The end of the year is coming quickly, and there's rising optimism on Wall Street. Inflation has moderated back to levels below 3%, the Federal Reserve is bringing interest rates back down, and the S&P 500 is up 28% year to date.
Will the market continue its ascent next year? Will it fall? There's no way to know for sure. So investors should stick with the simple, smart strategy of buying reasonably valued stocks of companies with great potential.
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As valuations in this market are looking bloated, particularly for growth stocks, there could soon be a run on safe stocks and dividend stocks. But you can still find reasonably valued growth stocks to buy now and hold for the long term. Here are five great options.
1. SoFi: A top online bank
Nearly everyone is doing at least some of their banking online today, and banks that have easy-to-use digital services are winning market share. SoFi Technologies(NASDAQ: SOFI) has a complete digital financial app that's attracting new customers at a rapid pace, and its strategy of cross-selling a broad assortment of solutions is generating higher engagement from those customers.
Its results speak for themselves. Revenue increased 30% year over year in the third quarter, and net income was $58 million -- a big improvement from its $276 million loss in the prior-year period. Indeed, Q3 was its fourth consecutive quarter with positive net income.
The power is in the members. SoFi added 756,000 new members in that quarter alone. Its core target customers are students and young professionals -- people who have long-term earnings growth potential and whose banking needs will grow over time.
SoFi continues to expand its platform and scale up, and it's likely to keep that up in 2025 and beyond. SoFi stock trades at a forward P/E ratio of 66, which isn't cheap, but it could be a reasonable valuation for a standout growth stock.
2. Nu Holdings: A growing financial powerhouse
Nu Holdings(NYSE: NU) has a similar model to SoFi's, but it operates in Brazil, Mexico, and Colombia. It's already one of the biggest banks in Brazil, with 56% of the adult population as customers, but it has been adding millions of customers every quarter throughout its markets.
The growth story has been nothing short of incredible. Revenue increased 56% year over year to $2.9 billion in the third quarter, and net income more than doubled to $553 million. It added 5.2 million customers to reach a total of 109.7 million, a 23% increase over the prior-year period.
Although Nu stock had been soaring for a long time, it has taken a step back recently due to investors' worries about prolonged inflation and economic volatility in Brazil. That's justifiable: Nu's results have been impacted by conditions there in several ways, including net interest margin compression and slower growth in average revenue per active customer.
But these are short-term concerns, and Nu could bounce back in 2025 and be a top stock to own long term. Nu stock trades at a forward P/E ratio of less than 20, which is a bargain.
3. Lemonade: Disrupting insurance
Lemonade(NYSE: LMND) went from market darling to a stock that investors loved to hate. But lately, it has earned its way back into the market's good graces again by demonstrating robust growth and an improving loss ratio.
In-force premiums -- the typical top-line metric for insurance companies -- increased by 24% year over year in the third quarter, while customer count rose 17% to 2.3 million, and premium per customer increased by 6%. Investors have been waiting for the company's loss ratio to get better, and it did, falling 10 percentage points year over year, a notable accomplishment. Lemonade is still reporting net losses, but as its loss ratio declines and profitability improves, the stock should keep rising.
Investors might be hesitant to buy a stock that's already up 191% this year, but Lemonade came into 2024 more than 90% off of its highs, so there's lots of room for further gains. Lemonade is just starting its journey, and it has a technological edge over legacy insurers. The stock could continue to rise in 2025, and it could be a phenomenal investment over the next few years.
Lemonade stock trades at a price-to-sales ratio of 6.7, which isn't unreasonable for its potential.
4. E.l.f. Beauty: Tuning into trends in cosmetics
E.l.f. Beauty(NYSE: ELF) might be probably the fastest-growing cosmetics company today. It's capturing market share in the makeup and skincare markets, and generating loyalty and sales for its low-priced but trendy products.
Sales increased 40% year over year in the third quarter. That's impressive on its own, but more so considering that it achieved that at a time when many industry veterans are struggling. Shoppers generally are reducing extraneous purchases, and if they do need cosmetics, many are switching down to more affordable alternatives.
E.l.f. is reporting high growth, and it's also profitable. Net income has been muted as the company works to get the word out about its products amid a challenging environment, but it's still positive.
E.l.f. is building its brand and developing strong relationships with its customers. It has a wide opportunity as it challenges the leaders in every category, and 2025 could be a big rebound year. The stock trades at a reasonable 32 times forward 1-year earnings.
5. Revolve: Revolutionizing fashion with AI
Revolve Group(NYSE: RVLV) isn't a well-known company outside of the fashion world -- yet. But it's capturing market share from the apparel leaders, and it's getting back to growth after a few quarters of struggling through inflation. Sales increased 10% in the third quarter, and net income soared by 238%.
The business all online, and it uses artificial intelligence throughout its organization. It works with social media influencers and celebrities to market its high fashion items to devoted customers, and it has continued to recruit new active customers despite a tough environment for consumer discretionary companies.
Revolve stock is rebounding after a tough year, and it's well-positioned to keep up its rise in 2025 and beyond. It trades at a cheap price-to-sales ratio of 2.4.
Don’t miss this second chance at a potentially lucrative opportunity
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Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
Jennifer Saibil has positions in Lemonade, Nu Holdings, and SoFi Technologies. The Motley Fool has positions in and recommends Lemonade, Revolve Group, and e.l.f. Beauty. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.
