It's officially summer, but outdoor temperatures aren't the only thing that's heating up. Since the beginning of the year, the growth-focused Nasdaq Composite and broad-based S&P 500 have been on fire. As of the closing bell on June 22, the S&P 500 and Nasdaq Composite were higher by 14% and 30%, respectively, for the year.
But in spite of these gains, both iconic indexes, along with the Dow Jones Industrial Average, remain well below their all-time highs. In other words, it means bargains still abound for patient investors.
What follows are three scorching-hot summer buys that have the potential to triple your money.
Image source: Getty Images.
Paramount Global
The first stellar stock with the tools and intangibles needed to heat up the portfolios of patient investors is media company Paramount Global (PARA -2.22%). Although the current environment for advertisers is far from ideal, Paramount has a few key catalysts that, along with its dividend, could triple your initial investment.
To start with, time is an important ally for ad-driven businesses. Although advertisers are quick to pare back their spending at the first signs of trouble, U.S. economic expansions last considerably longer than recessions and contractions. It's a simple numbers game that puts ad-pricing power in Paramount's court more often than not.
Beyond an expected increase in long-term ad sales from legacy media, Paramount should make waves with its direct-to-consumer segment. Paramount+ has reached 60 million global subscribers. With the integration of Showtime with Paramount+, the company shouldn't have any trouble raising its monthly subscription price. When coupled with cost-cutting, Paramount looks to be taking the necessary steps to eventually reach profitability with its streaming segment.
What's more, Paramount Global owns Pluto TV, the leading free, ad-supported streaming service in the United States. Pluto TV's monthly active user count surged to 80 million in the March-ended quarter. If the U.S. economy were to enter a recession, arguably no streaming service would be better positioned than Pluto TV.
Paramount Global can currently be purchased by long-term investors for just 6 times Wall Street's consensus earnings forecast for 2026. While a lot can change between now and then, a history of profitability and innovation suggests Paramount Global is an absolute steal.
Bark
A second scorching-hot summer buy that's fully capable of tripling your money if you allow the investment thesis to play out is dog-focused products and services company Bark (BARK 2.80%). Though its stock chart shows that Bark is one of many special purpose acquisition companies (SPAC) that got ahead of itself in the valuation department, co-founder and CEO Matt Meeker now has his company on the right track.
Before diving into company specifics, it's worth pointing out just how resilient the pet industry has been throughout the years. Data from the American Pet Products Association shows that 66% of all households own a pet. More importantly, year-over-year U.S. pet expenditures haven't declined in more than a quarter of a century. Pet owners freely open their wallets in any economic environment to ensure the health and happiness of their companion(s).
One of the factors that makes Bark so intriguing is its operating structure. Anywhere from 10% to 15% of its revenue derives from products sold in brick-and-mortar stores. Meeker and his team are continuing to build on Bark's relationship with brand-name retailers and should be able to gets its products in more doors over time.
However, the bulk of Bark's sales come from monthly subscriptions. Although many of these subs are for the company's core toy and treat subscription service, Bark is making headway with a number of high-margin add-on opportunities. In particular, the company's Bark Food segment, which delivers breed-specific dry food to owners' homes, and Bark Bright dental support products, offer rapid growth potential. Add-on sales are Bark's ticket to juicy gross margins and subscription retention.
Lastly, management has been trimming the fat, as needed, to move Bark to operating sustainability. The fiscal fourth quarter (Bark's fiscal year ends on March 31) saw the company generate $19.1 million in net cash from operating activities and $16.7 million in free cash flow. That's a big step toward recurring profitability and self-reliance.
Image source: Getty Images.
PayPal Holdings
The third scorching-hot summer buy that can triple your money if you're a long-term investor is leading fintech company PayPal Holdings (PYPL 2.90%). Despite fears of a U.S. recession and historically high inflation rates weighing on PayPal's stock over the past couple of quarters, all of the company's key performance indicators are headed in the right direction.
For starters, the global opportunity for financial technology (fintech) solutions is sizable. According to an estimate from Boston Consulting Group, fintech revenue is expected to grow sixfold -- from $245 billion to $1.5 trillion -- by 2030. PayPal finds itself on the cutting edge of a game-changing shift in how payments are completed.
The total payment volume (TPV) traversing PayPal's digital networks, which includes Venmo, supports the idea that fintech adoption is rapidly growing and still in its early innings. The company sustained double-digit, currency-neutral, TPV growth last year, despite the fact that U.S. gross domestic product declined in the first six months of 2022. TPV growth has remained in the double-digits, excluding currency movements, through the first three months of 2023. During periods of strong economic growth, 20% or greater TPV growth has been common for PayPal.
Investors should also be thrilled with PayPal's steadily improving user engagement. As I recently pointed out, PayPal closed out the first year of the pandemic (2020) with active accounts completing an average of 40.9 transactions over the trailing-12-months (TTM). As of the end of March 2023, active accounts completed an average of 53.1 transactions over the TTM. Since a majority of PayPal's gross profit derives from fees, a more active user base translates into higher profitability and operating cash flow.
Lastly, management is making moves to put shareholders first. Amid the temporary slowdown in growth, the company aims to cut operating expenses by at least $1.3 billion this year. Meanwhile, PayPal is diverting roughly 75% of its free cash flow toward buybacks, which can increase earnings per share for companies with steady or growing net income (like PayPal).
