I kicked off the new year with a little stock shopping, something that I did (rather successfully) a year earlier. I initiated positions in four stocks on the first day of trading in 2020, and I figured I would get into why I think this collection of investments has a strong chance to beat the market in the year ahead.
I invested in Pinterest (PINS +1.36%), Luckin Coffee (LK 0.15%), Peloton (PTON +2.21%), and Dropbox (DBX 2.40%) last week. One thing that they all have in common is that they went public over the past two years, with all but one of them hitting the market in 2019. Investing in IPO stocks is risky, but I don't mind taking chances for the right investments with that new-stock smell. Let's go over why these four new stocks found their way into my portfolio.
Peloton's loyal connected subscribers are not going anywhere -- literally and figuratively. Image source: Peloton.
Pinterest went public at $19 nine months ago, and that's essentially where it is now. The visual search engine reaches 43% of the country's internet users, but the juicy demographic angle here is that it also happens to reach 80% of the online moms who earn, spend, and influence buying decisions more than the country average.
Growth is impressive at Pinterest, now armed with 322 million monthly active users worldwide. Its audience has grown by 28% over the past year, but revenue soared 48% in its latest quarter as average revenue per user keeps climbing, given improving monetization trends.
Pinterest has also been boosting its revenue guidance with every passing quarter, going from initially targeting 40% to 43% growth in 2019 to what is now a forecast of 46% to 48% in top-line growth. Pinterest is stronger than it was at the time of its IPO, making it surprising to find it trading in the teens right now.
Luckin Coffee
You won't find a retail concept growing faster than Luckin Coffee, the java-pouring chain that is taking China by storm. It has seen its coffeehouse footprint more than triple to 3,680 locations over the past year. Revenue (brace yourself) skyrocketed 640% in its latest quarter.
If you think premium coffee is a booming industry here, you can imagine what the prospects are in the world's most populous nation as it embraces the Western caffeinated beverage. There are now 9.3 million average monthly transacting Luckin customers, a nearly fivefold advance in the past year. The company also recently launched Luckin Tea, a sister brand gunning for China's warm beverage of choice. Growth will obviously decelerate from here. Analysts see revenue growth slowing to a little more than 160% in 2020, but most companies would love to be more than doubling their top lines this year.
Peloton
Before you ask, yes, I saw the controversial commercial that Peloton put out at the start of the holiday shopping season. I liked it. Critics arguing that the spot made Peloton seem out of touch with the masses don't seem to understand the target audience of Peloton's high-priced treadmills and stationary bikes.
Revenue soared 103% in its latest quarter, its first financial report as a public company. There are now 562,774 connected fitness subscribers on its books, and they're not going anywhere. They're hooked, as the average number of monthly workouts per subscriber has risen from 8.9 to 11.7 sessions over the past year.
Peloton also recently lowered the price of a digital subscription that it offers for folks who don't want to pay four figures for Peloton hardware, a move that should help it leverage its reach and make it easier to upsell the entry-level users when they are ready for a big-ticket commitment to the Peloton brand.
Dropbox
We take digital data storage for granted these days, but there are some specialists beating the tech giants at this cloud game. Dropbox is a household name for consumers and businesses, and it seems to look the part of a classic growth stock. It has smoked Wall Street's profit targets in each of its first six quarters as a public company. Dropbox has boosted its guidance in back-to-back quarters, and it's coming off its first period of accelerating growth.
Despite checking off all of the boxes that growth investors crave, the stock is actually trading for less than the $21 price that it hit the market at nearly two years ago. This is a cutthroat and perhaps commoditized market, but Dropbox is proving that it can thrive in this climate. Adjusted earnings forecasts for the year ahead have been inching higher in recent months, making this a stock that shouldn't be a broken IPO for long.
