Even as share prices remain weighed down from all-time highs across a variety of sectors, there are still businesses performing remarkably well in the current environment. If you're in a financial position to put some cash to work right now, this could be a fantastic opportunity to buy some of these wonderful companies.
When you're investing in stocks in any environment, be it bear or bull, it's important to look beyond the share price of the company in that moment in time and focus on the underlying business at hand. Companies with strong leadership, long-term competitive advantages in their respective industries, strong financials, and identifiable paths to future growth can help investors compound their returns over the long-term while building a solid portfolio that performs in a wide range of markets.
If you're on the hunt for two such compelling stocks to add to your buy basket in 2023, here are two names to consider putting on your list for this month.
1. Veeva Systems
Veeva Systems (VEEV 1.02%) provides cloud computing solutions for healthcare companies, specifically those in the life sciences and pharmaceutical industries. The company's services include everything from helping clients manage clinical trials to preparing them for regulatory submissions to commercializing their products. Veeva generates most of its revenue from subscriptions to its various cloud products, but also makes money from services like business consulting.
Veeva Systems counts big names like Merck, Eli Lilly, AstraZeneca, Moderna, and Biogen among its list of clients. While spending on cloud services is down across many industries as operating costs rise, Veeva's business revolving around as non-cyclical an industry as healthcare has enabled it to remain resilient throughout various economic cycles.
As CEO Peter Gassner noted in the third-quarter earnings call:
The factors that are going in Veeva's favor, first, I would say our customer feeling, our customer success viewing and track record of success that we've built up over time. That is a tremendous insulator in ... downtimes. [It's also] the nature of the industry. ... This is not like our airlines or hotels or luxury items, things like that, restaurants. People need their medicine in good times and bad. Medicine is a critical part of healthcare; without medicines, healthcare costs go up, etc. So, the spending doesn't change too much.
Veeva Systems generated $1.6 billion in revenue in the first nine months of 2022, representing an increase of 17% on a year-over-year basis. Even though its bottom line fell slightly, it still pulled in net income to the tune of $300 million, along with a gross profit of $1.1 billion in the nine-month period. Meanwhile, looking back over the trailing 10 years, the company has grown its annual revenue and net income by 780% and 1,700%, respectively. All this, while delivering a total return of about 366% in that same 10-year period The healthcare cloud infrastructure market is also expected to reach a valuation of roughly $66 billion this year.
Veeva's business revolves around a healthy mix of large enterprise clients, including some of the world's largest pharmaceutical companies, and companies in nascent stages of growth. Coupled with the diversity of its offerings and the general resilience of the industry it operates in, this gives it plenty of room to expand financial and shareholder returns in the years ahead, even if spending slows in certain segments in upcoming quarters.
2. Duolingo
Founded in 2011, Duolingo (DUOL 7.28%) is a language-learning company known for its user-friendly app with over 100 courses across 40 languages. Duolingo boasts more than 500 million users around the globe. Like many apps of its kind, Duolingo operates on a freemium model.
Most of Duolingo's users don't pay a dime to use the app, with the company generating its revenue on the free side through advertisements. However, users can pay for Duolingo's premium subscription offering to access ad-free browsing and other perks, starting at just $6.99 a month.
As of the third quarter of 2022, the company reported 14.9 million daily active and 56.5 million monthly active users, representing increases of 51% and 35%, respectively, from the prior-year period. The company also hit the 3.7 million paid subscriber mark in the quarter, up 68% year over year.
Duolingo reported revenue of $96 million in the three-month period, a 51% increase from the same quarter in 2021, while narrowing its net loss from $29 million in the year-ago period to $18 million. The company also reported an adjusted EBITDA of $2 million for the quarter.
Duolingo's competitive model and diverse language offerings have enabled it to amass a significant share over the years. As of 2021, the company was the most-used language-learning app, capturing more than 67% of this total market.
Bear in mind that the global language-learning app market is expanding rapidly and expected to hit a valuation of more than $32.5 billion before the end of the decade according to Adroit Market Research. Duolingo's dominant market position and enticing freemium model mean that it's well poised to capitalize on these tailwinds. Long-term investors may want to consider a position in this compelling business while it's still in its early growth stages.
