The U.S. Consumer Confidence Index was 127.3 in June 2021, the highest it has reached since February 2020. Consumers have become increasingly optimistic about overall economic growth despite lingering concerns about increasing inflation. Since consumer sentiment plays a big role in driving the stock market, we can expect some major gains in fundamentally strong stocks positioned to benefit from structural tailwinds in a recovering economy.
Retail investors need as little as $1,500 to invest in the stock market and benefit from the overall improving sentiment. If you have this capital and will not need it to pay bills or for other contingencies, then long-term investments in the following stocks can help you build wealth.
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1. fuboTV
Shares of "sports-first" livestreaming service company fuboTV (FUBO 0.72%) are up by over 35% in the last month. The company posted stellar first-quarter (ending March 31) results, with revenue soaring by 135% year over year to $119.7 million and its paid subscriber count jumping 105% year over year to over 590,000. This was a marked change from historical seasonally weak first-quarter performance. Moreover, within a year of listing on the New York Stock Exchange, the company is joining the broad-market Russell 3000 Index, a move that will increase retail and institutional interest in the company. fuboTV's recent acquisitions of sports betting companies Balto Sports and Vigtory are reflective of the company's commitment to exploring opportunities in the online sports wagering market.
fuboTV has successfully attracted customers for live sports streaming and then retained them with other on-demand content such as movies and drama series. Investors, however, are even more excited by the 206% year-over-year growth in the company's advertising revenue to $12.6 million in the first quarter, driven mainly by a rapidly growing subscriber base and improving engagement. Advertising revenue accounted for 10.8% of first-quarter total revenue, a significant improvement from 8% contribution in the same quarter of the prior year. With eMarketer expecting U.S. connected TV (CTV) ad spending to reach $25 billion by 2024, advertising revenue can become an even bigger part of fuboTV's business. The change in revenue mix will also boost the company's margins since acquiring and retaining subscribers is costly. In the first quarter, subscriber-related expenses accounted for almost 61% of the company's total operating expenses.
Trading at 12.9 times trailing-12-month sales, fuboTV is not cheap, especially since the company is still unprofitable. However, considering the structural tailwind of consumers increasingly shifting from linear TV to streaming services, on top of fuboTV's rapidly rising subscriber base, improving revenue mix, and foray into sports betting, the stock can prove to be an attractive pick even at these elevated levels.
2. NIO
Chinese electric vehicle (EV) maker NIO (NIO 8.35%) is gearing up for the NIO Power Day event on July 9. Investors have high expectations about big product and service announcements, bidding the stock up 9.6% in a single day after the event was announced.
While these expectations may or may not materialize, the company has already proved its mettle by ramping up production even amid a chip shortage. The company is aiming to deliver 21,000 to 22,000 vehicles in the second quarter (ending June 30), a year-over-year rise of 103% to 113%, and a sequential rise of 5% to 10%. The company estimates annual production capacity of 150,000 vehicles starting in July, and for 300,000 units from early 2022. With rapidly increasing scale and a focus on innovation, NIO can capture a significant market share in China, which is aiming to increase EV penetration in the passenger vehicle segment from the current 5% to 40% by 2030.
NIO's battery-as-a-service subscription model has played a major role in enabling the company to compete on lower prices and higher convenience. Here, customers can swap uncharged batteries for fully charged or upgraded ones in minutes, which is much faster than one and a half to two hours required for standard EV charging. The company currently operates 282 battery swap stations, 371 destination charging stations, 194 supercharging stations, and 380,000 third-party charging points in China. As NIO continues to increase vehicle deliveries, its recurring high-margin battery-as-a-service revenue will also rise in the coming months.
Trading at 24.9 times trailing-12-month sales, NIO's valuation seems rich. While the company is still not profitable, it posted lower-than-expected losses in the first quarter. NIO will now face competition not only from Tesla but also from other global automakers such as General Motors and Volkswagen, which have focused their attention on the Chinese EV market. However, despite these challenges, and thanks to its robust business model and Chinese market know-how, NIO seems well-positioned for significant growth in the coming years.
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3. Magellan Midstream Partners
After a very difficult 2020, midstream oil and gas player Magellan Midstream Partners (MMP) has gained over 15% so far this year. The company operates the largest refined petroleum products (mainly gasoline and diesel fuel) pipeline in the U.S. extending around 9,800 miles with 54 terminals and 47 million barrels of liquid storage. After falling year over year by 15.9% in 2020, the U.S. refined petroleum products market is expected to increase by 7.5% in 2021. MMP stands to benefit from this trend since it has access to nearly half of refining capacity in the U.S. Based on expected recovery in travel and overall economy and contribution from the expansion of pipeline network in West Texas, the company expects shipments of gasoline, distillate, and aviation fuel to be up year over year by 13%, 10%, and 25%, respectively, in 2021.
While increasing penetration of electric vehicles is a threat, the U.S. Energy Information Administration estimates total refined petroleum products demand in MMP's target markets to continue to rise slightly through 2050. The company is also shifting its focus on the transportation and storage of crude oil and has been expanding its role in the transportation of renewable fuels.
Magellan Midstream Partners sports a dividend yield of 8.4% and has consistently paid dividends for the past 20 years. The company expects its annualized distribution coverage (distributable cash flows divided by total payouts) to reach 1.17 in fiscal 2021, close to the long-term annual target of 1.2. The company also has a solid balance sheet and is one of the highest-rated midstream players in the U.S. Magellan has a $1 billion credit facility available through 2024, while the next bond maturity is not until 2025. Against this backdrop, the company has sufficient financial flexibility to pay dividends for many more years in the future.
Magellan Midstream Partners is currently trading at an enterprise value-to-EBITDA multiple of 13, which is higher than the oil and gas industry median multiple of 9.95. Retail investors should also be cognizant of taxation challenges associated with investing in a master limited partnership (MLP), especially if it is for a retirement account. Despite these challenges, the company offers an attractive risk-reward proposition to retail investors due to improving demand for refined oil products, a diversified revenue base, and a high dividend yield.
