The market is inching higher again after giving up some of its earlier year-to-date gains. The S&P 500 has now increased 17% so far in 2023. Investors were wary of interest rate hikes but have again increased their market confidence.
Of course, there are no guarantees that the market will continue to gain this year, but in the long term, if you buy great stocks, you should be amply rewarded. Lululemon Athletica (LULU 0.79%) and Airbnb (ABNB +1.05%) are two great choices.
1. Lululemon: Making premium mainstream
Lululemon makes premium athletic wear, with prices to match, but it has captured mass consumer attention and market share. It consistently demonstrates high growth and robust profitability, and it recently embarked on a growth strategy that should keep up momentum for the next several years.
In its second quarter (ended July 30), revenue increased 18% over last year to $2.2 billion. While growth was strong in North America at 11%, it was outstanding in international markets at 52%. That's part of the new strategy, which is to double men's and digital sales and quadruple international sales by 2026. It's a repeat of a previous goal that was successfully reached early, and it looks like the new plan is heading down the same path.
It's generating high growth while boosting profitability as well. Earnings per share increased from $2.26 last year to $2.68 this year, and the operating margin widened by two percentage points to 21.7%. Lululemon charges high prices, but many of its products are still within reach of the mass consumer. This means incredible profitability that's higher than its competitors', including Nike, Skechers, Adidas, and Under Armour, by a wide amount.
LULU Operating Margin (Quarterly) data by YCharts
Management is expecting more of the same going forward and still feels it's just getting started. It has a large pipeline of new products to launch and has many markets that are underpenetrated.
2. Airbnb: Travel is changed forever
Airbnb is today's answer to the question of how to find reasonably priced accommodations in almost any neck of any woods.
There are so many ways it stands apart from the traditional travel and tourism industry that it has changed the way people travel forever. To some degree, it's also changing how many people live. Since it's a platform, it can recruit thousands of hosts and rentals in a snap, without putting up any money for capital-heavy buildings and investments. It can also offer options in far more areas than hotels, as well as unique and experiential residences.
What I like even more about the company is that it's backing up its commitments to customer feedback with real additions and modifications to its systems, such as showing the total price of a visit to customers inclusive of cleaning and service fees from the outset, instead of later in the process as it used to do. Some of its newer upgrades include improved tools for hosts to give more accurate pricing, and better search options for customers looking to book vacations.
It's also relevant to more kinds of travelers than the traditional model, opening up its platform to a wider target market. One of the most important outcomes of the pandemic for Airbnb is that people are working from home and looking to live in interesting places, and longer rentals have become a crucial part of Airbnb's model. They now reliably account for nearly a fifth of all bookings. Never a company to miss that kind of opportunity, Airbnb has leveraged its tools to provide better pricing and search options for long-term rentals.
Total revenue increased 18% year over year in the second quarter to $2.5 billion, and net income almost doubled to $650 million. Airbnb is now a reliably profitable company, and its stock trades at a price-to-earnings ratio of 38. That could be cheap considering Airbnb's future potential, and now looks like a great time to buy shares.
