Investing in a bearish market can be daunting, but it can also be an excellent opportunity to buy low and potentially sell high in the future. One strategy you could use is investing in more conservative vanilla assets, such as diversified exchange-traded funds (ETFs) or blue chip stocks, to preserve your capital and generate a stable income. This can provide a sense of security and help weather the storm during a bear market.
On the other hand, you could also consider adding some spice to your portfolio by investing in riskier assets, such as high-growth tech stocks or emerging market securities, which have the potential to generate higher returns but also come with greater volatility. This can help you take advantage of any potential market upside and enhance your overall returns.
Ultimately, your approach will depend on your individual goals, risk tolerance, and investment horizon. Therefore, it's important to carefully consider your options before making any investment decisions.
We are here to help you add some flavor to your portfolio before the new year. Read on to find one ultra-reliable vanilla stock and one spicy high-growth ticker that's on fire sale. Both can be a part of a healthy investing diet for 2023.
Vanilla: Costco
Everybody knows Costco (COST -0.92%). The membership-based retailer runs a chain of warehouse clubs where members can shop for everyday staples at discounted prices.
The company's business model is based on the idea that selling products in bulk and operating on a low-cost basis can offer its members significant savings on their purchases. At the same time, Costco is famous for its sector-leading salaries and benefits packages.
Low merchandise prices and generous employee compensation? That sounds impossible, especially in the notoriously low-margin retail industry. But Costco has a clever trick up its sleeve.
A large portion of its profits comes from the membership fees. For example, Costco reported $7.8 billion in pretax income in fiscal year 2022, which ended on Aug. 28. In the same period, membership fees added up to $4.2 billion with no costs to speak of. That's 54% of Costco's total operating income.
Costco has a long history of crushing the market with this innovative spin on the ho-hum warehouse retailer strategy. The stock has delivered more than double the dividend-adjusted returns of the S&P 500 index over the last five and 10 years. The lead grows even larger over longer periods, as shown in the chart.
COST Total Return Level data by YCharts
The stock isn't exactly cheap, trading at 36 times trailing earnings. However, you're paying a modest premium for a genuinely excellent company. You'll never lose sleep over Costco's future business prospects. The stability even applies to shorter time spans. Share prices are down by 8% over the last year, handily beating the S&P 500's 17% drop.
You can sleep even tighter with Costco shares under your pillow by dollar-cost averaging your way into the stock. Try it in 2023. I think you'll like the results five or 10 years later. That's what an ultra-reliable, plain-vanilla stock like Costco can do for you.
Spice: The Trade Desk
If Costco puts you to sleep, let's buckle up for a wilder ride.
The Trade Desk (TTD -2.24%) runs digital ad campaigns on behalf of other companies, based on a massive database of web-browsing consumer data with a steady inflow of fresh data points. These tools help The Trade Desk's clients squeeze maximum value out of their marketing campaigns. That's a valuable service any day of the week, and even more so in an era of tightened belts and lower budgets around the advertising space.
The Trade Desk serves a troubled market in 2022, but from a unique angle that only makes its services more essential when other digital ad specialists are struggling. Remember, it's all about optimizing the ad-space buyers' return on their investment. In a perfect world, that leaves more money in The Trade Desk's customers' pockets and less in the coffers of actual advertising platforms.
So it's not surprising to see this company deliver robust results during an inflation-inspired downturn in the advertising market. The Trade Desk has reported nothing but solid results in recent quarters. Revenues rose 31% year over year in last month's third-quarter report, and this company is a veritable cash machine, as the chart demonstrates.
TTD Revenue (TTM) data by YCharts
Yet Wall Street has treated The Trade Desk badly in the inflation-flavored economy of 2022. The stock traded at lofty valuation ratios such as 148 times free cash flow and 42 times sales a year ago. Many investors backed away from growth stocks with pricey stocks in recent months, including The Trade Desk. So share prices are down by 49% in 52 weeks.
That's painful for existing shareholders but a buying opportunity for every growth investor. The stock still isn't cheap, at 48 times free cash flows and 16 times sales, but the price premium is reasonable in light of The Trade Desk's seemingly unstoppable business growth.
Whether the online ad market turns back up or not, The Trade Desk benefits from a larger-scale move as marketing budgets leave their radio and cable TV ad breaks in favor of digital alternatives. Market makers should eventually get the message and give The Trade Desk the richer price premium it deserves. Adding a sprinkle of this spicy stock could give just a hint of heat to your portfolio in 2023.
