There's perhaps no expense more terrifying in this country than four-year college education costs. According to data from U.S. News, the average annual tuition and fees at ranked colleges in the 2022-2023 year surpassed $10,400 for in-state public colleges, came in just shy of $23,000 for out-of-state public colleges, and nearly eclipsed $40,000 for private universities. This isn't pocket change, and the price of a college education keeps climbing.
While there are a number of ways for parents and grandparents to tackle the high cost of postsecondary education for today's children, a possible solution is to buy stakes in game-changing businesses and allow time to be your ally. The key word here is "time," because while the stock market does increase in value over the long run, its year-to-year performance is anything but predictable. The more time you have to allow your investment thesis to play out, the likelier you are to generate life-altering gains.
Image source: Getty Images.
Assuming you have plenty of time before your kids or grandkids enter college and you won't need the money you've set aside to cover bills or emergencies, investing that money in the following three game-changing stocks may allow you to put your kids or grandkids through college.
The first innovative stock that can potentially help send your child or grandchild through college is social media platform Pinterest (PINS +1.29%).
Businesses that rely on advertising for a substantial portion of their revenue, like Pinterest, have been taken to the woodshed during the current bear market. It's pretty normal for advertisers to pare back their spending at the slightest hint of economic weakness. As a reminder, the first half of 2022 saw U.S. gross domestic product decline.
NYSE: PINS
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However, a rough couple of quarters certainly doesn't define Pinterest or mask the company's competitive advantages. As an example, even though the company's monthly active user (MAU) count whipsawed higher and lower during the COVID-19 pandemic, a wider-lens look spanning five or more years clearly shows that the company's active user count is climbing.
The real key, of course, is monetizing its 445 million MAUs. Even with most advertising companies seeing marked declines in ad spending throughout 2022, Pinterest sustained double-digit global average revenue per user (ARPU) growth. While ARPU in Europe was weak, Pinterest's rest-of-world segment delivered 38% ARPU growth in the September-ended quarter.
Pinterest is also uniquely positioned to excel with app developers giving users the choice to turn off data-tracking software. Whereas many of its social media competitors rely on likes and data-tracking tools to help advertisers target users, Pinterest's entire platform is based on users willingly sharing what interests them on their pinned boards. This free information helps merchants target Pinterest's MAUs and can be the perfect segue for Pinterest to become a major e-commerce player.
Lastly, Pinterest is sitting on a small fortune. It closed out September with nearly $2.7 billion in cash, cash equivalents, and marketable securities. This cash-flow-positive company can handle whatever the U.S. economy can throw its way in the short run.
NASDAQ: LOVE
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Lovesac
A second game-changing company with the ability to put your kids or grandkids through college is furniture stock Lovesac (LOVE 2.78%). Yes, I said "furniture stock."
The furniture industry is a low-margin, slow-growing retail segment in desperate need of disruption. Most furniture retailers purchase their products from a small group of wholesalers and rely almost entirely on foot traffic into their stores to generate revenue. From its products to its sales channels, Lovesac is turning this stodgy industry on its head.
The most obvious differentiator for Lovesac is its furniture. While it was initially best known for its beanbag-styled chairs, called "sacs," approximately 90% of its revenue now derives from sactionals -- modular couches that can be rearranged dozens of ways to fit most living spaces. The allure of sactionals, other than functionality, is that they come with over 200 different cover choices. Further, the yarn used in these covers is made from recycled plastic water bottles. This combination of eco-friendly/functional furniture has made Lovesac's products especially popular with millennials.
But it's not just the furniture that's helping this company stand out. It's how Lovesac is reaching its customers.
During the pandemic, the company was able to shift close to half of its sales online. This came in addition to its existing brand-name partnerships and its pop-up showrooms. The company's omnichannel sales platform, which also includes physical retail locations, has led to reduced inventory expenses and a push to profitability that came well before Wall Street had expected.
Something else working in Lovesac's favor is its price point. Sactionals tend to be costlier than the traditional sectional couches you'll find at other brick-and-mortar retailers. This price difference has to do with its functionality, optionality, and its environmental, social, and governance (ESG) ties, as well as the fact that sactionals can be upgraded with wireless charging technology and premium surround sound. The key point here is that, in targeting a more affluent customer, Lovesac is less prone to minor economic downturns and inflation.
What parents and grandparents are getting when they invest in Lovesac for their future college graduates is a company capable of sustained double-digit sales growth that's exceptionally cheap based on the trajectory of its bottom line.
Image source: Getty Images.
PubMatic
The third game-changing stock that can put your kids or grandkids through college is none other than small-cap adtech company PubMatic (PUBM +0.73%). PubMatic is a sell-side platform (SSP) that uses its cloud-based programmatic ad platform to help publishing companies sell their digital display space.
Similar to Pinterest, PubMatic has observed weakness in ad spending over the past couple of quarters. But this weakness is a two-sided coin. Even though downturns and recessions are inevitable parts of the economic cycle, periods of economic expansion last substantially longer. In short, the ad industry spends a disproportionate amount of time expanding versus contracting. That's a numbers game long-term investors in PubMatic are going to appreciate.
NASDAQ: PUBM
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What really makes PubMatic such an intriguing investment is where it sits within the advertising space. Specifically, it's focused on mobile, digital video, and connected TV (CTV) programmatic ad spending, which are the three fastest-growing segments within the digital ad arena. While global digital ad spending is expected to grow by 15% annually through 2025, PubMatic's organic growth rate has regularly come in between 25% and 50% (mostly thanks to the rapid growth of CTV programmatic ad spending). As ad dollars continue to shift to digital channels, there's absolutely no reason PubMatic's organic growth rate can't continue to outpace the industry's average expansion rate.
Another reason PubMatic is capable of handily outperforming its peers and the broader market is the decision it made years ago to design and build its own cloud-based infrastructure. Choosing to build out its platform instead of relying on a third party will allow the company to hang onto more of its revenue as it scales, the end result being juicier operating margins.
This is also a good time to mention that there's been quite a bit of consolidation among SSPs in the programmatic ad industry. With few major players left, PubMatic's cloud-based platform stands out as a logical choice to grow its existing base of publishing clients.
PubMatic ended September with $166.1 million in cash, cash equivalents, and marketable securities; had no debt; and is profitable on a recurring basis in the fastest-growing niche of the digital ad industry. It's a grade A, long-term investment that can deliver for America's future college grads.
