The S&P 500 continues to climb and reach new highs. It's up 14% this year, fueled by the success of many artificial intelligence (AI) stocks, many of which are some of the biggest stocks on the market.
Bull markets are the time to buy growth stocks, which tend to outperform the market when the market is doing well. Lemonade(NYSE: LMND), SoFi Technologies(NASDAQ: SOFI), and Nu Holdings(NYSE: NU) are three great candidates.
1. Lemonade: The disruptive AI insurance player
Lemonade sells insurance, but it's not your typical insurance company. For one thing, it has no sales staff. It's almost entirely digital, and it relies on AI to underwrite policies at the right prices and for many other parts of its operation.
It's been around now for almost 10 years and has more than 2 million customers. That's still a drop in the bucket compared with the big, traditional insurance companies, but it's fast growth for a young upstart. The premium per customer increased 8% year over year in the 2024 second quarter, and the in-force premium, the standard top-line metric for insurance companies, was up 22%.
There are two main reasons Lemonade stock has flopped over the past few years. One is profitability, or lack thereof, and the other is an increasing, or at least volatile, loss ratio. But it's been making progress on both of these ends. Net loss was still heavy in Q2 at $57 million, but it was an improvement from $67 million last year, and loss per share of $0.81 was better than the $0.88 analysts were expecting. The loss ratio was 79%, down from 94% last year, and a continuation of a positive trend over the past few quarters.
Lemonade stock fell after its earnings report despite its strong quarter. The market may be concerned about slowing growth, which could hinder its ability to scale and turn a profit. Lemonade has already climbed back from its recent lows, and as it makes progress, it may not go back down there.
Even though Lemonade stock dipped after the report, it didn't fall very hard. From here, it could continue to climb higher, making now a good time to buy for investors who have been on the fence. However, it's only for investors who have a high risk tolerance.
2. SoFi: Growing and profitable
SoFi similarly had a fantastic quarter, and its stock flip-flopped after its earnings release, ending about where it started.
Adjusted revenue increased 22% year over year, and it reported its third consecutive quarter of positive net income. This positive financial trend is expected to continue in Q3 and the full year.
SoFi pivoted away from its roots as a student loan cooperative several years ago and is embracing a growth strategy with an expanded collection of products and services. It acquired a bank in 2022 and offers bank accounts, investing accounts, credit cards, and more for a close-to-comprehensive personal-financial app.
Lending still makes up the bulk of SoFi's business, but the other services are growing much faster. Financial-services products increased 39% year over year in Q2, and revenue increased 80%. It also has another segment called Tech Platform that services business clients with financial infrastructure, and together, sales from these segments increased 46% year over year, while lending was up 3%.
Management expects these segments to increase as a percentage of the total, which benefits SoFi in several ways. Its higher growth rates will positively affect more of the company's sales, and it protects the company under adverse economic conditions like today's high interest rates. Management also notes that it's a lower-cost business. Finally, having a broad array of products and services leads to higher engagement, scale, and profits.
Management raised guidance for the full year after the Q2 report, and it also expects the lending segment to perform better than it originally thought.
The market didn't receive the results warmly, so you still have a chance to buy it now before it soars.
3. Nu: Transforming banking in Latin America
Nu is the only stock on this list that hasn't released Q2 earnings yet. So expect the stock to soar if it comes through with a stellar performance. It has delivered solid results since it went public, and it's likely to do that again. Unlike Lemonade and SoFi, which are both well off their highs, Nu has been an investor favorite for a while, and it's up 44% this year.
Nu's business is similar to SoFi's, but it operates in Brazil, its home base, as well as its newer markets of Mexico and Colombia. It's adding customers and generating revenue at a fast pace, and it has many growth drivers that should propel it forward for the foreseeable future.
Although most adults in Brazil are already on Nu's platform, it continues to add millions of customers there quarterly. It's still building up its business in its other markets, which are growing faster percentage-wise. Part of its growth strategy is to upsell and cross-sell products, and average revenue per active user is one of its favored growth metrics. It increased from $8.60 to $11.40 in Q1. Nu also has a robust credit business that's performing well despite high interest rates in Brazil.
Nu has a long growth runway, and investors can expect the stock to jump on a strong earnings report. But don't buy it for the short-term jump; buy it for the long-term potential.
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Jennifer Saibil has positions in Lemonade, Nu Holdings, and SoFi Technologies. The Motley Fool has positions in and recommends Lemonade. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.
