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3 Tech Stocks That Could Go Parabolic

Motley Fool - Thu Sep 26, 3:00AM CDT

Investors love tech stocks. They represent a category that's been in solid growth mode for a long time, as well as the future of almost any industry. That almost guarantees growth, for the category at least. The trickier part is choosing which stocks to buy.

One way to play the category is to buy shares of a tech-focused, exchange-traded fund (ETF). These days, almost any broad ETF is sure to include a load of tech stocks, so you're covered even with a less tech-focused ETF.

Another way to invest in high-growth tech is to find early-stage tech companies that have massive potential. Airbnb(NASDAQ: ABNB), Global-e Online(NASDAQ: GLBE), and Opendoor Technologies(NASDAQ: OPEN) are three great choices.

1. The tech way to travel

One could argue that it's past time to say that Airbnb could be the next big thing. Not only has it not delivered the earth-shattering gains the market was initially expecting; it's actually gone lower than its first-day trading price. Ouch.

There are a few reasons why it's declined. And there are a few reasons it could still soar.

First, what's going wrong. The truth is, most things really are going right. It's demonstrating solid growth despite a tough environment; it's adding hosts and guests; and it's become highly profitable. But growth is coming in pretty low for a high-growth company. That's partially due to inflation and people cutting back on spending, which might translate into cutting back on travel. Or does it? Carnival, the leading cruise company, is fielding feverish demand. Airbnb's revenue increased 11% year over year in the second quarter. That's strong but not strong enough to please investors. It could just be a sign that travelers are using Airbnb for more regular usage in contrast to travelers saving up for a dream cruise.

The other major problem with Airbnb has been nothing more than valuation concerns. So even if it was proceeding smoothly, investors have recognized that it has to grow into its formidable valuation. Airbnb stock is roughly flat over the past year, while its revenue and earnings have grown. It trades at a forward price-to-earnings (P/E) ratio of 29 and a price-to-sales (P/S) ratio of 9. Even those valuations aren't cheap, and it implies that investors still see it as a company with high value.

The opportunity is enormous, and Airbnb is doing a good job of harnessing it. It has built the premier platform for vacation rentals, and it's making a bigger push for international locations where it's underpenetrated. Its guiding mission is "expanding beyond the core," and it's getting into all sorts of travel-related listings like experiences and events.

Airbnb's tech-based platform is increasing in popularity and use, and the stock is likely to explode soon enough.

2. Business-to-business e-commerce

Global-e has a unique e-commerce platform servicing small and enterprise-business clients. It provides cross-border services for international e-commerce retailers, so consumers all over the globe can access the same cute jeans or aged whiskey. It's easy to install into a website and takes care of all of the work: instant calculations for customs and a variety of shipping options, localized currency, and many other features that make it easy for shoppers to hit the buy button.

It works with businesses of all sizes, but it has a client list of top e-commerce retailers with a focus on luxury and brand names. It serves labels you recognize and likely purchase, like Disney, Macy's, and Adidas, and many that appeal to the most affluent shoppers, such as high-luxury brands owned by LVMH, one of its top partners. Management says it has a strong pipeline of new clients, and every quarter it announces more, such as well-known brands Club Monaco, JOOP!, Clarks, and Escada in Q2.

It's feeling the pressure of inflation, and growth has decelerated over the past few quarters. Revenue increased 26% year over year in Q2, and gross merchandise volume (GMV) was up 31%.

Global-e has a partnership with Shopify, which offers it through its Shopify Market Pro program, launched last year, and management expects that to add higher revenue as more merchants join. It's guiding for sales growth to pick up in the back half of the year, with strong results from some "significant" new, large merchants set to join its platform, such as Victoria's Secret.

It should also get a boost from higher spending once lower interest rates hit Americans' pockets, and as growth accelerates, this could be a standout stock.

3. A better way to buy and sell homes

Opendoor has got to be one of the worst-performing stocks of the years. It's down 54% this year and 94% from its highs, and it's trading at about $2 per share.

It operates a digital real estate platform and buying business. Residential real estate has been one of the worst industries to be in, given high interest rates. So even though management sees a huge market opportunity, it hasn't had much of a chance to capture market share. It went public in the midst of the pandemic and initially rallied while interest rates went down to zero. But it got crushed when that reversed.

Things might start to change as interest rates go down, but it's going to take time. Housing data shows that home sales continued to slow in August even though mortgage rates had started to come down.

But when the market rebounds, Opendoor is well positioned to move forward. It's in buying mode, and it purchased 4,771 homes in Q2, 78% more than last year. It ended the quarter with 1,793 homes under contract, 29% more than last year. Although revenue was down 24%, gross margin was up a full percentage point.

Opendoor's platform is easy to use and helps buyers and sellers match up digitally. It also buys homes with quick cash offers and has agents for clients who need more human intervention. It aims to offer pretty much anything a home buyer or seller might need, and lots of data for accurate pricing and easy showings.

Opendoor is the riskiest stock on this list, but it also presents the greatest risk vs. reward proposition.

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Jennifer Saibil has positions in Airbnb, Global-E Online, and Walt Disney. The Motley Fool has positions in and recommends Airbnb, Global-E Online, Opendoor Technologies, Shopify, and Walt Disney. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.

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