Investing is not about living in the past, but about buying companies that will do well in the future. You want to buy stocks that can grow sales and profits while trading at a reasonable valuation. A tough task, especially if it is wide S&P 500 index is trading at a price-to-earnings (P/E) ratio close to an all-time high.
In bull markets, smart investors stray from the red-hot and popular stocks trading at nosebleed multiples of earnings. Instead, they focus on stocks that fly under the radar.
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Two of my favorite under-the-radar stocks that I think investors will flock to next year Coupang(NYSE: CPNG) And Ally financially(NYSE: ALLY). This is 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 selling in South Korea and has now expanded to Taiwan, has seen its shares soar 70% year to date, crushing the performance of broad market indexes.
With almost half of South Korea’s population using its e-commerce website, Coupang is now ubiquitous Amazon in the United States and is expanding its lead over competitors. Last quarter, the South Korean e-commerce company’s net sales reached nearly $7 billion and grew 20% year over year at constant exchange rates.
Customers are drawn to Coupang’s ultra-fast delivery and the variety of services it offers with its premium subscription service Rocket Wow. Like Amazon Prime, Rocket Wow gives customers access to premium streaming video content, discounts on food delivery, and groceries delivered in just 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 in-house food delivery service called Coupang Eats.
These segments are combined into Coupang’s development offerings revenue line, which is growing like gangbusters. Last quarter, revenue for the segment increased 347% year-over-year to $975 million. Excluding the acquisition of fashion website Farfetch, the segment would still have grown revenue by 146% year over year this quarter.
Despite all these investments in growth, Coupang generates a positive net result. The company only had a small profit of $64 million last quarter, but can self-finance its reinvestment as it focuses on a market opportunity worth hundreds of billions of dollars per year.
Like Amazon, I expect profit margins to start growing once the company matures. With a market cap still below $50 billion, I think there is a lot of room for Coupang’s stock to continue to rise in 2025 and beyond.
ALLY PE ratio chart
Ally Financial, a smaller company than Coupang, is one of the leading online banks in the United States. Started as a spin-off of the General engines During the collapse of the Great Recession, Ally grew its consumer banking business from nothing to more than $100 billion in deposits. At the end of the last quarter, the country had an estimated 3.26 million depositors, a number that has grown steadily from less than 1 million at the end of 2014.
How can Ally convince savers to switch banks? Because of the high interest it pays on deposits. Because there are no physical bank branches, Ally has much lower overhead costs than existing banks. This allows it to offer superior interest rates on deposits, which works especially well as the Federal Reserve has raised its benchmark interest rate in recent years.
Using these deposits, Ally provides loans to the car market. It makes a profit on the spread between what it charges savers and what it can earn by lending 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 delinquencies on its auto loans have begun to rise and are now above pre-pandemic levels. This will impact profitability in the short term, but it is well within Ally’s guidelines and is a normal part of investing in a cyclical financial company.
It’s still profitable with $884 million in net income generated over the last twelve months, and it pays a dividend that currently yields a healthy 3.41%. The stock is trading at a P/E of 14 even at these lows, a metric that should look even cheaper as loan delinquencies normalize. As savers continue to switch to Ally for their consumer banking needs, I believe total deposits could grow over the next five to 10 years, fueling more earnings growth.
Add it all up and it looks like Ally has all the ingredients to deliver strong returns for investors who buy today and stick with it for the long term.
Consider the following before purchasing shares in Ally Financial:
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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 and recommends positions in Amazon and Coupang. The Motley Fool recommends General Motors and recommends the following options: In January 2025, $25 would appeal to General Motors. The Motley Fool has a disclosure policy.
My 2 Favorite Stocks Investors Will Invest In Next Year was originally published by The Motley Fool
