After the incredible rally since the end of October (the S&P 500 is up about 16%), the market is no longer filled with screaming deals. As a result, investors can't just mindlessly buy whatever stock they want and expect it to make money.
Still, there are plenty of good values available. If you have some cash sitting around, it could be wise to deploy it to these stocks before a broader rally occurs.
1. Alphabet
Alphabet (GOOG 9.96%) (GOOGL 10.22%) is involved with many business segments, but nearly four-fifths of its revenue comes from advertising. This was a terrible industry in late 2022 and early 2023, as many advertisers pulled back spending in preparation for a recession.
Now that those concerns have been lapped, Alphabet's year-over-year comparisons are becoming easier, which makes it look like the company is succeeding as an investment (which it still is). In the third quarter, revenue grew 11%, with advertising revenue increasing by 9%.
Furthermore, operating margins improved after layoffs and expense reductions. Thanks to a 3-percentage-point increase to 28% in operating margins, Alphabet grew its earnings per share (EPS) from 1.06 to $1.55. Those are strong results, but the stock hasn't even reacted. Since the third-quarter report, the stock is down 2%, and it looks like an absolute bargain when 2024 projections are used.
GOOGL PE ratio (forward 1 year); data by YCharts; PE = price to earnings.
With a company like Alphabet trading at 20 times 2024 earnings and with growth levers like cloud computing and artificial intelligence, it's a no-brainer investment right now.
2. Airbnb
Like Alphabet, Airbnb (ABNB 0.75%) doesn't get a lot of respect from the market. Almost every year it has been on the public market, its business was supposed to end either from a recession or from short-term rentals being banned by various cities. That hasn't happened yet, and it continues to report one fantastic quarter after another.
In the third quarter, revenue rose 18% year over year to $3.4 billion. It also turned an impressive 39% of revenue into free cash flow (FCF). That makes Airbnb an even stronger FCF generator than Alphabet, which is already legendary.
With that money, Airbnb can repay debt, start a dividend, or fund share repurchases (which management has done). With its repurchases, management reduced the shares outstanding by 2.5% in one year. If Airbnb can keep this up, this repurchase plan will have a sizable effect.
Why is management repurchasing shares? Because they're cheap. A one-time event in the third quarter currently skews Airbnb's price-to-earnings (P/E) ratio, so we'll use the price-to-FCF to value the company.
ABNB price to free cash flow; data by YCharts.
Although the company's valuation has risen recently, it's still a pretty cheap stock compared to the growth it's putting up. As a result, I think Airbnb is a great place to invest right now.
3. dLocal
Lastly, there is a company you've likely never heard of: dLocal (DLO 0.56%). It provides clients with an easy-to-use plug-in that gives them the ability to take payments in countries with developing modernized payment systems like India, Turkey, Bangladesh, and Peru.
This is a much better setup than every company trying to create a new payment infrastructure, as the juice isn't worth the squeeze from some of the locations.
But companies like Amazon, Shopify, and Spotify Technology decided they could concede some revenue to dLocal in exchange for access to growing markets. This has been a winning strategy, and dLocal has thrived.
In the third quarter, dLocal's revenue rose 47% year over year, powered by a 69% rise in total processed volume. Even though it's still an early-stage tech company, with dLocal posting a $40.4 million profit on $164 million in revenue, its profit margin is 25%.
But because of its under-the-radar status, it trades at a discount.
DLO PE ratio data by YCharts.
You can buy the stock for 21 times 2024 earnings -- about the same price as Alphabet. However, dLocal is much smaller and growing faster, so its long-term potential is much higher.
