This has been the year of the stock picker. Look no further than the big three indexes for proof: The Nasdaq Composite is up 20%, the S&P 500 is up 9%, and the Dow Jones Industrial Average is up nearly 1%.
More to the point, some individual stocks are up -- or down -- far more. Nvidia, for example, is up a staggering 116% year to date.
With so much variance in the market, making smart investment decisions is more crucial than ever. So, let's have a look at some stocks up more than 20% that have caught the eye of three Motley Fool contributors: Alphabet (GOOG 1.25%) (GOOGL 1.27%), Nu Holdings (NU 2.92%), and Upstart Holdings (UPST 3.90%).
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Another stellar quarter makes Alphabet a no-brainer stock to own
Jake Lerch (Alphabet): Up 39% year to date, Alphabet has been the 18th best-performing stock in the S&P 500. That might come as a slight surprise, given Alphabet's clumsy rollout of its Bard AI service back in March.
However, Alphabet recently bounced back with an impressive Google I/O developer conference that had consumers and analysts buzzing. Highlights include:
- Pixel Fold, a new folding screen phone with a $1,799 price tag.
- Multiple updates to the Android Auto service.
- Forthcoming AI integrations into Google Search, Android, and Google Workspace apps like Google Sheets, Docs, and Slides.
In a nutshell, Alphabet is firing back at competitors like Apple and Microsoft. First on the hardware front, with its new phone. Second, on the AI front, with features designed to keep users with a wandering eye from straying to Microsoft's Bing search engine.
What's more, Alphabet's recent first-quarter results have demonstrated that the company remains on rock-solid financial ground. Alphabet beat top- and bottom-line estimates, with $70 billion in revenue and $1.17 per share in earnings. And, despite overall weakness in the digital ad market, YouTube beat estimates with $6.7 billion in ad revenue for the quarter.
In short, Alphabet remains a no-brainer stock to own, even after its 33% year-to-date rally.
The company changing the face of personal finance in Latin America
Will Healy (Nu Holdings): Admittedly, U.S. investors may not understand the significance of what NuBank parent Nu Holdings offers its customers. Most Latin American countries have only a small number of banks, with just over 150 banks operating in Brazil, according to the Brazilian Federation of Banks. Consequently, Latin America is primarily a cash-based society since hundreds of millions of those living in the region are either unbanked or underbanked.
Conversely, in the U.S., more than 4,100 banks of all sizes conduct business. And, according to the FDIC, about 82% of U.S. households have a bank account, a factor that makes it easy to take account availability for granted.
NuBank, the world's largest digital bank, has started to reach out to the unbanked and underbanked population, especially in its native Brazil. Thanks to NuBank, 5.7 million Brazilians obtained their first credit card from July 2021 to July 2022.
Moreover, this bank now claims more than 79 million customers in Brazil, Mexico, and Colombia. With that growth, the fintech stock's revenue in the first quarter of 2023 reached $1.6 billion, 87% above year-ago levels. It also posted its third consecutive quarterly profit, earning $142 million in Q1, up from a loss of $45 million one year ago.
Additionally, it may reassure investors that Warren Buffett's Berkshire Hathaway invested in Nu Holdings before its IPO. The stock lost most of its value following its introduction, which means average investors may have a chance to buy in at a lower price than Buffett. Yes, the stock has risen by about 80% from its 2022 high. Still, the price of approximately $6 per share at the time of this writing is almost 50% below its record high.
Furthermore, the current price-to-sales (P/S) ratio of 9 is just above its all-time low. Considering the company's outreach to new customers, massive revenue growth, and profitability, a recovery in Nu Holdings stock may have barely begun.
Game-changing fundamental improvement makes Upstart a potential long-term winner
Justin Pope (Upstart Holdings): AI lending marketplace Upstart was a big winner when low interest rates facilitated strong loan demand from consumers. But growth hit the skids last year when rates surged to get inflation under control. The company could no longer find buyers for some of its loans and began stashing them on its balance sheet, sending investors running to the exits. After declining more than 95% from their peak, shares are up more than 60% since May 1.
UPST Gross Loans (Quarterly) data by YCharts
So, what caused the abrupt turnaround? Upstart announced in its first-quarter 2023 earnings report that it had secured $2 billion in committed funding. That's a big deal because it means Upstart can approve a loan knowing it already has a buyer lined up. Upstart followed this up with another announcement of an additional $4 billion from Castlelake, a combination of taking existing loans off Upstart's books and future loans.
Upstart must continue lining up committed funding, but this is a huge deal because it chips away at the idea that Upstart relies on low rates for investors to purchase its loans. It potentially makes Upstart a steadier business that can operate through the ups and downs of credit markets. Most importantly, it greases the wheels for future growth, which Upstart will pursue in the automotive and home equity loan categories.
The stock will look increasingly cheap as Upstart's business recovers and begins turning a profit again. Analysts believe the company could earn $1.07 per share in 2025, valuing the stock at a price-to-earnings ratio of 18 against that estimate. However, as Upstart continues expanding its capacity to approve loans, that could look conservative if Upstart keeps signing up new partners. Buy Upstart with a five-plus year horizon in mind, and you could be in for a fun ride.
