October has historically been a good month to have money in the stock market. The S&P500 has posted gains of at least 10% 61 times since World War II, and nearly a third of those rallies have started in October, according to Bespoke Investment Group.
An example is the bear market that started on January 3, 2022 and ended on October 12, 2022. The S&P 500 rose more than 60% during the subsequent bull market. And history says the upward momentum could intensify in October and beyond, partly due to holiday spending.
Past performance is never a guarantee of future returns, but Shopify (NYSE: STORE) And Uber Technologies (NYSE:UBER) are valuable long-term investments, regardless of what happens next month. This is why.
Shopify: The market leader in e-commerce software
Shopify offers commerce software and services for businesses of all sizes. This platform allows sellers to manage sales across offline and online channels, including social media, marketplaces, and custom websites. Shopify also offers adjacent merchant solutions for marketing, payments, and logistics. That turnkey approach has helped the company gain a leading position in e-commerce and omnichannel commerce software.
Shopify initially prioritized small and medium businesses, but is now also targeting larger brands with Shopify Plus and Commerce Components. The first is a complete commerce platform designed for enterprises, and the second allows enterprises to adopt individual elements of Shopify’s commerce stack. Both include wholesale commerce tools that expand Shopify’s addressable market beyond retail.
Shopify looked strong in the second quarter. Revenue rose 21% to $2 billion, including a 4 percentage point headwind from the sale of its logistics business. Meanwhile, non-GAAP (adjusted) earnings rose 85% to $0.26 per diluted share. President Harley Finkelstein told analysts, “More and more merchants around the world are relying on Shopify’s unified commerce operating system to drive growth and simplify complex operations.”
Importantly, the company has made progress in physical retail, wholesale and international markets, three strategic growth vectors. In the second quarter, offline gross merchandise volume (GMV) increased 27%, and wholesale GMV volume increased 140%, both exceeding the 22% growth in total GMV. Meanwhile, the number of international merchants using Shopify has increased by 30%.
Wall Street expects profits to rise 45% annually over the next three years. That makes the current valuation of 82 times earnings reasonable. Whether or not a stock market rally starts in October, I think investors who buy a small position in Shopify today will be happy with their decision five years from now.
Uber Technologies: The market leader in ride sharing
Uber divides its business into three categories: the mobility segment connects passengers to transportation, the delivery segment connects consumers to local grocery stores and restaurants, and the freight segment connects shippers to carriers. Uber operates the largest ride-sharing platform in the U.S. by revenue and the second-largest food delivery platform, according to Bloomberg.
One thing that sets the company apart is its ability to offer ride and delivery services through a single platform. Uber can encourage consumers and drivers on both sides of its ecosystem to engage with the other side, and its cross-promotion activities are paying off. According to a company presentation, 22% of first mobility trips come via the delivery app, and 31% of first delivery trips come via the mobility app.
Uber has another important advantage in its own data. The company develops a deep understanding of users’ tastes and preferences by offering sharing and delivery services, and uses that information to connect consumers with relevant advertisements. User data also creates a network effect that helps Uber predict demand and route drivers more effectively over time.
Uber reported solid second-quarter financial results. The number of monthly active platform consumers increased by 14% to 156 million, and the number of rides increased by 21% to 2.7 billion, meaning users are interacting more often. In turn, revenue rose 16% to $10.7 billion, driven by strong growth in sales of mobility products, and GAAP earnings rose 161% to $0.47 per diluted share.
Wall Street expects Uber’s revenues to grow 48% annually over the next three years. That consensus makes the current valuation of 84 times earnings seem reasonable. Investors should feel comfortable buying a small position in Uber at its current price, provided they plan to hold their shares for at least three to five years.
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Trevor Jennevine has positions in Shopify. The Motley Fool holds and recommends positions in Shopify and Uber Technologies. The Motley Fool has a disclosure policy.
A Stock Market Rally Could Begin in October: 2 Brilliant Growth Stocks to Buy Now and Hold for the Long Term, originally published by The Motley Fool
