- Worries over rising interest rates, elevated bond yields, reaccelerating inflation, and a slowing economy continue to drive investor sentiment.
- Markets fear the Federal Reserve will hike rates even more aggressively than already expected, risking recession in its effort to tame inflation.
- Despite the tough macro backdrop, Airbnb and Uber have managed to weather the current volatility better than their high-growth peers.
- *Year-To-Date Performance: +43.1%
- *Market Cap: $77.2 Billion
Market participants have raised their bets in recent days that the Federal Reserve will have to hike interest rates even more aggressively than already expected in its effort to tame soaring inflation.
According to Investing.com’s Fed Rate Monitor Tool, which had been strongly pointing to a 25 basis points (bps) hike at the Fed’s March policy meeting, was now showing a more than 30% probability of a 50bps move.
With further volatility and market turmoil expected in the weeks and months ahead, I recommend buying shares of Airbnb (NASDAQ:ABNB) and Uber Technologies (NYSE:UBER) as the two high-growth companies should offer solid upside given their improving fundamentals.
Airbnb
Founded in 2007, Airbnb operates an online marketplace platform for vacation rentals, cabins, beach houses, unique homes, as well as tourism experiences around the world. It is widely viewed as a competitive threat by the hotel industry.
Shares have run hot in recent weeks, scoring a gain of almost 43% since the start of 2023 as it benefits from a post-pandemic recovery in travel demand. Despite the stock's massive year-to-date rally, ABNB - which closed at $122.38 last night - still sits roughly 16% below its December 2020 IPO price of $146, making it a smart time to buy.
At current valuations, the San Francisco, California-based online vacation-rental booking platform has a market cap of $77.2 billion, a steep discount to its peak valuation of $127 billion reached in February 2021.
I personally believe that ABNB is one of the best growth stocks to buy and hold for the months ahead as it remains well-positioned to capitalize on the ongoing recovery in the travel industry despite recession fears that have sparked concerns about consumer spending.
The vacation rental firm last month reported record fourth-quarter earnings and revenue to achieve its first profitable year since going public in 2020, a testament to strong execution across the company. Gross booking value rose 20% year-over-year to $13.5 billion, and nights and experiences booked were up 20% to $88.2 million.
Airbnb said domestic and short-distance travel continued to be strong and noted improvement in longer-distance and international travel during the reported quarter.
“All regions saw material growth in 2022 as guests increasingly crossed borders and returned to cities on Airbnb,” stated Chief Executive Brian Chesky.
In a promising sign, the online travel giant generated ample cash despite the difficult economic climate. Airbnb ended 2022 with free cash flow of $3.4 billion, a y-o-y increase of 49%.
Looking ahead, the company said it saw strong demand at the start of 2023, as travel continues to rebound from the impact of the coronavirus health crisis. Executives said they were “particularly encouraged” by market share gains in Latin America, an ongoing recovery in the Asia-Pacific region, and European travelers who are booking summer vacations early.
Source: Investing.com
Wall Street remains optimistic on ABNB, as per an Investing.com survey, which revealed that 35 out of 40 analysts covering the stock rated it as either a ‘buy’ or ‘hold’. Shares have an average price target of around $138, representing an upside of 12.9% from current levels.
Uber Technologies
Uber Technologies - which provides a ride-hailing service, as well as food delivery, package delivery, and freight transport - has enjoyed a powerful rally to start the new year.
Shares of the mobility-as-a-service specialist have run about 36% higher so far in 2023, far outpacing the comparable returns of major industry peer, Lyft (NASDAQ:LYFT), whose stock is down 11.2% over the same timeframe. Despite the recent rally, UBER, which ended at $33.70 yesterday, remains 47% below its February 2021 all-time high of $64.05.
At current levels, the San Francisco-based company has a market cap of almost $68 billion, compared to a valuation of roughly $112 billion at its peak.
Even with the recent run-up in its share price, right now could be an excellent time to take a position in UBER as the rideshare giant has proved that it can thrive in a challenging environment. In contrast with many other high-growth companies, Uber is generating solid profits and cash flow as more people use its transportation and food delivery services.
Uber’s fantastic fourth-quarter update released last month made it clear that the company is executing well and delivering solid growth despite the existing inflationary and recessionary economic climate.
The ride-hailing and delivery specialist earned $0.29 per share in the last three months of 2022, defying expectations for an estimated loss of $0.15/share. Revenue jumped 49% from last year to a record $8.61 billion powered by strong demand from customers who continued to hail rides and order takeout food amid the current macro environment.
Gross bookings for the quarter came in at $30.7 billion, up 19% y-o-y. There were 2.1 billion trips completed on the company’s platform during the period, an increase of 19% from the year-ago period.
“We ended 2022 with our strongest quarter ever, with robust demand and record margins,” Chief Executive Dara Khosrowshahi said in a statement.
Uber’s management gave an upbeat outlook for the current quarter, lifting guidance for adjusted EBITDA - a key profitability metric - due to improving mobility trends and ongoing momentum in food delivery demand.
"Despite any macroeconomic uncertainty, I'm more confident than ever in our prospects," Khosrowshahi said on a post-earnings call.
Source: Investing.com
Uber’s stock remains a favorite on Wall Street, with all 44 analysts surveyed by Investing.com rating shares as either ‘buy’ or ‘neutral’. Among those surveyed, shares had an upside potential of 41.6% from Thursday’s closing price.
***
Disclosure: At the time of writing, I am short on the S&P 500 and Nasdaq 100 via the ProShares Short S&P 500 ETF (SH) and ProShares Short QQQ ETF (PSQ). I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies' financials.
The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.