With the price of goods rising due to inflation, choosing the right stock is more important than ever. These stocks are showing strong support heading into October.
Since many are at or near all-time highs, it’s best to wait for a dip in the market.
This month I discuss five stocks for you to consider.
- Affirm Holdings (AFRM)
- Devon Energy (DVN)
- DoorDash (DASH)
- Lululemon (LULU)
- SVB Financial Group (SIVB)
The price for the stocks was recorded on October 11, 2021, at the open of the market.
“Here are some pointers from this section: • Understand the nature of the companies you own and the specific reasons for holding the stock. (“It is really going up!” doesn’t count.) • By putting your stocks into categories you’ll have a better idea of what to expect from them.”
Some basic investing principles never change.
Affirm Holdings (AFRM)
Affirm Holdings provides a platform for mobile and digital commerce in the United States and Canada. The company had approximately 29,000 merchants including brick-and-mortar stores, small and large businesses, direct-to-consumer brands, and companies. Organizations supported include sporting goods and outdoors, furniture and homeware, travel, apparel, accessories, consumer electronics, and jewelry. Affirm was founded in 2012 and is located in San Francisco, California.
In Q2, AFRM saw gross merchandise volume and revenue rise 106% and 71%. Active users were 7.1 million and merchants came in at 29 million growing nearly five-fold. Affirm has partnered (non-exclusively) with Amazon, allowing buyers to split up purchases for $50 or more, which obviously could be gargantuan for Affirm. There are some moving parts here (the company will often securitize its loans), and bad debt expense is real (5.8% allowance for credit losses), which will hurt if/when the economy really has trouble. But big picture there’s little doubt the future is bright—in its latest quarterly report, management guided for gross merchandise volume growth of 60% in the next 12 months, and that excludes anything from Peloton and any benefit from the Amazon partnership. Walmart will also work with Affirm as well. For the stock, with a massive post-IPO collapse to the $55 to $70 area, the news of Amazon and Q2 results pushed the stock price higher above $130. Enter with a small position with Affirm since it is possible to see a drop in the stock price if the economy sees a negative outlook.
52 week high. $146.90
52 week low. $46.50
Forward Dividend and Yield. N/A
Devon Energy (DVN)
Devon Energy is an independent energy company that is involved in the exploration, development, and production of natural gas, oil, and natural gas liquids in the United States. Devon Energy was started in 1971 and is headquartered in Oklahoma City, Oklahoma.
Analysis. Energy stocks appear to have entered new uptrends and Devon may have the best story in the entire sector. Operating solely in the U.S., Q2 saw strong demand with 63% of total output and four years to keep drilling to keep production level. Devon believes they will have a strong cash flow that will come in around $1.30 per share, per quarter at $70 oil and $3.50 natural gas (actually well below current levels). Devon has a solid dividend (1.3% annual yield) and adds in a 50%-ish payout of excess cash flow, which resulted in a total payout of 34 cents per share in Q1, 49 cents per share in Q2, and expects a strong Q3. Debt in the amount of $1.2 billion is getting paid off this year (debt should total less than annual cash flow by year-end). The following year in 2022 could prove more lucrative due to cost reductions and hedge book improvements.
52 week high. $40.24
52 week low. $7.73
Forward Dividend and Yield. 0.44 (1.10%)
DoorDash, Inc. (DASH)
DoorDash, Inc. is a logistics platform that connects dashers, merchants, and consumers in the United States and worldwide. The company offers a direct-to-consumer on-demand platform. DoorDash started in 2013 and is located in San Francisco, California.
Analysis. The pandemic has changed delivery services—two years ago, deliveries were reserved for Amazon or clothes from Gap, and occasionally pizza, but today, groceries, prescriptions, all types of food, and more are being shuttled to people’s homes and businesses regularity. Uber is in this trend, but the stock isn’t fairing well since it is also tied to ride-sharing. DoorDash is purely on the delivery movement and thriving. Revenues increased 83% in Q2 from a year ago and total orders increased 69% (to 345 million). Earnings are in the red, but EBITDA was in the black (up 43% to about 33 cents per share). One key point, DoorDash is gaining and clients are staying active (orders picked up in Q2), with more orders from non-restaurants. In the quarter, DoorDash added over 5,000 new convenience stores including Albertson’s and PetSmart for pet supply deliveries. The triple-digit growth of 2020 isn’t likely to be repeated, next year’s estimate of 19% revenue growth seems favorable. DASH has a lot of potential.
52 week high. $256.09
52 week low. $110.13
Forward Dividend and Yield. N/A (N/A)
Lululemon Athletica, Inc. (LULU)
Lululemon Athletica, Inc. (LULU) designs and distributes women's and men’s athletic apparel and accessories. Lululemon offers Company Operated Stores and Direct To Consumer to its customers. Operating in 521 stores, Lululemon is located in the United States, Canada, the People's Republic of China, Australia, the United Kingdom, Japan, New Zealand, Germany, South Korea, Singapore, France, Malaysia, Sweden, Ireland, the Netherlands, Norway, and Switzerland. The company was started in 1998 and is headquartered in Vancouver, Canada.
Analysis. Lululemon saw an eye-opening 28% compound annual growth rate (compared to 19% in the years before the pandemic), led by strong e-commerce sales. With Covid restrictions loosening, brick-and-mortar outlets are seeing improved business, and Lululemon is expected to surpass its 2023 sales target by the end of this year. Q2 revenue increased 28% on a two-year basis, led by a 43% increase in international sales and a 26% increase in North American sales. E-commerce made up 41% of total revenues. Earnings of $1.65 per share beat the estimates by 46 cents and were ahead of the firm’s expectations. Productivity in Lululemon stores returned to pre-pandemic levels, with 95% of stores re-opened by the end of Q2, and 11 new stores opened during the quarter, for a total to 534. Management believes the firm is in the early stages of growth and in Q2 repurchased $171 million in shares. Analysts expect earnings of 59% this year and 21% next year. Shares look strong despite the volatility in the market.
52 week high. $437.32
52 week low. $269.28
Forward Dividend and Yield. N/A (N/A)
SVB Financial Group (SIVB)
SVB Financial Group (SIVB) provides a diversified financial services company which includes banking, financial services, and products. SVB operates in 30 offices including the United States, Canada, the United Kingdom, Israel, Germany, Denmark, India, Hong Kong, and China. The company was founded in 1983 and is located in Santa Clara, California.
52 week high. $679.00
52 week low. $263.34
Forward Dividend and Yield. N/A (N/A)
Analysts. SVB Financial has assisted more than 30,000 start-ups and is one of the largest banks in the U.S. With Silicon Valley exposure, SVB’s growth has been fueled by rapid expansion in the digital economy along with healthcare and life science sector growth. SVB is benefiting from activity in the private equity (PE) and venture capital (VC) space. They expect full-year average deposit growth of around 90% compared to a year ago. The bank specializes in capital call lines of credit, or short-term loans (around 3%), to PE and VC firms. SVB’s Q2 revenue of $1.5 billion soared 69% from a year ago, while per-share earnings of $9.09 were above estimates by 40%. The company saw excellent loan growth (up 38%) which led to interest income (up 42%). Management sees net interest income rising 45%-ish for the year. Analysts expect earnings to cool off next year, but estimates have been crushing expectations.
Note: The writer does not own any of these investments.
This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.
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