For the average investor, putting cash into the stock market should be a long-term game. You're not going to beat the returns of fund managers or investment gurus by applying strategies like market timing, which is neither a consistent nor sustainable means of growing returns that stand the test of time.
The good news is, you don't need a special formula or crystal ball to build a market-beating portfolio. If you're investing in wonderful companies in all market environments, and putting your cash to work wisely in businesses that you understand and believe are solid long-term investments, patience and time can be your best allies.
If you have $2,500 to invest in stocks this month, here are two companies to consider adding at least part of that amount to when you go stock shopping.
1. Airbnb
Airbnb (ABNB +0.48%) continues to prove that its place in the global travel industry appears to be here to stay. With a business that raked in revenue of $1.8 billion and profits of $117 million in the first three months of 2023 alone, it's increasingly apparent that the company is benefiting from both the continued travel recovery and also varied patterns of travel spending.
As of most the recent count, 18% of all bookings completed on Airbnb are for a month or longer. Those aren't your average leisure or business travelers. Meanwhile, 45% of stays booked on Airbnb are a minimum of a week. And so many people are looking to host stays on the platform given the resurgence in travel and the draw of earning additional income in a constrained macro environment that active listings surged 18% in the first quarter compared to the year-ago period.
Clearly, one of the biggest concerns shareholders might have about this business revolves around what could happen if a recession hits. First, it's reasonable to expect that if a recession does happen -- and the jury's still out on that one -- any company with exposure to the travel industry will face turbulent waters. However, one of the things that I find so intriguing about Airbnb is the way in which it continues to innovate to meet the changing needs of both hosts and guests using its platform.
NASDAQ: ABNB
Key Data Points
The company unveiled over 50 new updates in its most recent platform upgrade, including tools to help hosts better price listings given the stays available in their area, better pricing visibility for guests, more information about hosts upfront so guests know who they're staying with, and even more affordable stay options. That last piece is key, particularly in an environment where spending could potentially tighten in the coming months.
With the launch of Airbnb Rooms, guests can find places for short-term or long-term stays where the average cost is just $67 a night. Not only is that affordability incredibly attractive in any macro environment, but management is betting that this will open up the platform to new swaths of younger travelers as well.
No matter what happens in the next six to 12 months, Airbnb is building a profitable and cash-rich business that is poised to grow in the future and continue changing the status quo for travelers. For long-term investors, that buying proposition may be worth a second look.
A $2500 investment in Airbnb would deliver about 20 shares to one's portfolio.
2. Upstart
Upstart (UPST +10.04%) isn't the only company contending with the pitfalls of a challenging lending environment. However, the online platform, which connects loan applicants to lenders, has garnered attention from investors over the past year as it's one of the few names operating at its size and scale that is seeking to disrupt this traditional industry.
There are still a lot of things to still like about this business, and one of the biggest issues that has kept some investors at bay -- its funding model -- seems to be working toward steady resolution. It's important to understand that Upstart doesn't actually fund most of the loans approved on its platform. Instead, it serves as a way station between consumers and lenders, such as banks or credit unions. It generates most of its revenue from fees related to that process.
Because the cost and risk associated with buying or funding loans has risen for both institutional investors and traditional banks, and given the high interest rates, fewer loans have received outside funding and fewer consumers have been applying for loans. The long and short of it is, Upstart's had to carry more than usual on its balance sheet, which has bloated its debt and driven its bottom line into the red.
Still, for perspective, as of the first quarter, only 12% of loans were funded through Upstart's balance sheet. The remaining 88% were funded by its originating lending partners and institutional investors.
NASDAQ: UPST
Key Data Points
On top of that, Upstart just secured multiple rounds of outside funding, including through alternative investment firm Castlelake. This is a good sign that investors should see the loans on its balance sheet shrink in coming quarters.
In addition, the company continues to improve its platform accuracy and automation, with its model delivering a total of 23 upgrades in the first quarter alone and reaching the point where now 84% of all loan approvals occur without a human involved. Upstart has 99 lending partners as of most recent count, compared to 50 one year ago and just 10 at the time of its market debut in December 2020.
Upstart's journey to approving or denying a loan application goes way beyond the normal FICO score model. The fintech uses artificial intelligence and machine learning to analyze well over 1,000 data points that form a better assessment of the creditworthiness of an applicant.
Clearly, lending partners see the value in this business model even in the current environment. In a healthier lending landscape, the competitive model that Upstart wields can help it return to revenue growth and profits, particularly as its funding issues are looking like less of a concern.
A $2500 investment in Upstart would deliver about 78 shares to one's portfolio.
