In today's stock market with literally tens of thousands of companies from which to choose, it's far too easy for investors to become paralyzed with indecision as they weigh their options. I've written thousands of articles about stocks and investing over the past decade, and I often find myself waffling between the bull and bear case for a company I'm researching.
There are, however, a handful of no-brainer stocks I would buy right now without hesitation if I were looking to put fresh capital to work.
Out of the doghouse and into your portfolio
It might seem counterintuitive, but I celebrate when stocks I own fall in price because -- as a long-term investor hoping for even greater gains down the road -- it gives me a chance to add to my position at those lower prices. Investors have been given such an opportunity with Datadog (DDOG 4.95%), a cloud-observability platform that's growing quickly, enjoying increasing operating leverage as it scales, and has a history of underpromising and overdelivering.
Shares of Datadog cratered 19% in a single day on Aug. 8 after the company delivered better-than-expected second-quarter results, but also slightly lowered its full-year revenue outlook.
On the former, Datadog saw revenue climb 25.4% year over year to $509.5 million, translating to non-GAAP (adjusted) net income of $0.36 per share -- both well above high ends of its previous guidance ranges. Despite its beat, however, Datadog lowered its full-year 2023 revenue guidance to a range of $2.05 billion to $2.06 billion (down from a range of $2.08 billion to $2.1 billion), while simultaneously raising its outlook for 2023 adjusted net income per share to be between $1.30 and $1.34 (up from between $1.13 and $1.20 per share previously). If anything, this disparity between lowering its revenue outlook and raising its earnings outlook speaks to the fact that Datadog is becoming more efficient as it scales.
During the subsequent conference call, Datadog co-founder and CEO Olivier Pomel explained that the company saw some usage growth from existing customers, particularly larger-spending customers (it now has 2,990 clients that generate annual recurring revenue (ARR) of at least $100,000), that was slightly lower than in previous quarters as those customers "scrutinized costs and optimize their cloud and observability usage during Q2." Pomel further reminded investors that Datadog generally applies "conservatism" in its outlook, and continues to expect the company's land-and-expand model to resonate with new customers.
Was that conservative outlook worthy of a 19% single-day haircut? I don't think so. Datadog is not a broken business, and I won't be the least bit surprised when Datadog once again outperforms its conservative guidance next quarter.
A creative portfolio option
Many investors will be focused on Adobe (ADBE 0.87%) when it releases its own fiscal third-quarter 2023 results in a couple of weeks (Sept. 14), but I believe the creative software specialist best known for products like Photoshop, Illustrator, and Premier is poised to knock it out of the park over the longer term as a key beneficiary of the rise of artificial intelligence (AI).
Adobe is already on a roll to that end; earlier this year the company added a new generative AI platform called Firefly to its Sensei AI and machine-learning framework. The move made its subscription-based suite of cloud-based creative software that much more compelling.
Shares also rallied in June after the company delivered a strong beat-and-raise performance, with revenue climbing 10% year over year to $4.82 billion and quarterly operating cash flow arriving at $2.14 billion. CEO Shantanu Narayen said that "Adobe's ground-breaking innovation positions us to lead the new era of generative AI given our rich datasets, foundation models and ubiquitous product interfaces."
If Adobe continues to take as much share as possible of what management estimates is already a more than $200 billion market opportunity, I'm confident it will prove to be a winner that keeps on winning.
Like a coiled spring ready to pop
Finally, investors appeared to let out a collective sigh of indifference in response to Twilio's (TWLO 1.47%) latest quarterly update a few weeks ago, with shares little changed on the news. But don't take that to mean the communication tools leader underperformed.
In fact, Twilio handily beat expectations for Q2; revenue was up 10% year over year, to $1.04 billion, translating to adjusted earnings of $0.54 per share, with each well above the high end of guidance and analysts' estimates for revenue and earnings of $987 million and $0.30 per share, respectively. Twilio also significantly raised its full-year profitability outlook, calling for adjusted operating income of $350 million to $400 million (up from $275 million to $350 million previously).
So why didn't the market seem to care? For one, Twilio's top-line growth continues to slow: Its outlook for the third quarter calls for revenue to be flat to up 1% -- though organic growth should be around 3% to 4% after you exclude its divestments of non-core businesses (namely its Internet of Things (IoT) business in June 2023 and its India-based ValueFirst business in July 2023) to hone its focus over the past year.
Twilio's core services make money based on the volume of text messages they process. Even as Twilio continues to build its client base each quarter -- with 304,000 total active customer accounts at the halfway point of 2023, up from 300,000 in Q1 and 275,000 a year earlier -- that volume has undoubtedly waned over the past couple of years.
Twilio remains confident it will return to more substantial growth in time, estimating its total addressable market could grow to $116 billion in 2025 thanks to expanded adoption of cloud-enabled customer engagement software. But until then, the company is making significant progress in its drive for increased operational efficiency.
When growth inevitably reaccelerates, I think Twilio will be perfectly positioned to capitalize having emerged as a more efficient, profitable business. And investors who buy now and wait patiently for its growth story to play out should be handsomely rewarded.
