COCO - Stocks to Watch: 3 Up-and-Coming Companies Catering to Next-Gen Consumers
2024-03-05 12:53:56 ET
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
Today we introduce three stocks to watch as the purchasing power of “Next-Gen” consumers, comprised of Gen Z (born 1995-2009) and Gen Alpha (born 2010-2024). Recent research suggests that with over 3.7 billion consumers globally, the Next-Gen cohort has significant buying power. In fact, today’s young consumers are expected to earn around a quarter of all global income by 2030.
Their intuitive adoption of digital transactions and online shopping is already impacting the global economy. Increasingly, they are transforming the consumer landscape with their tech-savvy and unique socio-political characteristics. With that information, here are the three stocks to watch poised to generate lucrative returns from the Next-Gen goldmine.
AppLovin (APP)
First up among our stocks to watch is AppLovin (NASDAQ: APP ), which provides software solutions for developers to market their apps. The tech company has become an important player in the mobile app monetization space. This is largely due to its diversified product portfolio, growing scale, and global reach.
In mid-February, AppLovin reported Q4 results , as revenues increased 36% year over year ( YOY ) to $953 million. Net income surpassed analyst estimates with $172 million, compared to a net loss of $80 million in the prior-year period.
AppLovin’s AI-powered software, AXON 2, employs predictive machine learning to target app-install ads to users most likely to download those apps. It has given a sizeable boost to the performance of the platform, accelerating revenue growth and expanding margins. In fact, the fourth-quarter Software Platform revenue jumped 88%, benefiting from a large customer base, as well as a recurring and scalable revenue model.
APP stock is up 55% year to date ( YTD ), adding to its increase of over 250% in 2023. Shares are changing hands at 6.7 times trailing sales and 25.3 times forward earnings. Analysts suggest APP stock could still advance while the 12-month median price forecast for APP stands at $65.00 .
Invesco NASDAQ Next Gen 100 ETF (QQQJ)
One of our stocks to watch to capitalize on the spending power of the Next-Gen consumer is an exchange-traded fund ( ETF ). It is the Invesco NASDAQ Next Gen 100 ETF (NASDAQ: QQQJ ), giving access to the 101st to the 200th non-financial largest companies listed on the NASDAQ. Many of these businesses are mid-cap stocks.
The QQQJ fund started trading in October 2020 and has assets under management of around $730 million. Among the leading industries are Information Technologies (37.4%), Health Care (21.1%), Consumer Discretionary (16.0%), Industrials (12.1%), and Communication Services (6.6%). The annual expense ratio is 0.15%.
About a fifth of the fund is in the top 10 stocks. The leading holdings include AI hardware producer Super Micro Computer (NASDAQ: SMCI ), manufacturer of integrated circuits ( ICs ) Monolithic Power Systems (NASDAQ: MPWR ), rural lifestyle retailer Tractor Supply (NASDAQ: TSCO ), clinical research organization ICON (NASDAQ: ICLR ), and beauty retailer Ulta Beauty (NASDAQ: ULTA ). Many of these companies in the QQQJ fund deserve to be on your list of stocks to watch in the coming quarters.
QQQJ has gained 13% over the past year, lagging behind the Magnificient 7 driven growth in the Nasdaq 100 index. Meanwhile, it is up 10% YTD, and currently trading at around 21 times forward earnings. Potential investors may want to consider buying the dips.
Vita Coco Company (COCO)
The final name among our stocks to watch is Vita Coco Company (NASDAQ: COCO ). With a market cap of $1.5 billion, the beverage company specializes in coconut water, coconut oil, and other coconut-related products. It has delivered significant revenue and profit growth in 2023, benefiting from consumer demand and strong margins. Vita Coco has carved out a niche for itself with its focus on branded coconut water, expanding market share in a category that is forecasted to grow at a compounded annual growth rate of 10.8% through 2029.
In late February, the beverage company reported solid fourth quarter and full year 2023 financial results , leading to a 15% jump in COCO stock. Quarterly net revenue grew 15% to $106 million. Net income was $7 million, or 11 cents per diluted share, compared to a net loss of $3 million in the prior-year quarter, benefiting from strong sales growth and substantial improvement in gross margins.
COCO has consistently surpassed earnings per share ( EPS ) expectations for seven quarters and is up 2% YTD. Meanwhile, the forward price-to-earnings ( P/E ) ratio of 29.8 suggests a premium valuation compared to its peers, potentially reflecting its robust growth potential. Finally, the 12-month median price forecast for COCO is $28.50.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines
Tezcan Gecgil, PhD, began contributing to InvestorPlace in 2018. She brings over 20 years of experience in the U.S. and U.K. and has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Publicly, she has contributed to investing.com and the U.K. website of The Motley Fool.
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