Recent business news headlines have been dominated by companies connected to artificial intelligence (AI), and by the market's emergence (by some definitions) from the longest bear market since the 1940s. AI chipmaker Nvidia has skyrocketed roughly 185% year to date. While that company has a bright future, its stock may be too hot to handle for many investors after those mammoth gains. Meanwhile, many under-the-radar stocks that have been delivering tremendous results with less hype could bring serious profits to long-term investors.
Let's focus on three unique secular-growth options.
1. Progyny has massive demand tailwinds
American couples are starting families much later in life than they used to. Back in 1972, the average age of first-time mothers was 21, compared to 26 now. People's desires to get their careers on a solid footing, achieve financial stability, and do a host of other things prior to becoming parents have propelled that trend.
There are also more nontraditional couples needing family planning, men who require fertility assistance, and women who choose to preserve their eggs through freezing. And in this environment, many companies seeking to provide fertility benefits to their employees are turning to Progyny (PGNY -1.42%).
Progyny provides family-building coverage through a network of specialists in all 50 states. Benefits include Smart Cycles (fertility treatments like in vitro fertilization), reproductive freezing and storage, and adoption reimbursement. Its services are offered through employers and collective health benefit plans.
The current, competitive labor market also plays in Progyny's favor. Employers seeking an edge to attract the best talent often aim to offer more expansive and high-quality benefits packages. At the end of the first quarter, Progyny had 379 clients (and more than 5.3 million covered members), a 44% year-over-year increase. The company's revenue comes from monthly fees per participant plus utilization. Progyny generated $258 million in Q1, up 50% from the $172 million it brought in during the prior-year period. It expects to pass the billion-dollar annual sales mark this year, with-top line growth of 32%. The company is also net profitable, long-term debt free, and has over $200 million in cash and investments on its books.
Progyny is still a fledgling company, so there are risks. First, while it is profitable, it will take time before it's generating consistent and significant earnings. Second, the stock is difficult to value because there are few companies doing similar things that are at the same development stage. That said, the potential rewards could outweigh the risks. The stock trades now nearly 40% below the all-time high it reached in 2021, and its price-to-sales ratio is near an all-time low.
PGNY PS Ratio data by YCharts.
Given the favorable demographics, family-building assistance is a terrific business in a growing niche. Progyny makes a compelling case for investors to take a speculative position.
2. The Trade Desk and the future of advertising
Chances are, you subscribe to at least one streaming video service like Netflix or Disney's Hulu, or watch online videos on a platform like Alphabet's YouTube. Younger demographics tend to spend even more of their leisure time with those services. To reach these viewers, advertisers must reach beyond traditional linear television, and this is where The Trade Desk's (TTD 1.67%) demand-side platform (DSP) makes hay in programmatic advertising.
Programmatic advertising reaches across mediums like connected TV, video, and display. It works like this: When publishers have ad space for sale, they request bids, and a DSP responds, bidding for space on behalf of its clients based on preset preferences. Sales are completed in a fraction of a second, allowing advertisers to target specific demographics, conduct omnichannel campaigns, control their spending, and receive quality data feedback.
The Trade Desk's business is booming as advertisers seek effective and efficient ways to market their products. Its revenue has skyrocketed by a total of 89% from $836 million in 2020 to $1.6 billion in 2022. Advertising spending is slowing down nationally as businesses cut their marketing budgets in preparation for a possible recession. However, The Trade Desk increased sales by 21% year over year in Q1 2023. Growing faster than the overall advertising market means it is expanding its market share. When ad budgets increase again, The Trade Desk will get a serious boost.
The Trade Desk stock has rallied by 76% year to date, but still trades 30% off its all-time high. Its valuation is not cheap at over 20 times sales, so investors should consider waiting for a pullback or scaling up their positions slowly. Still, it's a growth stock that investors should keep a keen eye on.
3. The U.S. home shortage will benefit Tecnoglass
U.S. home prices skyrocketed before the Great Recession started in 2008, and in the past several years, they have risen precipitously once again. This has caused many to infer that today's situation is similar to that one, but it isn't. Back then, home price growth was driven by easy credit and adjustable-rate loans that allowed people to bid up home prices they couldn't afford. Anyone who has purchased a home lately can tell you the easy credit days are long gone.
Home prices are still rising today in many markets even amid higher interest rates because the U.S. is short millions of single-family homes. Construction has increased, but household creation still outpaces it. How badly have we underbuilt since the Great Recession? Take a look at the graph of residential construction below:
U.S. Housing Starts data by YCharts.
It will take years, if not decades, for supply to catch up with demand, and while that construction occurs, architectural glass supplier Tecnoglass (TGLS 1.18%) will be a huge beneficiary. Tecnoglass produces windows and associated products for multi-family and single-family homes, and commercial projects. It serves the U.S. and Latin America, but over 90% of sales are made in the domestic market.
Tecnoglass management has improved its gross margin from 32% in 2019 to 53% in Q1 2023. That gave it an operating margin of 36%, which is strong for a fabricating company. The company expects sales of $810 million to $850 million this year, which would amount to an increase of 13% to 19%. And it has a long runway for growth due to the secular demand drivers discussed above.
Tecnoglass stock trades at a price-to-earnings ratio of 11, well below its average of 14 since the start of 2021, when revenue ramped up. But short-term economic headwinds are a risk that investors should watch.
