After the bull market appeared to stagnate earlier this year, many bullish stocks are again gaining momentum. At the time this book was written, the S&P 500 increased 4% in the year to date.
While this market optimism is great for investor portfolios, it makes it harder to find good stocks to buy. After all, by paying higher prices for stocks, investors are likely to get lower returns in the long run than if they could buy them at a discount. But a closer look still reveals some high-quality companies whose stocks continue to look attractive – even after their recent bullish moves.
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1. Apple
A surprising stock that is still worth buying after decades of great stock price appreciation is Apple (NASDAQ: AAPL). The company’s most recent earnings report showed how – despite its $ 2.3 trillion market capitalization today – this company remains in growth mode. During the holiday period, which is Apple’s first fiscal quarter of 2021, revenue jumped 21% year on year, to $ 111 billion. Earnings per share soared 35% to $ 1.68.
But even those headline financial numbers don’t fully capture Apple’s momentum. Consider your momentum in your new segments, services and wearables.
Apple’s service segment, which has a gross profit margin that is about twice what the tech giant earns from hardware sales, is growing even faster than the company’s consolidated revenue. Service revenue during the holiday quarter grew 24% year over year. The strength of this segment is critical, as it includes sales from the App Store, Apple’s native subscription services, AppleCare and other software and services that are good sources of recurring revenue for Apple.
Then there’s Apple’s “wearables, home and accessories” business – a hardware segment that includes sales of AirPods, Apple Watch, HomePod and other accessories. This segment saw revenue grow 30% compared to the previous year.
If you think Apple’s growth days are behind us, think again.
2. Pinterest
A smaller company that is growing much faster than Apple is Pinterest (NYSE: PINS). Visual search and the media platform are increasingly looking like an advertiser’s dream platform. Highly engaged users spend their time on the platform looking for products and reading photos. What more could an advertiser want from their target audience?
It is no surprise that advertisers are moving to the platform, mainly because user engagement continues to improve. With the support of a 37% year-over-year increase in monthly active Pinterest users in the fourth quarter, their advertising-driven revenue increased 76% year-over-year.
Of course, investors need to pay a premium to participate in a growth story like this. Pinterest has a market capitalization of $ 51 billion, despite generating only $ 1.7 billion in sales in the last 12 months. Remember that this first line number is changing rapidly. On average, analysts expect 2021 revenue of $ 2.5 billion and 2022 revenue of $ 3.4 billion.
These two established technology companies are still worth their premium prices. Volatility, of course, is to be expected. But five or ten years from now, we will probably look back and even consider these high levels as good entry points for these growth actions.