Investors could be growing uncertain as the Nvidia trade appears to have unwound. Despite the company's recent near-perfect earnings report, investors are selling the stock as doubts rise about its high valuation. So, investors could be wondering where to invest next. These three Motley Fool contributors have suggestions on three stocks that have a higher likelihood of moving up: Meta Platforms, Monday.com, and Nu Holdings.
With Nvidia losing some steam in recent weeks, I'm turning my attention away from the king of artificial intelligence (AI) towards Meta Platforms, the king of digital advertising. Its stock has flown under the radar for much of 2024. While Nvidia and other high-profile AI stocks have grabbed headlines, Meta has skyrocketed 45% year to date, making it the fifth-best performing stock in the Nasdaq 100. This surge is thanks to solid execution. Meta, with its 3 billion daily average users across Facebook and Instagram, continues to stack cash like an ice cream shop stacks scoopfuls during a heat wave.
The company generated nearly $50 billion in free cash flow over the last 12 months, almost $19 a share, giving it a net cash position of about $20 billion. In February, Meta announced its first-ever dividend, a quarterly payment of $0.50 a share. Management has also expanded its share buyback program to $50 billion. With Meta's ample free cash flow, these measures make it a suitable alternative to Nvidia.
Every software stock looked like a winner in 2021, but higher interest rates have created a more challenging economy. Monday.com has proved itself to be a winner, which should attract investors to the company's bright long-term prospects. It's a software-as-a-service (SaaS) business that sells customizable work-management software. Monday.com's excellent revenue growth includes a 34% year-over-year increase in the second quarter. The company has a 114% net revenue retention rate among customers spending over $50,000, with the number of such customers growing faster than revenue.
Approximately 225,000 companies use Monday.com, providing a large revenue pipeline. Financially, the company is strong with $261 million in free cash flow over the past year on $845 million in sales, $1.3 billion in cash, and no debt. It is profitable under generally accepted accounting principles (GAAP) and could enjoy strong earnings growth in the future.
Among fintechs, few are less understood by U.S. investors than Nu Holdings, the parent company of NuBank. This stock attracted early attention from Warren Buffett's Berkshire Hathaway. Despite being the largest digital bank outside of Asia, most U.S. investors are not familiar with Nu because most of its customers are in Brazil. NuBank has grown by issuing credit cards to millions of previously unbanked customers. As a digital bank, its lower overhead costs have helped build competitive advantages.
Over the last year, almost 21 million of its 105 million customers opened their first account. Financially, Nu's revenue of $5.6 billion grew 60% in the first half of 2024 compared to the same period in 2023. Net income of $866 million in the first half of 2024 was 136% higher than the first half of 2023. The stock has more than doubled over the past year but sells at a price-to-earnings ratio (P/E) of 45, a low level given its triple-digit profit growth. All these conditions indicate undervaluation, suggesting the rally can continue. Investors willing to overlook the different financial culture in Latin America could profit from this opportunity.
