As an investor, I've heard it all recently, and I'm sure you have as well. Things like "The economy is too challenging," "Stocks won't see gains for years," "Tech is dead," and on and on. Meanwhile, some of my favorite holdings, like Builders FirstSource, Palo Alto Networks, and CrowdStrike Holdings -- up 85%, 36%, and 39%, respectively, in 2023 -- offer serious returns.
So what gives? The fact is that the market is unpredictable in the short term and a wealth-building juggernaut over time. The best investors don't time the market; they pick fantastic companies in secular growth arenas, buy opportunistically, and stay invested for the long haul. Mellody Hobson, Princeton grad and co-CEO of Ariel Investments explains it like this: "We don't prognosticate macroeconomic factors. We're looking at our companies from a bottom-up perspective on their long-run prospects of returning."
So, how do we find these companies, and which are right for you? The Trade Desk (TTD 7.71%), Progyny (PGNY 3.50%), and Airbnb (ABNB +0.15%) are three unique opportunities to consider for those looking to start by investing $1,000 or adding it to an existing portfolio. Let's check out why.
The Trade Desk is leading a radical advertising shift
The advertising landscape is changing as eyeballs shift from traditional television to connected television (CTV) -- TV accessed via the internet, like Sling or Netflix -- website and mobile display ads, and social media. Advertisers and agencies require comprehensive campaigns spanning modern media, and The Trade Desk's user-friendly platform gives them just that.
NASDAQ: TTD
Key Data Points
The platform provides billions of ad opportunities daily, and then the programmatic process kicks in as advertisers bid for the ad space based on algorithms that predict effectiveness. The advantage for advertisers is the ability to reach their target audience efficiently. This is why gross spending and The Trade Desk's revenue have soared. Gross spending is the amount that advertisers spend in total through the platform, and this has increased from $3.1 billion in fiscal 2019 to $7.7 billion in fiscal 2022. The Trade Desk's take from this (its revenue) has risen from $661 million to $1.6 billion over the same period. This growth is a testament to the platform's value.
Advertising spending is slowing down this year because of the challenging economy, but this is a short-term headwind that could benefit The Trade Desk in the long run. This economy forces advertisers to be selective and focus on getting the most bang for their buck. Turning to targeted advertising is a great way to accomplish this, and it explains why The Trade Desk grew faster than the industry as a whole in the first quarter.
The stock is up 49% in 2023 but still more than 35% off its all-time high. The price-to-sales (P/S) ratio has reverted to its pre-pandemic level, which makes it a compelling stock given the company's excellent performance and secular opportunity.
Progyny capitalizes on a demographic trend
You might not know Progyny, but it could become a household name someday. The average age of U.S. birth mothers has increased from 21 in the early 1970s to over 30 today. While there are many reasons for the trend, (careers, education, traveling, finances, and the like), one result is a growing need for help with fertility -- a struggle for nearly 20% of couples. Having coverage from a company like Progyny can be a lifesaver -- or more accurately, a life creator.
NASDAQ: PGNY
Key Data Points
Progyny provides fertility benefits coverage to employees through their employer or union health plan. It has a network of providers in all 50 states and is increasing its client base as employers offer benefits to compete for top employees. The company reported 379 clients (covering 5.4 million workers) in the first quarter, up 44% from the 264 clients a year prior. This is terrific growth in this economy and shows strong demand for coverage.
Sales increased 50% year over year in the first quarter to $258 million. Progyny expects to exceed $1 billion in revenue in 2023, easily topping 2022's $787 million. The company is profitable during this growth phase, forecasting $0.42 to $0.48 in earnings per share (EPS) this year.
It's challenging to value Progyny stock since it is a smaller company without close comparables. The forward price-to-earnings (P/E) ratio of 80 is high; however, it could drop sharply if growth trends continue. Also, the stock trades near its lowest P/S ratio since its 2019 initial public offering. Dollar-cost averaging is wise, and Progyny stock is best for long-term speculative investors.
Airbnb has gobs of free cash flow
Airbnb learned to do more with less during the pandemic, and shareholders are the beneficiaries. While other tech companies are laying off tens of thousands of employees, Airbnb already operates with a workforce 5% smaller than in 2019. Meanwhile, 2022 revenue was 75% higher than in 2019.
NASDAQ: ABNB
Key Data Points
Management says having fewer people in meetings allowed the company to make quicker decisions and focus on core priorities. The result is its first-ever profitable year under generally accepted accounting principles (GAAP) in 2022, followed by its first GAAP-profitable first quarter this year. Airbnb pulled in $8.4 billion in revenue and $1.9 billion in net income in 2022, followed by $1.8 billion (up 20% year over year) in sales and $117 million in net income in the first quarter of 2023.
The best thing about Airbnb's business is that it is capital-light. In other words, it doesn't require heavy investment in infrastructure and equipment, so the company -- and shareholders -- keep more cash from the profits. It posted $3.4 billion in free cash flow (FCF) in 2022 on a 40% margin. It is using some of this wealth to reward shareholders with stock buybacks, including nearly $500 million in the first quarter.
This year could be another great one as travel spending is expected to exceed 2019 levels for the first time since the pandemic struck, according to Statista.
Airbnb stock trades 76% off its all-time high and 27% off its 52-week high. Both its price-to-FCF and P/S ratios trade below their one-year averages, making the stock a terrific option for investors.
These dynamic companies make great cases for a $1,000 investment. Or an investor could split it among them to take advantage of the diverse industries.
