Highlights
- Walt Disney (NYSE: DIS)
- Tesla (NASDAQ: TSLA)
- Airbnb (NASDAQ: ABNB)
- Paycom Software (NYSE: PAYC)
Walt Disney is the media giant behind some of our most beloved entertainment properties, through Marvel, ABC, ESPN, Pixar, Lucasfilm, and key Fox assets, as well as some of the world’s most visited theme parks. With an unmatched content library brimming with beloved characters and storylines, a global parks and resorts empire, and a rapidly growing streaming business, Walt Disney (NYSE: DIS) gives investors many ways to win.
Company Guide
- Industry: Entertainment
- Asset Class: Large
- Region: US
- Headquarters: Burbank, CA, US
- Sector: Communications
- Market Cap: $325B
The Big-Picture Opportunity
Disney is best understood as a long-term intellectual-property play. It’s able to monetize its vast collection of content across its movie studios, cable networks, theme parks, hotels, and global licensing operations. In this way, Disney excels at turning its IP into profits for its investors.
Disney’s streaming services — which include Disney+, Hulu, and ESPN+ — provide it with another way to cash in on its IP, as well as a powerful new growth driver. More than 100 million people have already subscribed to Disney+ alone a little more than a year after its launch.
Content streaming generates valuable recurring revenue, which is helping to offset the impact of cord-cutting on Disney’s traditional TV and cable businesses. Long-term deals with the National Football League (NFL) and Southeastern Conference (SEC) should also help Disney’s ESPN business continue to crank out cash flow for many years to come.
Moreover, Disney stands to benefit from the eventual end of the COVID-19 crisis. Its parks and resorts were hit hard by coronavirus-related closures. But its parks have started to reopen, and a gradual recovery in guest traffic should help profits rebound.
Tesla designs, manufactures, and sells high-performance fully electric vehicles and energy storage products.
Company Guide
- Industry: Automobiles
- Asset Class: Large
- Region: US
- Headquarters: Palo Alto, CA, US
- Sector: Services
- Market Cap: $634B
Tesla likes to promote its vehicles’ fast zero-to-60 times, but the company’s growth might be more impressive than any number its cars can put up. Tesla has gone from a niche manufacturer in 2010 delivering about 1,500 Roadsters annually to nearly 500,000 vehicle deliveries last year.
But Tesla since its early days has always been more than just another automaker, branching out over the years into renewable energy, power storage, personal and commercial trucks, and autonomous driving. And the company has built its business without having to spend on advertising, an unheard-of development in the auto industry that speaks to the power of the Tesla brand and consumer loyalty.
CEO Elon Musk is a true visionary, and few leaders are as invested in their own company the way he is. Musk owns about 22.4% of Tesla’s shares and is the guiding force behind the expansion of Tesla’s auto business globally and its broadening reach into new areas. Musk has never been afraid to push boundaries and dream big, setting ambitious goals and then pushing his company to reach them.
Autonomous driving is just the latest example of this. Musk envisions a world where Tesla cars are profit centers, and not a depreciating asset, operating as robotaxis shuttling passengers to their destination instead of simply sitting in a lot when their owners don’t need them. Tesla is developing its own “Dojo” supercomputer to help its artificial intelligence (AI) software grow its autonomous know-how.
On a recent earnings call, Musk said, “I think long term, people will think of Tesla as much as an AI robotics company as we are a car company or an energy company,” a statement that today sounds as unbelievable as the idea of Tesla selling 500,000 vehicles in a year must have sounded a decade ago.
Airbnb operates an online platform for stays and experiences to guests in more than 220 countries.
- Airbnb created the first real platform for online short-term rentals and dominates it with high customer loyalty and a strong network effect.
- The company has huge potential growth in short- and long-term rentals and a largely untapped opportunity in “experiences,” like tours, classes, and other activities.
- After a difficult 2020, we expect business to bounce back strongly in 2021 and beyond.
- Industry: Travel
- Size: Large Cap
- Region: Global
- Jan. 20 Price: $161.83
- Headquarters: San Francisco, Calif.
- Market Cap: $94.22 billion
- Revenue (TTM): $3.63 billion
- Earnings (TTM): ($1.05 billion)
The Big-Picture Opportunity
The reason I probably don’t need to explain Airbnb to most of you is that it had already become tremendously successful as a private company. As of Sept. 30, 2020, the company had more than 4 million hosts around the world with 5.6 million active listings. In 2019, 54 million users booked some 327 million nights on the platform.
The company estimates its serviceable addressable market (that is, the opportunity addressed by its current platform and geographic reach) at $1.5 trillion. That includes $1.2 trillion for short-term stays and another $239 billion for “experiences” — unique tours, classes, meals, and other activities booked over the platform. Longer term, it sees a much larger opportunity in experiences, as well as long-term stays, that brings the total addressable market to $3.4 trillion.
Either way, it’s a long climb from the $38 billion in gross booking value that went through the company’s platform in 2019 or its trailing-12-month revenue of $3.6 billion. This is a company with few limits on its foreseeable growth, both through taking more share from traditional hotels and motels and by using its dominant competitive position to command higher fees over time.
Paycom Software operates a cloud-based platform that includes tools clients can use to manage their employees. Starting from its core payroll system, Paycom offers modules to cover needs such as compliance, expense management, hiring, benefits, and employee engagement.
- Industry: Application Software
- Size: Large-Cap
- Region: North America
- June 30 Price: $363.47
- Headquarters: Oklahoma City
- Market Cap: $22.5 billion
Building a great stock portfolio is all about balance. Speculative investments carry a lot of risk, but they can pay off wonderfully when they work. Still, there’s a lot of value in investments that offer stability — especially under the market conditions that prevail right now. With current valuations where they are, I just don’t see now being the time to invest more speculatively.
That’s why I’m turning to Paycom Software (NYSE: PAYC) as my recommendation for this month. I first recommended the cloud-based human capital management company four years ago to Stock Advisor members and re-recommended it shortly after that, and what was then a fledgling mid-cap stock has seen its market capitalization balloon from $4 billion to more than $22 billion along the way. Market-crushing returns of 424% and 299% have been nice wins.
Yet if anything, Paycom Software’s business has become even more reliable and stable. That makes it the ideal candidate to recommend for a third time here, as I see plenty of room for further growth as the global economy begins to emerge from the COVID-19 pandemic.
The Big-Picture Opportunity
Managing a workforce is a challenge that every business faces in today’s environment. It’s never been harder to find and hire top talent, and with many workers looking to shift jobs in the aftermath of the pandemic, retaining great employees is becoming a top priority. Managing payroll and benefits is a core need for every company, but increasingly, the demands of digital transformation require employers to automate key HR management functions to maximize efficiency.
There are countless tools that HR professionals can use to track their workforces and implement smart strategies for managing them. Keeping track of so many different kinds of important information can be difficult, raising concerns about whether key stakeholders across a given business all have access to the latest data and analysis. Moreover, as companies themselves have spread out their workforces across a growing number of office locations and embraced remote work from home offices, finding integrated solutions has become critical.
Paycom Software’s comprehensive end-to-end human resources software platform seeks to address the needs of business clients of all sizes. By bringing essential payroll software together with a wide range of other human resources functions, the scalable Paycom platform helps users manage workers at every stage of their careers, from when they first submit an application for employment to performance reviews and collecting benefits upon retirement. The system also provides data analytics and business intelligence for employers to use in evaluating themselves.
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