Stock market rallies can often be traced back to October.
October has historically been a good month to have money in the stock market. The S&P 500 has rallied at least 10% on 61 occasions since World War II, and nearly one-third of those rallies have started in October, according to Bespoke Investment Group.
One example is the bear market that started on Jan. 3, 2022, and ended on Oct. 12, 2022. The S&P 500 rallied more than 60% during the subsequent bull market. And history says the upward momentum could intensify in October and beyond due in part to holiday spending.
Past performance is never a guarantee of future returns, but Shopify (SHOP -1.91%) and Uber Technologies (UBER -1.23%) are worthwhile long-term investments regardless of what happens next month. Here’s why.
Shopify: The market leader in e-commerce software
Shopify provides commerce software and services for businesses of all sizes. Its platform lets merchants manage sales across offline and online channels, including social media, marketplaces, and custom websites. Shopify also offers adjacent merchant solutions for marketing, payments, and logistics. That turnkey approach has helped the company secure a leadership position in e-commerce and omnichannel commerce software.
Shopify initially prioritized small and medium-sized businesses, but it’s engaging larger brands with Shopify Plus and Commerce Components. The first is a complete commerce platform designed for enterprises, and the second allows enterprises to adopt individual elements of Shopify’s commerce stack. Both include wholesale commerce tools that extend Shopify’s addressable market beyond retail.
Shopify looked strong in the second quarter. Revenue increased 21% to $2 billion, including a 4-percentage-point headwind from the sale of its logistics business. Meanwhile, non-GAAP (adjusted) earnings increased 85% to $0.26 per diluted share. President Harley Finkelstein told analysts, “More and more merchants across the world are putting their trust in Shopify’s unified commerce operating system to fuel growth and simplify complex operations.”
Importantly, the company made progress in physical retail, wholesale commerce, and international markets, three strategic growth vectors. In the second quarter, offline gross merchandise volume (GMV) increased 27%, and wholesale GMV rose 140%, both of which outpaced the 22% growth in total GMV. Meanwhile, the number of international merchants that use Shopify increased 30%.
Wall Street expects earnings to increase at 45% annually over the next three years. That makes the current valuation of 82 times earnings look reasonable. Whether or not a stock market rally begins in October, I think investors who buy a small position in Shopify today will be happy with their decision five years from now.
Uber Technologies: The market leader in ridesharing
Uber breaks its business into three categories: The mobility segment connects riders with transportation, the delivery segment connects consumers with local grocery stores and restaurants, and the freight segment connects shippers with carriers. Uber operates the largest ridesharing platform in the U.S. as measured by revenue, and the second-largest food delivery platform, according to Bloomberg.
One thing that sets the company apart is its ability to offer ridesharing and delivery services through a single platform. Uber can encourage consumers and drivers on both sides of its ecosystem to engage with the opposite side, and its cross-promotional activities are paying off. According to a company presentation, 22% of first-time mobility trips come from the delivery app, and 31% of first-time delivery trips come from the mobility app.
Uber has another important advantage in its proprietary data. The company develops a deep understanding of users’ tastes and preferences by providing ridesharing and delivery services, and it uses that information to connect consumers with relevant advertising. User data also creates a network effect that helps Uber predict demand and route drivers more effectively over time.
Uber reported solid second-quarter financial results. Monthly active platform consumers climbed 14% to 156 million, and trips increased 21% to 2.7 billion, meaning users are engaging more frequently. In turn, revenue increased 16% to $10.7 billion, spearheaded by strong growth in mobility sales, and GAAP earnings increased 161% to $0.47 per diluted share.
Wall Street expects Uber’s earnings to increase at 48% annually over the next three years. That consensus makes the current valuation of 84 times earnings look reasonable. Investors should feel comfortable buying a small position in Uber at its current price, provided they plan to hold their shares for at least three to five years.
Trevor Jennewine has positions in Shopify. The Motley Fool has positions in and recommends Shopify and Uber Technologies. The Motley Fool has a disclosure policy.
