"Buy low, sell high" is a maxim I took to heart when I first started investing. I was constantly on the lookout for stocks that were trading on the "cheap," even if that meant the underlying business wasn't doing so hot.
Trial and error have taught me that it is far more profitable to look for winning stocks to buy instead. This shift in my investment philosophy has allowed my portfolio to prosper.
There's no doubt that Adobe Systems (NASDAQ:ADBE), Ulta Beauty (NASDAQ:ULTA), and Mastercard (NYSE:MA) are all winners. Each of them is up by double-digits in 2018, while the S&P 500 is basically flat. Here's why I think right now is a smart time to invest in these three amazing businesses.
Adobe Systems -- up 34%
Abode is a leading creator of high-end software that is used by creative professionals and designers. Its best-known products include Photoshop, Premiere, After Effects, and Acrobat, but it also offers analytics, marketing, and advertising services.
A few years ago, Adobe's management team made the bold decision to move all of the company's operations into the cloud. This monumental business shift caused the company's revenue and profits to decline for a few years, but the move has since paid off in spades. Adobe's product offering is now as strong as ever, and 90% of its revenue is now considered recurring.
Abode's financial statements have been flourishing in years following the transition as the demand for its products continues to grow. Revenue grew 24% in the most recent quarter to $2.29 billion. Adjusted income jumped by 57% to $859 million thanks to favorable operating leverage.
Wall Street believes double-digit growth is here to stay, and it projects that Adobe's profits will increase by 32% annually over the next five years. That's a mighty fast growth rate for a business that is currently trading for 30 times forward earnings.
Ulta Beauty -- up 40%
Ulta Beauty has been a massive winner for investors over the past decade, but the cosmetic purveyor was sold off hard in 2017, along with the rest of the retail industry. With dozens of retail concepts going belly-up, and the ever-present threat of Amazon.com looming large, traders were fleeing from this best-of-breed retailer.
2018 has proved to be a rebound year for the business, and the company's flourishing financial statements help to explain why. Revenue grew 15% in the most recent quarter to $1.5 billion thanks to new store openings and a 6.5% jump in comps. Net income jumped by 30%, while the effects of stock buybacks enabled EPS to grow even faster. These are numbers that every other retailer on the planet would kill for.
Management still believes the company's best days lie ahead as they are calling for comps to rise by at least 7% in 2018, and for 100 new locations to open. When combined with a flourishing e-commerce business -- online sales grew by 38% in the most recent quarter -- the company is in great shape to continue delivering for shareholders.
All told, Wall Street believes that Ulta will be able to churn out EPS growth of nearly 20% annually over the next half-decade. That's a stellar growth rate for a debt-free business that is currently trading around 24 times next year's earnings estimates.
Mastercard -- up 30%
Payment-processing juggernaut Mastercard is having another great year. A quick look at the company's financial statements makes it easy to understand why. Sales are growing by double-digits, margins are rising, and the company is funding excess capital into acquisitions and stock buybacks. The combination is enabling huge growth in adjusted earnings.
Mastercard continues to win its fair share of new business by layering in additional services on top of its payment processing business. The company now offers its customers data analytics, security, loyalty-point management, as well as a number of other services that help it stand out in the marketplace. More recently, the company launched an anti-money laundering feature that helps its key banking partners to ensure they remain compliant with laws and regulations. When combined, these new features are helping keep customers loyal and expand its book of business. That's why Mastercard remains well positioned to continue to prosper as consumers everywhere choose plastic over cash.
As usual, Mastercard's stock currently enjoys a premium valuation that reflects the optimism about its future. Shares are currently trading for more than 26 times forward earnings, which is a premium to the market in general. However, Wall Street projects that profits will continue to advance at an annual pace of at least 22% over the next five years. If that number is anywhere close to correct, then today's price will look cheap in retrospect.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Brian Feroldi owns shares of Adobe Systems, Amazon, Mastercard, and Ulta Beauty. The Motley Fool owns shares of and recommends Adobe Systems, Amazon, and Mastercard. The Motley Fool recommends Ulta Beauty. The Motley Fool has a disclosure policy.