Falling Stock Market: 3 Unstoppable Stocks to Buy Now
With all major stock indexes posting double-digit losses year-to-date, investors have faced a challenging year. But sooner or later, this bear market will turn into a new bull market. While some stocks still look expensive based on traditional valuation metrics, there are plenty of solid companies for sale right now.
Three Motley Fool shareholders recently chose a company that could generate returns better than the market average. Here’s why they chose it ebay (ebay -1.47%)And the Texas Roadhouse (TXRH -1.78%)And the spin (RVLV -2.97%).
Inexpensive inventory and asset-light business model
Parkiv Tatefusyan (eBay): With stock markets and the US economy in the doldrums, it can be said that it is beneficial to have companies that can do well against this background. It’s one of the reasons eBay is one of my favorite stocks to buy right now. The e-commerce and auction site is known for bargaining prices on used and new merchandise. Furthermore, since the company operates on an asset-light business model, it is not severely affected by rising inflation.
eBay does not own any of the inventory sold on its platform. Instead, it brings together buyers and sellers and encourages them to transact. It does this by processing payments, providing protection to buyers and sellers from fraud, and supporting the technology that makes it all possible. What is notable is what the company does not do: it leaves shipping and handling to buyers and sellers to solve the problem between themselves, avoiding costly service.
eBay is not a fast-growing stock; Revenues have remained relatively flat over the past decade. But earnings per share grew at a compound annual rate of 23.6% during that period.
Furthermore, if the economy enters a prolonged recession, consumers can look forward to lower-priced second-hand items from eBay more often. They can also try to sell more of their used items to generate cash. All will be a desirable result.
Fortunately, the decline in the stock market resulted in eBay shares being sold relatively cheaply. At a price-to-sales ratio of 2.7, eBay is arguably as cheap as it has been for the past five years.
Consistency and quality service in the restaurant industry
John Ballard (Texas Roadhouse): Finding a successful restaurant early in its growth cycle can be one of the simplest and rewarding ways to generate returns that outpace the market.
Texas Roadhouse looks very promising. The stock has generated a 15% annual return for investors over the past 10 years, but its focus on consistency, good service and a performance-based management culture should keep the growth streak going for many years.
This steakhouse chain was founded in 1993 and has grown to 680 restaurants in 49 states, including a growing footprint in 10 foreign countries. The company started in Clarksville, Indiana, but now operates restaurants around the world in places like Saudi Arabia and Taiwan. This speaks volumes about how well this concept has adapted beyond cultural boundaries.
Despite the 40-year high inflation that has driven up the cost of basic commodities for the food service industry, consumers are still eating out. Texas Roadhouse expects to post positive sales growth over the full year. It posted an 18% year-over-year increase in revenue in the first half of the year, with corporate sales increasing by 8% in the second quarter.
Restaurant growth stocks are attractively priced at a forward P/E ratio of 23. For a company that offers a steady return on invested capital in their mid-teens, this is a good price to start a position.
Flourishing fashion stock with huge potential
Jennifer Seibel (Revolve Group): Revolve Group is an AI-driven fashion retailer that does what many fashion retailers haven’t been able to do over the past few years: show meaningful growth. Sales increased 54% year over year in 2021, and the company continued to deliver strong results in 2022, with an increase of 27% in the second quarter. Active customers, average order value, and total orders placed continue to increase.
Revolve Group is also profitable, although it is feeling the pressure of inflation. Net income was $16.3 million in the second quarter, down 48% from a year ago.
The management did not have an exciting update for the rest of the year. She said July sales were up 10% from a year ago, a big slowdown from what was impressive growth. This is not surprising, but investors do not like to hear that growth has stalled, even if only temporarily. So it’s also not surprising that Revolve Group’s stock is down 57% this year.
But I think the slowdown will most likely be temporary. There are several reasons why we can envision Revolve Group returning to an incredible future. Notably, it speaks its own market language.
Revolve Group is in touch with how millennials think and shop, and they’re giving this core marketplace what they’re looking for. It offers a large and constantly updated selection of clothing, shoes, accessories and beauty products, and markets these goods through a large network of celebrities, influencers, social media personalities and other bloggers. Everything you do is powered by artificial intelligence and machine learning, making it easy for Revolve Group to know what’s hot and what’s not.
Since it is fully online, it can easily add and delete products. This helps them sell more products at full price rather than forcing them to go on sale at the end of the season. In 2021, 87% of items were sold at full price. That percentage will likely be lower in 2022, but the Revolve Group model is the clear winner.