Day: September 28, 2024

The S&P 500 index has averaged 10% annualized returns during the past half-century, but it’s not that difficult to outperform that target if you invest in a group of well-chosen growth stocks.

To give you some ideas, a team of Motley Fool contributors see promising prospects in e.l.f. Beauty (NYSE: ELF), Dutch Bros (NYSE: BROS), and Celsius Holdings (NASDAQ: CELH). Here’s why these stocks should deliver superior returns.

This is one of the fastest-growing consumer brands

John Ballard (e.l.f. Beauty): Shares of e.l.f. Beauty have rocketed 275% during the past three years. The company’s focus on delivering value in color cosmetics has enabled the company to gain significant market share against industry leaders. The company still has tremendous growth potential worldwide, but investors can buy the stock at a more reasonable valuation with the shares down more than 50% from their high in February.

High inflation bolstered e.l.f.’s value proposition. In the 2025 fiscal first quarter ended June 30, sales jumped 50% from the year-ago quarter. It is now the No. 2 mass brand in the U.S., with 12% market share, and management is working to expand the brand globally. International sales make up only 16% of the business, but grew an impressive 91% year over year last quarter.

e.l.f. Beauty has promising growth potential, and management sees value in the stock after the sell-off. The company recently announced a $500 million share repurchase program. The stock has declined on expectations that higher marketing investments will weigh on earnings and margins in the near term. However, earnings are still expected to be up 10% this year before accelerating to 26% in fiscal 2026.

Given the enormous runway in international markets, the stock should outperform the broader market over the next five years and beyond.

Great coffee, growing sales

Jennifer Saibil (Dutch Bros): How do you open a chain of restaurants that basically sells coffee but creates a message distinctive enough to differentiate it from Starbucks and gain a huge following? Ask Dutch Bros. This small-town, down-to-earth coffee chain is expanding rapidly, generating high-sales growth and developing a growing base of loyal fans.

Dutch Bros has been around for decades as a small, local coffee shop chain in Oregon. After honing its image and culture and developing a line of popular beverages, it became a public company with big growth plans. It has successfully entered new states on the West Coast and across mostly Southern states, for now, and it has grown from a total of 415 stores in 2020 to 912 by the end of Q2. It opened 159 stores in 2023, and it’s chasing an opportunity of 4,000 stores during the next 10 to 15 years, which is a goal that implies accelerating expansion.

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With new stores come higher sales. Sales growth has been strong and steady, coming in at 30% year over year in Q2. With higher sales and efficient operations come profits, and it’s been reporting growing net income.

One important new development is digital ordering. Despite the seeming need for everyone to go digital these days, Dutch Bros has found great success without it. Now, however, it has tested mobile ordering in some of its stores, and it’s set to go live by the end of the year. That sets it up for further success. Between its popular drinks and culture, new stores, and digital launch, Dutch Bros should easily be able to keep up strong growth for the foreseeable future.

Dutch Bros stock is up 38% during the past year, outperforming the market, and it could be a market-crushing stock during the next five years and longer.

This beverage stock has more upside

Jeremy Bowman (Celsius Holdings): Celsius Holdings was one of the biggest breakout stocks of the pandemic, surging after the energy drink caught fire on Amazon during the lockdown period.

From the start of 2020, the stock gained more than 5,000% at one point before falling sharply in recent months on concerns about slowing growth, a maturing energy-drink category, and news that Pepsico overstocked on Celsius inventory, meaning it overestimated demand after becoming a distribution partner.

Celsius stock is now down nearly 70% from its peak this year, but that sets up a good buying opportunity for investors. While the company’s days of triple-digit percentage gains are probably over, the growth story is far from dead, and the stock looks reasonably priced now at a price-to-earnings (P/E) ratio of 31.

In Q2, revenue jumped 23% to $402 million, and its gross margin continued to improve, widening 320 basis points to 52%, showing the business continues to become more efficient, benefiting from freight optimization and lower materials costs.

Though there are signs that growth in the overall energy-drink category is slowing as market leader Monster Beverage reported just 6% constant-current growth in its Q2, Celsius continues to gain market share with retail-dollar share up 1.4 percentage points to 11% in Q2, while growth remains strong at the warehouse-club level and on Amazon.

The upshot is that Celsius looks oversold after the recent pullback. Investors can take advantage as the business still has a promising runway of growth ahead of it.

Should you invest $1,000 in e.l.f. Beauty right now?

Before you buy stock in e.l.f. Beauty, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and e.l.f. Beauty wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $760,130!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 23, 2024

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jennifer Saibil has no position in any of the stocks mentioned. Jeremy Bowman has positions in Amazon and Starbucks. John Ballard has positions in Dutch Bros. The Motley Fool has positions in and recommends Amazon, Celsius, Monster Beverage, Starbucks, and e.l.f. Beauty. The Motley Fool recommends Dutch Bros. The Motley Fool has a disclosure policy.

3 Monster Stocks That Can Crush the S&P 500 Over the Next 5 Years was originally published by The Motley Fool

• Nvidia could rocket another 545% by the end of the decade, Phil Panaro predicted.

• The former BCG executive said the firm will soar due to the AI revolution & transition to Web3.

• The stock could also see a “huge explosion” in 2025 after the release of Blackwell, he said.

Nvidia is headed for a meteoric run-up by the end of the decade, according to one former consulting exec.

Phil Panaro — a former senior advisor at Boston Consulting Group who also served as CEO of a BCG subsidiary — says shares of the AI chipmaker will reach $800 by 2030. That implies another 545% upside for the stock, which traded around $122 a share mid-day Friday.

The Jensen Huang-led firm will benefit from the artificial intelligence revolution, as well as migration from Web2 to Web3, Panaro predicted, referring to the idea that the internet’s next era will be denominated by blockchain technology.

Those developments could result in big spending from Nvidia’s customers, he said, pointing to estimates from Goldman Sachs, Citigroup, and Morgan Stanley that Web3 could fuel trillions of added value in the market.

“Nvidia powers all of the accelerated computing, to make that happen, so they’re going to have a major share of that,” Panaro said in an interview with Schwab Network on Thursday. He later estimated that the firm’s revenue could scale by a factor of 10, from $60 billion in the last fiscal year to $600 billion by 2030.

Investors may not have to wait long to see some of those gains. Panaro foresees a “huge explosion” in the stock after Nvidia releases Blackwell, its next-gen AI chip, though he didn’t specify his short-term price target.

“Not to sound overconfident — it’s actually inevitable provided that they can continue to make these chips,” he later added of the firm’s upside potential. “The AI penetration in the economy right now is literally less than 1%. So you still have all the corporates, the cities, the municipalities, the governments, the military, that are going to be spending money to make sure they leverage AI effectively. So tons of money still to be spent.”

Some strategists have been skeptical over Nvidia’s rally, with the stock up a monster 2,733% over the last five years. Analysts have attributed some of that growth to “hyperscalers,” a small group of Big Tech firms buying Nvidia’s chips in large quantities.

But despite concerns those customers could eventually pull away, the small group of buyers is actually a good sign Nvidia’s business will scale, Panaro said.

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“That’s actually the best case for why it’s actually going to go up. Because if you look at all the other customers they’re not getting to, there’s 490 other Fortune 500 firms that haven’t really adopted AI to the fullest because they don’t understand it. You have all these cities and governments that are going to be redoing all their infrastructure from Web2 to Web3, and you then have the AI arms race, with countries and their militaries, which Nvidia hasn’t penetrated for the most part,” Panaro said.

He continued: “The stock can go to the moon, essentially, provided that they deliver.”

Panaro’s prediction leans on the extreme end of forecasters, but Wall Street is generally feeling bullish about the chipmaker’s stock, which has climbed 152% since the start of the year. Analysts have issued an average price target of $152 a share for the stock, according to Nasdaq data, implying around 25% upside from current levels.

Read the original article on Business Insider

Metrics and ratios can be great. They take complicated bits of information and put them in a form that allows you to make comparisons among competitors or industries. They can give you valuable insight into company performance and whether management is improving certain aspects of the business. But they can also give you the wrong idea if you don’t have proper context or understanding. I recently came across a misunderstanding related to Ford Motor Company‘s (NYSE: F) debt-to-equity ratio — here’s what it was, and what you can learn from it.

What happened?

I recently came across an article that said something to the effect of: “Ford uses its extensive debt to improve its returns. It has a shockingly high debt-to-equity ratio of 3.46.” While this number is technically right, the analysis is unacceptably wrong.

To start, let’s better explain the debt-to-equity ratio, and why Ford’s inputs need adjusting. The debt-to-equity (D/E) ratio evaluates a company’s financial leverage and is calculated by dividing total liabilities by shareholder equity.

The D/E ratio can be used to assess the company’s reliance on debt and is best used in comparison within an industry as the results can trend differently across industries. A higher D/E ratio suggests a company is taking on more risk by carrying more debt, but it can work the other way if a company has a low D/E and has more to gain by taking on debt and investing in business growth.

How to adjust

Ford’s D/E ratio of 3.46 brings in Ford’s total liabilities, which includes debt under Ford Credit, Ford’s finance arm. Before we go any further, let’s sort out Ford Credit’s contribution.

Ford Credit takes on massive debt, similar to a bank, and provides consumers with loans and leases and supports dealership renovations, among other things. Essentially, Ford Credit takes on massive debt but turns this into a very profitable business. Ford Credit is often more profitable than any of Ford’s regions outside of North America.

Now, let’s modify this ratio to get a better look at the difference between debt including Ford Credit, and without it. Let’s just use total long-term debt, automotive debt, and total equity from the second quarter.

Using only long-term debt leaves us with a formula of $100.3 billion divided by $43.6 billion, or a D/E of 2.3 times. Consider anything above 2 to be entering hazardous territory, in many industries. One could glance at some metrics and immediately conclude Ford has too much debt and too much risk.

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However, when you back out Ford Credit’s debt — which again is a large positive for the company’s bottom line, not a hindrance — and use only automotive debt, the ratio shrinks down to a much more reasonable 0.42 times. This is a stark difference in how you perceive Ford and its metrics solely based on the understanding of Ford’s core business and how it overlaps with Ford Credit.

What it all means

This just serves as a reminder that you should always double-check numbers and do your own research. And while metrics are incredibly helpful, they also require context and understanding. Ford Credit is a highly important entity to Ford and its underlying business, and with how it operates, its debt shouldn’t be included in certain ratios.

Should you invest $1,000 in Ford Motor Company right now?

Before you buy stock in Ford Motor Company, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Ford Motor Company wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $760,130!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 23, 2024

Daniel Miller has positions in Ford Motor Company. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Some Investors Keep Making This Ford Mistake was originally published by The Motley Fool

Don’t be fooled—the Intel saga isn’t what it seems. Recent coverage narrates the sad decline of a once-great American company, with the outcome looking dim. But the story is really a high-stakes thriller leading to an uncertain resolution that could carry global implications. It may take years to play out, but seeing the big picture makes each day’s news far more interesting.

Understand first what Hollywood scriptwriters call the backstory: Intel for decades dominated the global semiconductor industry, designing and manufacturing leading-edge chips. But starting around 2000 it began to fall behind, missing the bonanzas in cellphone chips and then the chips that fuel the AI revolution (note that Nvidia designs chips but doesn’t manufacture them). By 2021, Intel’s chips had fallen two generations behind the leading edge, an unprecedented and humiliating position. In crisis mode, the board brought back an Intel veteran who had left in 2008, Pat Gelsinger, to lead a rescue mission as CEO. (You can read my full case study for Fortune about how Intel lost its edge here.)

Gelsinger launched an ambitious, expensive, high-risk strategy to bring Intel back to the global forefront. He knew reaching that goal would take several years if it could be done at all. He negotiated with ASML, the only company in the world that makes machines necessary for manufacturing leading-edge chips, to sell Intel the first machine that would produce a new generation of chips. He poured many billions of dollars into capital investments that wouldn’t pay significant returns for years.

That’s the foundation of what we mostly read and hear about Intel today. All that capital is costing Intel nearly $16 billion a year, as calculated by ISS EVA, without much to show for it so far. The company announced in August it will lay off 15,000 employees and “stop all non-essential work.” Add recent rumors that Qualcomm might want to buy Intel, and we have the sad-decline narrative.

But that version of the story overlooks the most interesting part—the grand-strategy-great-powers-geopolitics element. Semiconductors are crucial strategic products for both America’s and China’s national security, and only three companies can make leading-edge chips: Taiwan Semiconductor Manufacturing Company (TSMC), South Korea’s Samsung, and Intel, which ranks a distant third in output. That’s why bipartisan congressional majorities in 2022 passed the CHIPS and Science Act, which subsidizes new chip factories in America. Commerce Secretary Gina Raimondo in February explained why: “We cannot allow ourselves to be overly reliant on one part of the world for the most important piece of hardware in the 21^st century.”

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Most of the CHIPS Act subsidies have been disbursed, with the biggest package—some $20 billion in direct funding and loans—going to Intel, which is building two huge fabs in Arizona and two more in Ohio, among other projects. Big subsidies are also going to TSMC (building three fabs in Arizona) and Samsung (three fabs in Texas).

When the U.S. is the only country where all three of the world’s leading chipmakers run major production operations, international relations become more complex. That’s just the beginning of the complexity.  For more intrigue, add the element of time. Intel hopes to start production of leading-edge chips in at least one fab by the first half of 2025, though the volume is not clear. Gelsinger has said Intel’s financial rehabilitation won’t be complete until 2030 or beyond, and he told Fortune in March, “I fully expect that we’ll need a CHIPS Two. Thirty years of poor economic policy cannot be fixed in a three- to five-year CHIPS One program.” TSMC also plans to begin production at one of its new U.S. fabs next year, but it won’t be producing leading-edge chips there until 2027 or 2028. It will, however, be producing those chips in Taiwan earlier. Meanwhile, Xi Jinping has declared a goal of making China self-sufficient in chips, including leading-edge chips, by 2027. Separately, he has instructed his military to develop a plan for invading Taiwan by 2027.

The scenarios are easy to imagine. If China were to take over Taiwan, it would presumably take control of TSMC.  Would the U.S. government shut down the company’s U.S. operations? Take them over? Leave them alone? Would Intel benefit? Or imagine an entirely different scenario in which China doesn’t invade Taiwan, but TSMC’s and Samsung’s U.S. operations outperform Intel, hobbling its commercial competitiveness? Would Washington inject more billions into America’s only plausible competitor at the forefront of “the most important piece of hardware in the 21^st century”?

Investors, Wall Street analysts, competitors, suppliers, and customers must face a new reality: Intel is no longer a conventional company and can no longer be evaluated as one. It is rather the preeminent example of a trend identified by Lazard CEO Peter Orszag and colleagues, who wrote in a Foreign Affairs article that “a tectonic shift is taking place, one that is forcing corporations to become actors on the geopolitical stage.” In that unfamiliar and unsought role, Intel is the most visible example of those that “have become both the objects and instruments of foreign policy.”

This story was originally featured on Fortune.com

Two of the original cofounders of Donald Trump’s Truth Social platform have cashed out their stock amid an ongoing feud with the former president.

According to a regulatory disclosure published by Trump Media and Technology Group (TMTG) on Thursday, an investment vehicle controlled by Andrew Litinsky and Wesley Moss liquidated the bulk of its nearly 7.53 million shares that would currently be worth roughly $100 million based on the stock’s last closing price.

“As of the date of this filing, United Atlantic Ventures LLC owns 100 shares,” the statement said.

Litinsky and Moss do not serve in any official capacity for the company, neither as officers nor directors. From a regulatory point of view they are not considered insiders but rather passive investors not privy to material nonpublic information. Their selling stock should therefore not be considered a signal of problems outsiders are not already aware of.

The duo first met Trump as contestants on season two of Trump’s reality show The Apprentice, which aired 20 years ago. After Trump was banned from Twitter for inciting the Jan. 6 Capitol riots, they persuaded the former president to found his own social media platform and agreed to give him a majority stake.

When Trump’s media group went public in late March—trading under Trump’s initials as its ticker symbol—UAV owned 5.5% of the listed company.

But shortly thereafter, relations between the two parties soured. Litinsky and Moss went on to sue the company, feeling they were being shortchanged, while TMTG countersued, claiming they had bungled the rollout of Truth Social.

According to the filing, UAV’s stake had dwindled to less than 3.8% of the outstanding stock by mid-August amid further share issues that diluted their holding.

Stock overhang fears

UAV did not reveal when precisely the sale was made and whether it occurred over a period of more than one trading session. Typically, however, 13G disclosures like this one made by passive shareholders with significant stakes grant some leeway, with a filing required within five business days of the transaction.

But UAV was subject to a lockup period barring any sale prior to Sept. 19. That puts it in a likely price range somewhere between $12 and $15 for each share.

While major stakeholders liquidating their investment wouldn’t normally be confidence-building, the market was well aware of the ongoing feud between Litinsky and Moss and the company. Earlier this month UAV won a lawsuit requiring Odyssey Transfer and Trust, a custodian of the shares held in escrow, to release its 7.53 million shares as soon as the lockup expired last Thursday.

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With Litinsky and Moss cashed out, some of the uncertainty hanging over the company should be removed as their shares have now been fully absorbed by the market.

While TMTG’s future remains a concern, the bigger immediate fear for investors has been the potential sale of stock by the former president, who owns nearly 115 million shares representing some 57% of the company.

Despite recent assertions from the former president that he has no intention of selling, stock in TMTG crashed to an all-time low on Tuesday amid suspicion that Trump’s mounting legal costs mean he may yet be forced to convert a portion of his stake into cash.

So far there has been no evidence he has. Instead, Trump has taken to lending his personal name to a wide range of branded merchandise he’s selling, ranging from sneakers to Bibles to silver coins. On Thursday he revealed his latest product, diamond-encrusted wristwatches that retail for as much as $100,000 each.

TMTG did not respond to a request from Fortune for comment.

This story was originally featured on Fortune.com