The stock market is unpredictable in the short term, but there is a long-term cyclicality that investors can count on. Bear markets come and go, and the market has proven its ability many times over to hit new highs as time goes by.
If you're in a position to put cash into stocks right now, there is no shortage of compelling companies with superior long-term growth advantages to put on your buy list. No single company is likely to make you rich overnight. On the other hand, maintaining a steady pattern of investing in great companies across a range of industries in all types of markets can help you construct a portfolio that faithfully compounds your returns through the years.
If you have $1,000 available to invest, here are two companies to consider putting those funds toward to aid your journey to building wealth through the stock market.
1. Upstart
Upstart (UPST 2.76%) share prices shot up around 166% so far in 2023. While the stock has been a favorite with short sellers, some positive headway amid the backdrop of continued volatility in the broader lending market has renewed some interest among other investors as well.
If it wants to keep that upward momentum, Upstart has to prove to investors that it can deliver on its promise to disrupt the lending world with its artificial intelligence (AI)- and machine-learning-powered model for approving loans. The quick rise in interest rates over the past 18 months resulted in the company not being profitable for a series of quarters as lending and funding volume dropped. Revenue growth decelerated dramatically as a result.
Fortunately, Upstart's business model is designed to calibrate to the current high-interest-rate environment. That model is also becoming more accurate with time. In fact, in the third quarter of 2023, Upstart reported a 15% improvement in the accuracy of its personal loans model, marking the most significant upgrade to that segment in five years.
Interest rates are still relatively higher and the risk is somewhat elevated for lending capital in an economy that some consider shakey. That means Upstart is approving fewer loans: Just 10% of applicants are getting approved right now. Applicants who do get approved through its platform are going to pay more on the whole than they would have a few years ago. For Upstart's institutional partners, the cost and risk of providing capital are also still elevated.
On the loans that Upstart approved over the past two years, more are staying on Upstart's balance sheet longer than normal as Upstart is having a harder time lining up lending partners to take over the loans. The good news is, lending partners are still jumping aboard and the company is seeing progress on key fronts that can favorably impact its business over the long run. The company reported positive adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) for the second quarter in a row in the third quarter of 2023.
Upstart's contribution margins are close to record highs and its platform automation continues to improve to the point that 88% of approvals are now processed without any human involvement. Its network of bank and credit union partners has jumped by about 100% over the last three years. In the third quarter, a leading original equipment manufacturer (OEM) adopted the company's auto retail software at 99% of its dealerships, while its Upstart Lending product is now used by so many car dealerships nationwide that it covers 70% of the U.S. population.
Time will reveal Upstart's resilience as interest rates improve and the macro situation rights itself. Given its network of partners across its personal and auto lending programs, its expansion into new areas like mortgage lending, and its rapidly learning platform, a better economic scenario could signal a strong reversal of its recent struggles. There is still a valuable use case for this business within the broader lending industry on the whole. These facets may induce some investors to gain exposure to Upstart's potential with a modest investment of cash.
2. Fiverr International
Fiverr International (FVRR 3.74%) may not be generating the buzz it was a few years ago. Still, the company's continued expansion within the lucrative gig economy and improving financials persuaded some investors to take a second look, with the stock price popping by about 25% over the last month.
Of course, you shouldn't invest in a company because of what its stock does over a short period. Instead, you need to make sure you're putting your cash into a resilient business that possesses a wide moat within a growing industry that can continue to generate steady returns over the long run.
Fiverr is a fixture in the global gig economy, a space that has exploded to a valuation of about $453 billion. In a time where economic conditions are uncertain across the world as the pandemic pains ease, and where many companies globally are still hesitant to hire full-time workers, the need for remote, flexible talent remains on both sides of the freelance relationship.
Even though online freelance services are hardly new to the scene, most freelancing still happens offline: close to 97%. This leaves a tremendous opportunity for Fiverr to win in this space, and even with other contenders, there's still plenty of room for multiple winners.
Fiverr is actively building a platform designed to serve the full spectrum of needs that not just individual customers -- but increasingly enterprise clients -- need to make their businesses run efficiently.
Among its growing collection of products, the company is seeing steady adoption of Fiverr Neo, its AI talent matching service; Fiverr Pro, a marketplace that connects top-tier freelancers with larger companies and brands; and Fiverr Certified, a marketplace that allows tech companies (including well-known names like Stripe and Monday.com) to create their own ecosystems of freelancers to serve their business clients.
The recent quarter saw Fiverr grow revenue 12% year over year to $93 million, while the company pulled in profits of $3 million. Bear in mind that one year ago the company reported a negative generally accepted accounting principles (GAAP) net income of over $11 million. Fiverr's take rate of transactions continues to rise and is now at 31.3%. The company also had cash and cash equivalents of about $130 million on hand at the end of the third quarter. The tepid performance of this stock doesn't yet correlate well with the performance of the business, which could make it a ripe opportunity for shrewd investors.
