Being a contributor with The Motley Fool affords me an incredible privilege: I get to spend much of my time discovering and analyzing a lot of cool companies. But at times it feels like information overload.
To illustrate, consider that The Wilshire 5000 Total Market Index is designed to track all publicly traded U.S. companies. At last count, there were over 3,400 stocks in the list, showing just how many investing options there are -- and there are thousands more if you look internationally.
I haven't looked over all 3,400 U.S. stocks and likely never will. But of the stocks that I track, Airbnb (NASDAQ:ABNB), Peloton Interactive (NASDAQ:PTON), and Pinterest (NYSE:PINS) are my three favorite investments right now. Here's why.
1. Airbnb: The reopening-economy investment
Have you seen the recent commercials for Airbnb? The company's current ad campaign isn't really targeting travelers. Rather, the campaign is named Made Possible by Hosts, and it aims to attract new hosts (people who offer their spaces as short-term rentals) to the platform. In a recent CNBC interview, CEO Brian Chesky said, "To meet the demand over the coming years, we're going to need millions more hosts" [emphasis added]. This is in addition to the whopping 4 million hosts it already has.
Prior to the Made Possible by Hosts campaign, I'd never seen an Airbnb ad. But that's because Airbnb hadn't done any large-scale advertising in over five years. That may sound odd for a growth stock like Airbnb, but remember that the company doesn't need to drive business to its platform through marketing. According to the documents it filed when going public, 91% of Airbnb's guests came in organically during the first nine months of 2020.
Various surveys suggest that as the coronavirus vaccine is distributed, people intend to travel at least as much as they did before the pandemic. Some even plan to travel more to make up for lost time. Airbnb is a top-of-mind platform as evidenced by its organic traffic, which is why I like the company's odds for attracting much of this reopening-economy upside. And as management dials its focus in on attracting new hosts, I like its odds for acquiring enough long-term supply to meet increasing demand.
I typically don't invest in IPO companies early on because they can be volatile. Indeed, there's a reason Airbnb stock could be volatile in 2021. Almost 80% of shares are held by insiders and can't be sold until after the company reports earnings for the first quarter of 2021 on May 13. Once this lockup period expires, the stock could head lower as insiders are finally able to sell.
So there's risk. But Airbnb is still in the early innings of its growth story. And 2021 is shaping up to be an epic comeback year. For these reasons, this is still one of my favorite stocks right now.
2. Peloton: Surprising value
Another one of my favorite stocks right now is at-home fitness company Peloton Interactive. Some investors look at its price-to-sales ratio of 10 and say that's too high for an exercise-hardware play. But I believe Peloton's stellar historical growth rate gives this stock surprising long-term value at today's price (around $100 per share).
Since its founding in 2012, Peloton has grown revenue at a roughly 100% compound annual growth rate (CAGR). Don't expect growth to continue at this astonishing pace forever. That said, management is guiding for over $4 billion in revenue for fiscal 2021 -- up 123% from fiscal 2020 -- so it isn't slowing down yet.
Let's assume Peloton grows at just a 25% CAGR over the next five fiscal years, an insanely sharp drop-off from its historical pace. At that rate, the stock trades under three times potential sales for its fiscal 2026. That's extremely reasonable for this company, especially as revenue for its subscription services continues growing and profit margins for this segment continue expanding. Will it grow at a 25% annual pace? I have no idea. I make this point only to say this: Judge the stock's valuation within the context of its revenue growth.
Furthermore, I believe Peloton's $420 million acquisition of Precor in December 2020 provides a potential catalyst for growth. Peloton's equipment is used at home, whereas Precor sells to commercial customers like gyms and hotels. This acquisition, therefore, expands Peloton's customer base, providing upside potential. But the acquisition could also increase the value proposition for Peloton customers by allowing them to log into their accounts and continue their exercise routines in commercial spaces away from home.
If you look at the stock today, Peloton might seem overvalued. But I advocate for buying and holding for the long term. Using that investing mentality and considering Peloton's direction and speed of growth, the stock offers surprising value today.
3. Pinterest: This story is playing out perfectly
Over a year ago, I purchased shares of Pinterest with a simple thesis. I believed the company was poised for user growth because of its differentiation from other platforms. Social media can be a place of tension, but Pinterest avoids things like politics, allowing users to focus on finding images that inspire. And as the company grew its user base, I also believed monetization would soar as advertisers looked to capitalize on this audience. So far, this thesis is playing out perfectly.
Pinterest just reported results for the first quarter of 2021, showing year-over-year revenue growth of 78%. For the second quarter, it expects revenue to be up 105%. Its top line is growing this fast for a simple reason: User growth is up and these users are better monetized. Pinterest's platform now has almost 500 million monthly active users worldwide, and its global per-quarter average revenue per user grew 34% in the first quarter to $1.04.
Under the surface, the story may be playing out even better than most investors realize. International growth is on fire right now for Pinterest. International revenue is less than 20% of the company's total revenue, which is why many might overlook it. But its international user base is growing faster than the U.S. (37% versus 9%), and international monetization is also increasing at a much faster rate (91% versus 50%). Because of this, international revenue has grown from just 13% last year to almost 20% of the total in the first quarter.
If these trends continue, international revenue could be a significant part of Pinterest's story in short order. I expect this will be the case. The company is working hard to educate advertisers overseas on how to best use the platform. And it's just starting to monetize audiences in Latin America. In short, first-quarter results confirm my long-term thesis for Pinterest stock, and that's why it's one of my favorite stocks right now.
Finally, while I like Airbnb and Peloton, Pinterest might be my favorite of the three at this moment. But the stock price was up over 250% in 2020, quickly growing into one of my largest holdings. Since I already own a lot, I'm reluctant to add more -- I believe in building a diversified portfolio no matter how strong my conviction in a company is. That said, Pinterest is doing well and the stock price is down almost 30% from 52-week highs. Therefore, if this isn't a stock you already own, now is a great time to give it another look.