Investing isn’t about living in the past, but buying companies that will do well in the future. You want to buy stocks that can grow sales and earnings while also trading at a reasonable valuation. A tough task, especially when the broad S&P 500 index is trading at a price-to-earnings ratio (P/E) close to all-time highs.
In bull markets, smart investors stray away from the red-hot and popular stocks trading at nosebleed earnings multiples. Instead, they target stocks that are flying under the radar.
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Two of my favorite under-the-radar stocks I think investors will be piling into next year are Coupang(NYSE: CPNG) and Ally Financial(NYSE: ALLY). Here’s why I think the companies are fantastic buy-and-hold investments for the next decade.
One of the fastest-growing large-cap stocks in the world is Coupang. The e-commerce platform, which started out selling in South Korea and has now expanded into Taiwan, has seen its stock rise 70% year to date, crushing the performance of the broad market indexes.
With close to half the South Korean population using its e-commerce website, Coupang is now as ubiquitous as Amazon in the United States and is widening its advantage over competitors. Last quarter, net revenue across its South Korean e-commerce business hit close to $7 billion and grew 20% year over year in constant currency.
Customers are attracted to Coupang’s ultra-fast delivery and the variety of services it offers with its Rocket Wow premium subscription service. Similar to Amazon Prime, Rocket Wow gives customers access to premium streaming video content, discounts on food delivery, and groceries delivered in as little as a few hours.
Coupang has more ambitions than just being an e-commerce website in South Korea. It has a fintech subsidiary, has expanded internationally to Taiwan, and has an internal food delivery service called Coupang Eats.
These segments are combined into Coupang’s Developing Offerings revenue line, which is growing like gangbusters. Last quarter, revenue for the segment soared 347% year over year to $975 million. Excluding its acquisition of fashion website Farfetch, the segment would have still grown sales by 146% year over year in the quarter.
Despite all these investments for growth, Coupang generates positive net income. It had only a slight profit of $64 million last quarter but is able to self-fund its reinvestment as it targets a market opportunity of hundreds of billions of dollars every year.
Like Amazon, I expect profit margins to start expanding once the business reaches maturity. With a market cap still under $50 billion, I think there is a lot of room for Coupang stock to keep running higher into 2025 and beyond.
ALLY PE Ratio Chart
Ally Financial, a smaller company than Coupang, is one of the leading online-only banks in the United States. Beginning as a spinoff of the General Motors financing arm during its Great Recession bankruptcy, Ally has grown its consumer banking operations from nothing to over $100 billion in deposits. At the end of the last quarter, it had an estimated 3.26 million depositors, a number that has steadily grown from less than 1 million at the end of 2014.
How is Ally able to convince depositors to switch banks? Because of the high interest rates it pays on deposits. With zero physical banking branches, Ally has much lower overhead than legacy banks. This allows it to offer superior interest rates on deposits, which works especially well with the Federal Reserve raising the benchmark interest rate over the last few years.
Using these deposits, Ally makes loans to the automotive market. It earns a profit on the spread between what it charges depositors and what it can earn by lending out money for car purchases. At the end of last quarter, Ally had $83.6 billion in retail auto loans and $23.9 billion in commercial auto loans on its balance sheet.
In recent quarters, Ally’s delinquency rates on its automotive loans have started to rise and are now above their pre-pandemic levels. This will affect its profitability in the short term, but it is well within Ally’s guidance and a normal part of investing in a cyclical financial company.
It is still profitable with $884 million in net income generated over the past 12 months, and it pays a dividend that currently yields a healthy 3.41%. The stock trades at a P/E of 14 even on these trough earnings, a metric that should look even cheaper as its loan delinquencies normalize. With depositors continuing to switch to Ally for their consumer banking needs, I think that its total deposits will be able to grow over the next 5 to 10 years, which is the fuel for more earnings growth.
Add everything together, and Ally looks like it has all the ingredients to put up strong returns for investors who buy today and stay with it for the long haul.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Ally is an advertising partner of Motley Fool Money. Brett Schafer has positions in Amazon and Coupang. The Motley Fool has positions in and recommends Amazon and Coupang. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.
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