Whether your retirement is decades away or much sooner, planning is everything. Both bull and bear markets can still supply investors with myriad compelling buying opportunities.
If you're investing according to your personal investing thesis and risk tolerance level, even a volatile market like investors are currently seeing shouldn't keep you on the sidelines. Here are two smart stocks to buy in 2023 that can deliver superior growth in the years ahead and help you retire richer.
1. Upstart
Upstart (UPST 2.76%) has faced a lot of negative market sentiment of late. The broader volatility afflicting the economy and the continued high interest rate environment have not only affected borrower demand, but also creditworthy consumers as household debt increases and savings decline. Upstart's model operates using proprietary algorithms driven by artificial intelligence and machine learning. It uses this model to assess whether or not to approve loans, factoring in non-traditional elements like someone's education as opposed to primarily using their FICO score.
With its array of loan offerings, including personal loans, small business loans, and auto loans, it's not hard to see why people, including those who may have been excluded from the lending market in the past, have flocked to Upstart's platform.
In fact, the company has processed over $30 billion worth of loans since its inception just over a decade ago. According to the results of an internal study, Upstart's approach enabled it to approve the same number of loans as traditional U.S. banks, with 53% fewer defaults. And 75% of all loans processed through the platform are fully automated.
Right now, a few issues led to a decline in Upstart's revenue and its foray back into unprofitability. For one, there's the environment at hand. The people being approved for loans are facing higher interest rates. Historically, one of Upstart's key benefits to consumers was the ability to extend credit at lower-than-average interest rates compared to traditional lending platforms. Fewer people are even applying for loans right now, given how high interest rates still are.
It's also important to understand how Upstart funds its loans. In a typical economic environment, most of Upstart's loans are sold to institutional investors or its bank and credit union partners, with the company retaining a small portion on its balance sheet.
However, given the level of lending risk present in the current environment, and how high interest rates are, its partner investors are funding fewer loans than in the past. As a result, Upstart reported total loans, notes, and residuals on its balance sheet to the tune of $704 million in the third quarter, more than five times the loans it carried on its balance sheet in the same quarter in 2021.
So, why should investors still consider this company? Well, a number of the hurdles facing the business have been due to factors outside its control. While some are tied to the core structure of how its business operates, Upstart retains a key competitive advantage that can prime it for a rapid recovery once the economy and interest rates improve.
This advantage is its proprietary platform, which is continually adjusting to the risk and macro elements present in any given environment. As CEO Dave Girouard noted in the third-quarter earnings call: "I want to be clear, contraction in lending volume in a time of rising rates and elevated consumer risk is a feature of our platform, not a bug. In fact, it's required in order to generate the returns lenders and investors expect."
Upstart still has plenty of cash on hand to cover the loans it's carrying. And even as loan volume is down -- which is where revenue and profits take a hit -- Upstart is rapidly expanding its network of lending partners and market share in the lending sectors in which it operates, each of which represent multi-billion-dollar addressable opportunities.
The company ended Q3 with 170% more banks and credit unions in its lending network than in the prior-year period, and 140% more auto dealers. In addition, its software-as-a-service product Upstart Auto retail is seeing such rapid deployment that it is now available to roughly 25% of the entire auto consumer market nationwide.
For now, investors will likely have to contend with more volatility. However, given the continued growth of Upstart's partner network, the benefits that it affords to both lenders and borrowers, and its platform which is constantly learning and regulating to the economic landscape, these are all durable advantages that can help this fintech stock maintain its disruptive potential. Over the long term, shareholders could be rewarded in the process.
2. Fiverr
Fiverr (FVRR 3.74%) witnessed mixed investor sentiment over the past year, although shares are up about 50% over the past month amid a stream of favorable market days. The rise of remote work was well underway before the pandemic, and the period of prolonged lockdowns certainly spurred the growth of this trend.
Now, as much of the world has returned to normal and offices have reopened, some investors might be wondering whether the thesis still holds true for Fiverr. Given the continued adoption of remote work, and particularly the expansion of the gig economy, Fiverr continues to be in a fantastic position to capitalize on these trends over the long term.
According to a 2022 Gallup survey, more than 70 million workers in the U.S. alone can perform their job tasks remotely. On top of that, only one out of two workers who could do their jobs remotely are working in the office on a full-time basis. Homing in on the freelance economy specifically, a recent Fiverr study found that 73% of workers in the U.S. plan to freelance in 2023.
Keeping these figures in mind, it's important to point out that Fiverr's platform provides a distinct value proposition for both buyers and sellers of freelance services. Buyers, which include small businesses and large companies like Fortune 500s, can access freelance talent across an incredible selection of task types, from legal consulting to copywriting to accounting. They can use Fiverr's platform to not only hire individual freelancers, but to retain and manage entire teams both online and offline.
For freelancers, the use case is clear. The ability to set fees and earn money for any number of freelance services while working for a multitude of clients from the ease and comfort of one's chosen location is attractive in any environment, particularly one where many fear losing their full-time jobs and are looking for ways to earn extra income.
Fiverr is still steadily growing its revenue and take rate, while average spend per buyer was up 12% year over year in Q3 2022 alone. As the current landscape fuels the rise of remote work and the gig economy over the next decade, Fiverr stands to benefit from these durable tailwinds.
For investors, Fiverr's position as a leading freelance platform serving buyers and sellers of gig services worldwide provides an intriguing opportunity to invest in a potential disruptor with superior long-term potential.
