In September, the stock market ramped up on volatility, making it a tough month for investors, and many are looking for some traction heading into the next earnings season. When the market struggles, the strongest stocks still perform while more speculative names tend to sell off.
Here are three quality no-brainer companies whose stocks have been winners over the past three months and could continue their upward trajectory whether the broader markets bounce back or not.
1. Tesla: Another quarter of strong deliveries
The stock price of Tesla (TSLA) has been up roughly 20.3% over the past three months. CEO Elon Musk has made notable progress in its operations recently, such as the looming release of its next version of autonomous driving software, FSD beta version 10.2. The company continues to refine its self-driving technology, collecting immense amounts of data from its customers as they test each passing version.
Tesla's ability to deliver vehicles is impressive considering the struggles that competitors have experienced due to global supply constraints, especially for semiconductors. It recently announced a record high of 241,000 vehicles delivered for the third quarter of 2021, topping analyst estimates of 233,000. Legacy competitor General Motors saw its third-quarter vehicle sales fall 49% from 2020, and Ford saw sales fall 18% over the same period.
Tesla's profitability is improving as its deliveries continue to grow; analysts expect it to earn $5.44 per share in 2021, a 122% increase over 2020. The stock isn't cheap, at a price-to-earnings ratio of 143, but as the clear leader in electric vehicles, it will have a long runway to grow into its valuation.
2. Snap: A Gen Z social media favorite
Social media has grown over the past 15 years and is now a massive space in the advertising industry that could attract as much as $49 billion from brands in the United States alone this year. Social media platform Snap (SNAP) is among the most popular networks, with 293 million daily active users worldwide.
According to a survey by Piper Sandler, Snap was the most popular social media app among the 10,000 teens polled, who averaged just under 16 years of age. The typical participants checked their Snap app 30 times per day.
The focused attention of its users makes Snap an attractive partner for advertisers, especially as social media platforms are beginning to merge with e-commerce companies to sell to users through apps. Snap's revenue grew 116% year over year in the second quarter of 2021, driven both by user growth (up 23% year over year) and by revenue per user (up 76% year over year).
Analysts expect Snap to earn $0.36 per share in 2021, so the stock is very pricey at a whopping P/E ratio of 202. But the company is growing rapidly, and EPS estimates call for triple-digit percentage growth for the next two years, so it could grow into its valuation over time.
3. Snowflake: An incoming data blizzard
Many ompanies are sitting on mountains of data but don't know how to access it, organize it, or learn from it. That's where data-warehousing company Snowflake (SNOW 7.80%) comes in. Snowflake's cloud-based software allows companies to store their data in its virtual warehouse, which can be easily accessed and integrated into hundreds of third-party apps for analysis.
Snowflake is making it possible for data to be bought and sold on its platform, like a marketplace where companies can buy access to data and integrate it into their applications. The company grew revenue 103% year over year in its fiscal 2022 second quarter, and its customers are increasing their spending on Snowflake by 69% once they start using it. It still has just 5,000 customers, which leaves a huge opportunity to grow over the years ahead as data eventually becomes a vital component for every business to compete in the global economy.
The stock has been very popular with investors, who have bought it up to a price-to-sales ratio of 76 and made it one of the more expensive growth stocks on the market. Data never disappears; we only create more of it. So Snowflake's usage-based revenue model could fuel long-term growth and help the stock justify its valuation over time.
Should you still buy?
You might have noticed that I've referred to all of these stocks as "expensive." But in a market correction, the winners will often show the most strength, and quality stocks often command premium valuations.
Investors should consider valuations before scooping up shares, but these three winners could have the growth and business models to continue performing well into the future. It can pay well to hold quality companies for a long time, letting their fundamentals catch up to their stock prices and beyond.