Whether the next full-fledged bull market is far away or on the horizon, it's always a good time to add to your nest egg and build your investment portfolio. The composition of your portfolio will be based on your investing objectives, stock preferences, risk tolerance, and preferred balance of sectors.
There's no shortage of great companies begging to be bought -- even in a volatile market. Here are two such names to consider adding to your portfolio.
1. Chewy
Chewy (CHWY 2.99%) has constructed a profitable, diversified business around a lucrative industry that's rapidly expanding and facing consistent demand from consumers. The company has a track record of recognizing gaps in the pet care market and scaling its business accordingly.
Not only does Chewy offer thousands of pet products that consumers can purchase in just a few clicks, but it also operates the largest pet pharmacy in the U.S., a telehealth service, a pet supplement brand, and a growing selection of health insurance plans that are now available to pet owners across 45 states.
A recent study by Packaged Facts estimated that pet spending in the U.S. alone hit a whopping $138 billion last year. The outlay in this space is set to achieve a compound annual growth rate of around 7% between 2022 and 2026. Another study the market research firm conducted found that even as consumers pulled back on spending overall in the past year, only 15% of respondents were slashing their outlay on pet spending.
Over the trailing 12 months, the company has pulled in $11 billion in revenue on net income of $53 million. It also generated operating cash flow of $416 million in that same 12-month period.
The success of Chewy's e-commerce business in the U.S. since its inception has now paved the way for its first international expansion. It's set to launch in the Canadian pet market in the second half of this year.
This could be the first of multiple forays into international waters, a plan that management has been clear has long been part of the vision for the business. With the company's growing track record of profitability, the potential for this business and its shareholders in the years ahead may well be worth a long, hard second look.
2. Upstart
Upstart (UPST 2.76%) is leveraging the power of artificial intelligence (AI) and machine learning as it seeks to upend the way credit is extended to consumers. The evolution of its constantly refining model -- which taps into approximately 1,500 data points to gain a fuller picture of the creditworthiness of a loan applicant -- has attracted credit unions, banks, and other institutions in droves.
Upstart doesn't fund the majority of loans but, instead, generates revenue from sources like referral fees. Consumers can apply for multiple types of personal loans, as well as auto loans, through its platform, and 84% of loan approvals are processed on a completely automated basis.
Upstart's model includes a wide range of elements beyond the FICO score to assess how likely a consumer is to default on a credit product. This has enabled the company to approve 173% more applicants at the same default rate as traditional U.S. banks. An internal Upstart study also found that its model approved over 43% more borrowers than the FICO score-based model alone.
The fact that Upstart's lending decisions are based on a varied set of factors while being attuned to the macro environment at hand has created a valuable incentive for institutions to adopt the platform. They can access untapped creditworthy consumers while more accurately managing their risk exposure. At the time of Upstart's first-quarter report, it had 99 banks and credit unions in its network, up from just 10 when it became a publicly traded entity less than three years ago.
Lending volume is still down from a few years ago, particularly as interest rates remain high, consumers are more hesitant to apply for loans, and institutions are more cautious in funding them. Upstart recently secured several rounds of outside funding, so it should carry fewer loans on its balance sheet than it has in recent quarters.
It will likely take some time for the business to turn profitable again. However, the steady adoption of Upstart's platform by lenders, its continued expansion in the multitrillion-dollar lending market, and the unique value proposition of its AI-powered model could present long-term tailwinds that entice some growth investors to take even a modest position.
