One of the first lessons in investing is that stocks with low prices are there for a reason, but it isn’t always that way. There are some big gains possible from low starting points, as long as investors are willing to stomach the inevitable risks that come with buying stocks in this territory…
Shares of Snap (NYSE:SNAP), Sirius XM Holdings (NASDAQ:SIRI), and CenturyLink (NYSE:CTL) all trade in the teens or lower. Yet they’re not exactly out of favor despite their small price tags. Snapchat parent Snap has nearly tripled in value in 2019. Satellite radio monopoly Sirius XM has been one of the market’s biggest winners, a 125-bagger since it bottomed out a decade ago. Regional telco CenturyLink is the one stock on this list that has seen better days, but it makes the cut because of its chunky dividend. Let’s take a closer look at all three.
If you haven’t been paying attention to Snap lately, you might not realize that it’s no longer a joke of an investment. Snapchat’s parent company hit the market in early 2017, and its first year and change of trading was marred by sluggish usage trends, weak platform monetization, and an unpopular app redesign. We’ve got a more resilient Snap to buy into now.
Revenue soared 48% in Snap’s latest quarter. There are now 203 million daily active Snapchat users. A year ago, the common fear was that the platform had peaked after back-to-back quarters of sequential declines in daily active users. We’re now at record levels, with high-water marks set for all three of the geographical regions that Snap uses in breaking down its quarterly performance.
Snap’s guidance for the quarter that ends later this month calls for 38% to 46% year-over-year growth, but let’s not put the revenue acceleration streak to bed just yet. Snap has been offering up guidance in recent quarters that prove refreshingly conservative by the time we hear the actual numbers.
The narrative is clearly different this time around. No one is talking about Snap being at peak Snapchat right now. New features are proving engaging to users and magnetic to marketers. Even the poorly received app update has been remedied. Profitability is still a sore subject for Snap bulls, but it’s hard to bet against the comeback kid when so many of its other fundamentals have never been stronger.
Sirius XM Holdings
There’s always the fear out there that satellite radio will be transitory technology. We saw this play out during the early years when Sirius and XM were separate companies, and folks used to free commercial-saddled terrestrial radio didn’t want to pay a premium for their audio entertainment. We’ve seen the same whiffs of obsolescence in recent years, with platform worrywarts arguing that connected cars diminish the need for monthly ransoms to a company beaming content off satellite into car factory-installed receivers. The constant factor through all of this noise is that Sirius XM just keeps growing.
Sirius XM had a record 34.3 million total subscribers at the end of June. Sequential dips in member tallies are rare, and when they happen, Sirius XM typically bounces back nicely in the subsequent report. One would think that Sirius XM doesn’t have any kind of pricing leverage in this climate where drivers can turn to their Bluetooth-backed smartphones to serve up music apps through their dashboard speakers, but average revenue per user has actually risen 4% over the past year.
Satellite subscriber growth has slowed as the industry matures, but earlier this year Sirius XM completed the Pandora acquisition that now makes it a major player in the streaming market. Unlike Snap, Sirius XM is consistently profitable and it uses its healthy free cash flows to buy back shares and pay out a modest but acceptable quarterly dividend…
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