3 stocks I might buy before 2023

One of the basic principles in my investment approach is to add new funds to my account regularly, which allows me to make new purchases. Therefore, I will be buying more shares before this year is over as I add new cash to my account. I would probably buy more from some of the shares I already own rather than start new positions in other companies.

This is subject to change, of course. I can easily be lured into starting deals in cryptocurrency exchanges Coinbase GlobalRestaurant ordering platform Ouluor a luxury furniture company R. However, with 35 open positions in my retirement portfolio already, I see value in adding companies that I particularly excel at.

For me, a home improvement retailer Flooring and decoration collectibles (FND -2.32%)advertising technology company (adtech) PubMatic (PUBM -2.33%)travel booking platform Airbnb (ABNB) -1.54%) These are three stocks that I already own and that I would like to acquire larger positions in. Below, I’ve noted how large these positions actually are in my retirement account and laid out the reasons why I’d like to own more of each.

1. Floor and decoration: 4.9%

Floor & Decor, a retail flooring company, has three qualities that I absolutely crave in a retail investment. First, it’s opening new locations at a breakneck pace, going from 83 stores at the end of 2017 to 178 stores as of the end of Q3 2022. Second, the company is on pace for its 14th consecutive year of same-store sales growth, boosting profitability at the store level. And third, speaking of earnings, it’s been a profitable company on a net income basis as far as going back to the public and has a net profit margin of 7.1% year-to-date.

I think this simple recipe will make a delicious investment result over the next decade for decorative floors. Management previously targeted to grow its store count by 20% annually on its way to 500 locations in the long term. I expect the company to have fully grown its footprint before 2030.

Home improvement retailers, including Floor & Decor, are facing some near-term uncertainty. Home prices are faltering, which could affect home improvement spending. But given the consistency of its results to date, I expect continued growth in same-store sales and Floor & Decor profitability over the next decade. Once it has roughly tripled its store count, I would expect sales and cash flow to be much higher than it is now.

Also keep in mind that larger competitors Home Depot And the Louie Payment of dividends. Floor & Decor doesn’t pay a dividend today, but I expect that to change once it gets out of growth mode. Therefore, by buying more of this stock today, I will participate in the growth of the company and, in the future, will probably be rewarded with attractive dividends.

2. PubMatic: 2.7%

Publift, a small company trying to help publishers better understand the digital ad ecosystem, recently published a list of 24 supply-side advertising platforms (SSPs). PubMatic was on that list, but there are more SSPs than just two dozen listed. My main point here is to note how the SSP space is indisputably recognized as Extremely Competitive, but that’s why I love PubMatic stock and want to own more of it.

Publishers frequently work with dozens of SSPs at once, but PubMatic partners with its publisher clients to “optimize” the ad technology architecture – cutting out specific SSPs and focusing on just a few. This can lead to better and more profitable results for the publisher. And by doing so, PubMatic is taking market share out of the crowded field of competitors.

In the third quarter of 2022, more than 30% of PubMatic’s revenue came from supply path optimization deals, up from just 27% of revenue in the first quarter. Therefore, nearly a third of the revenue comes from deals in which PubMatic is one of the few players. In other words, as SSPs are eliminated, PubMatic makes it safely to the other side.

Investors are worried about the advertising industry right now because of the economy. It seems reasonable. PubMatic’s third-quarter revenue rose just 11% year-over-year — its slowest rate of growth as a public company to date. Revenue is expected to remain flat in the next quarter.

So, there are near-term headwinds, but investor concerns have pushed PubMatic’s valuation to very attractive levels. It currently trades at around 20 times late earnings – compared to the average in the Standard & Poor’s 500 — a robbery for a small company with great long-term potential.

3. Airbnb: 2.2%

Airbnb updates its platform twice a year. On November 16, the company launched its Winter Edition, showcasing some new features sure to make its hosts and guests happy. I think so, because co-founder and CEO Brian Chesky is very involved with the Airbnb community and often collects ideas collectively, including some of these recent ones.

Among Airbnb’s recent changes is the increased prioritization of good-value stays. Hosts are getting tools to see how their properties stack up, but this may also reflect a beneficial trend for the company lately. Last quarter, the average daily rate (ADR) for an Airbnb stay was $156 per night, up 5% year-over-year. Growing ADR drives up booking volume, but if Airbnb prioritizes value, ADR could go down in the coming years.

This may be a headwind, but I find the breeze refreshing nonetheless. Airbnb is the number one player in the short-term rental space – an incredibly lucrative space. But if Airbnb wants to keep its place at the top, it has to cater to its users. Value prioritization, along with other improvements in the winter release, improves user experience, and this is the most important.

Speaking of earning potential, Airbnb is hitting it best of all. The company had a net profit of $1.2 billion in the third quarter, on revenue of just $2.9 billion. This margin of 42% per quarter should not be expected, but it was no accident. By simply being the middle party in short-term rental transactions, Airbnb has high profit potential, and it’s starting to flex those muscles.

Net income is related to a measure of free cash flow (FCF), which is adjusted for things including non-cash expenses. Airbnb’s 12-month FCF is worth $3.3 billion, which is a good amount for a company with a market capitalization of $63 billion as of this writing.

It was one of my most successful previous investments PayPal, which I bought in 2015 on the simple premise that higher cash flow rates would translate into favorable returns for shareholders over the long term. The simplified investment thesis was done with PayPal, and it could contribute to good returns for Airbnb as well.

Having a growing cash pile to work with gives Airbnb management options. Admittedly, CEOs would become poor allocators of capital, but I’m willing to bet Chesky’s vision continues, considering he’s grown a world-class enterprise from an idea that started in his apartment just 14 years ago.

top of the list

Perhaps counterintuitively, the stock I’m looking to add to the most right now is Floor & Decor, and it’s the biggest of those three holdings for me, because the near-term downside is the most limited. I might be able to add to PubMatic and Airbnb with better rates. But I’m so happy with the place Floor & Decor is trading in as of this writing, that I’m reluctant to wait any longer for anything better.

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