of a market slowdown, Ellie is gaining share: active users have grown by 130% from 2012 to today, with 171,000 currently using Encompass.
Once those customers are in the system, they're locked in. When the mortgage market becomes more favorable down the line, Ellie Mae will hold market share to reap outsized rewards.
