In the midst of a sharp market sell-off, it’s hard for investors to think about anything but the misery of the moment. People are more concerned about what’s going to happen in five minutes than about where stocks are in five years, which is understandable.
This is also a mistake, however. While hard to imagine given our current situation, the current pullback is ultimately a buying opportunity…even if we haven’t seen the ultimate bottom yet. You just have to keep the long term in mind.
With that as a backdrop, here’s a look at three investments that may look like they’re in trouble now, but should pay off big for anyone willing to give them the kind of lead they deserve.
You can think of McDonald’s (NYSE:MCD) as a fast food chain. It’s not a completely targeted categorization, however. For those familiar with it, the company is often described as a real estate company that, aptly, rents exclusively to restaurant franchisees looking to connect with the powerful brand.
It is unlike any other fast food chain. While competing restaurant operators like Wendy’s or Arby’s usually owns its own land and the building on it, not the McDonald’s franchisees. Rather, as part of their franchise agreement, McDonald’s operators agree to lease their stores to the parent company. This is a cost on top of other typical business royalties and franchise fees.
Here’s the catch for franchisees, and the benefit to McDonald’s shareholders: Unlike a mortgage payment on purchased property, the rents charged to McDonald’s “tenants” are adjusted to reflect the market rate for that property…in perpetuity. The franchisor – McDonald’s – is assured not only of a recurring cash flow, but of an ever-increasing cash flow. However, franchisees don’t mind the arrangement, as they still tend to earn more running a McDonald’s store than they would from any other fast food outlet.
This franchisor/franchisee business structure is particularly suited to financing dividends, which McDonald’s has been increasing every year for the past 45 years.
Say pinterest (NYSE: PINS) has been a tough name to own lately would be a massive understatement. It’s been downright heartbreaking to hang on to, having fallen in the range of 80% over the past year.
The sale is largely the result of lost users. As the impact of the pandemic subsided, many of the people who got involved with the social media site stopped using it again to do more things in the real world.
However, we are approaching a turning point for the company’s user base. With about a year to go from the start of its attrition, don’t be surprised to see user losses start to shrink, or even see new user growth as Pinterest’s pre-pandemic growth initiatives start working again. in a more normal environment. These initiatives include more financial incentives for content creators and brands, in addition to a more refined and efficient advertising platform.
The encouraging irony is that, despite the reduced number of regular users, the company has continued to experience budget growth. Revenues improved 52% in fiscal 2021, nearly tripling earnings before interest, taxes, depreciation, and amortization (EBITDA) from last year, and pulling the company from red to black operationally . This year won’t be as heroic, but with several initiatives continuing to gain momentum, the analyst community still expects sales growth of 20% this year before accelerating to almost 26% next year. .
The market should connect the dots sooner or later.
Finally, add DexCom (NASDAQ:DXCM) to your list of surefire investments you’ll thank yourself for later.
If you’re unfamiliar with the business, it’s pretty straightforward. DexCom manufactures Continuous Glucose Monitoring (or CGM) systems to help people with type 2 diabetes manage their condition. Its technology accounts for about 40% of the market, although that market share hasn’t helped the stock much lately.
What’s not currently reflected in DexCom’s stock price, however, is just how immature the CGM market still is. As this part of the health tech industry moves away from older solutions – including finger pricks – and towards CGMs, DexCom is set to experience phenomenal growth.
Market research firm Technavio puts the idea into perspective, estimating that the highly fragmented market for portable blood glucose monitoring devices will grow an average of 12% per year through 2024, with CGMs manufactured by this company being the one of the main drivers of growth in the industry. The North American market — where DexCom does about three-quarters of its business — is expected to lead the rest of the world on this front. And, for better or worse, the fact that American diets continue to deteriorate and drive up type 2 diabetes incidence rates only means that these growth estimates might be too conservative.
One thing is certain in both cases: the projected revenue growth of 19% for this year is neither accidental nor unusual. Next year’s pace of growth is expected to be even stronger, extending a more than decade-long streak of unbroken quarterly sales improvements.
10 stocks we like better than McDonald’s
When our award-winning team of analysts have stock advice, it can pay to listen. After all, the newsletter they’ve been putting out for over a decade, Motley Fool Equity Advisortripled the market.*
They just revealed what they think are the ten best stocks investors can buy right now…and McDonald’s wasn’t one of them! That’s right – they think these 10 stocks are even better buys.
View all 10 stocks
* Portfolio Advisor Returns as of April 7, 2022
James Brumley has no position in any of the stocks mentioned. The Motley Fool has posts and recommends Pinterest. The Motley Fool recommends DexCom. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.