Stocks are peeling back from their new 52-week highs hit just last week. But there's nothing particularly unusual or alarming about the weakness. The market ebbs and flows, and this just looks like a garden-variety bearish ebb following a few weeks of bullish flow.
At the same time, given how we've avoided one for this long, there's a good chance we'll be able to sidestep a recession that rekindles last year's bear market. In other words, a bull market could be here. That should buoy most stocks.
It will lift some tickers more than others, though. One of the names poised for better-than-average gains is ride-hailing company Uber Technologies (UBER -0.57%). Here are the four top reasons it could outshine other names in a bull market.
1. It just swung to an operating profit
The company has been up and running since 2010, but it has never made money -- that is, until now. During the three-month stretch ended in June, Uber turned record-breaking revenue of $9.2 billion into the company's first-ever profit.
It should be noted that the profit in question is an operating profit. Net profit and loss figures aren't exactly experiencing the same slow, steady uptrend as they are being pushed and pulled by one-off items such as taxes and capital gains and losses on investments.
UBER Operating Income (Quarterly) data by YCharts
Even so, operating profits are the numbers to watch. They illustrate a business's actual health and point in the direction that business is headed. Uber's been moving toward this milestone moment for some time now. Given the trajectory of this figure, there's no reason to think operating profits won't continue growing to eventually get and keep net income in positive territory.
2. Shares fell on the good news anyway
Although the profit progress is something to celebrate, investors didn't. Uber shares fell more than 5% immediately following the release of the company's fiscal second-quarter numbers and have continued drifting lower.
The selling was largely prompted by last quarter's revenue miss -- Uber's top line of $9.2 billion fell just a little short of analyst estimates of $9.3 billion. New, more competitive pricing from rival Lyft (LYFT -1.95%) may have played a role in the stock's weakness as well, particularly after Uber CEO Dara Khosrowshahi acknowledged the competitor's move.
The shares were also just plain overbought headed into the earnings news, leaving them ripe for profit-taking no matter what the report looked like and what Khosrowshahi said.
Whatever the case, the pullback looks more like an entry opportunity than a warning of what's to come. Revenue that missed estimates is still 14% better than the year-ago comparison, and with operating profit now the likely new norm, the company can invest more aggressively where it needs to than it's been able to in the past.
3. Uber is the ride-hailing market leader
Speaking of Lyft, although Khosrowshahi acknowledged it was a credible competitor, it's not exactly a serious threat to Uber.
Uber has something Lyft doesn't: size and scale. Data from Bloomberg's market research arm, Second Measure, confirms that Uber accounts for roughly three-fourths of the United States' ride-hailing market versus Lyft's one-fourth.
Image source: Getty Images
That's a critical difference. While some costs scale up and down with a company's revenue, other expenses don't. For instance, whether a company serves a thousand paying customers or a million, the cost of running a television ad is the same. That's why Uber's been able to achieve sustainable operating profitability long before Lyft has. EBITDA guidance for the quarter now under way is far better than expected, and roughly double the year-ago number.
Given the cost of stealing market share versus simply retaining existing market share, Uber shareholders don't have to worry too much that Lyft will dethrone its much bigger rival. In fact, Lyft's recently lowered prices set the stage for even more damaging financial strain.
4. Bull markets are driven by economic growth
Last but not least, Uber Technologies is a bull market buy because, well, bull markets are bullish for most stocks. It's an often-underestimated force, but bear markets can, and do, drag stocks of even the very best companies lower. At the same time, bull markets can and do lift even the lousiest of stocks.
Legendary investor William O'Neil, author of the best-selling book How to Make Money in Stocks, notes that on any given day, three out of four stocks are moving in the same direction as the broad market, whether that be up or down. For better or worse, the tidal force is just too much for most stocks to overcome.
Of course, if most investors are feeling good about the market's foreseeable future, they're likely to be feeling great about Uber's prospects. That dynamic could translate into market-beating gains that defy valuation-based concerns.
