These profitable businesses could be catapulted into a new era of growth.
The stock market has been making investors nervous for the past few years, and as of mid-2024, the market is definitely booming.
of S&P 500 As of this writing, it’s up about 16% since January. It’s important to note that, measured over the last nearly 100 years, the average annual return on the stock market has been roughly around 10%.
If you’re looking for a stock to hold for the long term, you need at least a three-to-five year investment horizon and a strong thesis on the underlying business. With that in mind, here are two strong contenders to consider that could be hard buys for 2024 and beyond.
1. Palantir
Palantir Technologies (supplement -6.73%) is known for its various software platforms for big data analytics that are used by private and public organizations around the world.
For corporate customers Morgan Stanley and Merck Palantir has become a leading digital infrastructure company since its founding 20 years ago, working with organizations that handle highly sensitive information, including U.S. intelligence agencies and the Department of Defense.
The company doesn’t store the data. It creates a software platform that helps its customers better process and review data to make decisions that help them operate more efficiently.
One example in the commercial context is pharmaceutical company Merck, which uses software developed by Palantir to aid in medical research, drug development and supply chain forecasting, while government customers use the software to track confidential operations and budgets.
Last year, Palantir launched an artificial intelligence platform (AIP) to support decision making for a wide range of purposes. The rapid adoption of AIP has driven significant revenue growth and improved profitability, while also helping to continue diversifying the company’s revenue mix.
For many years the company has relied almost exclusively on government clients, and while government clients still make up a large portion of its business, the growth of commercial clients has exploded.
In the first quarter of 2024, Palantir reported its sixth consecutive quarter of profits under generally accepted accounting principles (GAAP), totaling $106 million. Revenue increased 21% year over year to $634 million. Commercial revenue increased 27% year over year to $299 million, and government revenue increased 16% year over year to $335 million.
Palantir’s customer base grew 42% year over year, with executives saying companies like a major U.S. energy infrastructure company and a multinational airline are using AIP for a variety of purposes. Lowe’s CompaniesHaving not previously used AI, the company deployed an AIP platform to help over 1,000 customer service agents, resulting in a 75% reduction in overdue tasks.
Investors seem to have renewed interest in the stock, which is up more than 60% year over year as of this writing. The company’s improving profitability and expanding customer base bode well, as does its continued foray into the rapidly evolving world of AI. Long-term investors may want to get in on the action over the next 5 to 10 years.
2. Airbnb
Airbnb (ABNB 1.14%) The company’s shares are up about 10% so far this year, and its impressive financial performance underscores its resilience in a changing consumer environment, as people continue to spend money on travel despite clear signs of strain on many consumers’ wallets.
Airbnb’s growth is driven by the versatility of its platform, which can help travelers find boutique hotels and apartments in their favorite cities, as well as long-term accommodations. The ability to live and work in a location other than your physical residence for an extended period of time is likely driving this growth.
Revenues for the first quarter of 2024 were $2.1 billion, up 18% from the same quarter in 2023. And net income was $264 million, its most profitable first quarter to date.
The company remains a cash-flow generator, projecting to generate just under $2 billion in cash from operations and an equal amount of free cash flow (FCF) in 2023. FCF margins over the trailing 12 months were 41%.
While short-term bookings and housing supply growth are outpacing longer-term stays, bookings of 28 days or more still make up a significant portion of the total. As of Q1, longer-term stays accounted for 17% of total room nights booked.
Airbnb’s changes, including new payment options and discounts, have made these stays more affordable. Stays of three months or more increased 25% year-over-year in the first quarter. Active listings in Q1 2024 increased 17% year-over-year, a sign that host and guest interest is driving rapid expansion.
Management wants to ensure the platform gives hosts and guests what they want, including adding new tools to make it easier to book group trips and taking a more proactive approach to removing low-quality listings.
Airbnb’s somewhat high price-to-earnings ratio of 19 times may scare off some investors, but if you’re a long-term investor looking for a quality travel stock with plenty of upside potential, the price could be worth paying.
