These Stocks are Doing Better than the Market

Federico is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

As I explained in a post on my blog Warren Trades, I think that the best investment decisions come from combining a solid fundamental thesis with a strong technical picture or constructive price action. In other words, I study fundamentals of each company, but I need confirmation that the stock is performing better than the overall market in terms of its price action. In this article I detail four stocks I am currently observing because I feel they could be ready to rise when the current correction ends. 

SalesForce.com (NYSE: CRM) is a stock that any technology-oriented investor should take a look at. I am impressed with CRM leadership and levels of innovation as the company is leading customers in their transformation to become social enterprises with its six product lines: the Sales Cloud, the Service Cloud, the marketing cloud, Salesforce Chatter, Work.com and the Salesforce platform.

I view SalesForce as the gold standard in cloud-based CRM, and a driving force behind the corporate move to cloud computing. It has a large target market, a growing customer base, and an enviable partner ecosystem. Taking these factors into consideration, my view is that the stock should trade at a premium to other fast-growth B2B SaaS companies. In terms of valuation, it is interesting to note that CRM stock price has moved essentially sideways for more than 2 years, while run-rate revenues have increased 71% and the business has grown stronger. Considering rising multiples for CRM peers (for example, Workday), I think shares are poised for a major valuation step up.

CRM reported a strong 2Q, with revenues rising 34% from a year ago to $732 million. Operating cash flow exceeded $130 million, an increase of more than 60% year-over-year. Operating cash flow is one of the very best measurements of success at salesforce.com, and those results were great. Deferred revenue was more than $1.3 billion, which is up more than 40% year-over-year, and the dollar value of booked business on and off the balance sheet now tops $4.1 billion, up more than 50% year-over-year. SalesForce could drive sustained growth of 25-30% long term by expanding its platform footprint in a growing $40 billion market. 

Millenial Media (NYSE: MM) is a very interesting stock to play the coming mobile advertising boom. The company is a key enabler in mobile advertising and will capitalize on its strong competitive position over time. Millennial Media reached over 380 million monthly unique users globally, including ~150 million monthly unique users in the United States alone. The company reported a strong 88% year over year increase in revenue to $47.4 million, which marks acceleration top line growth rate compared to 76% year over year growth in Q2.

Millenial reported strong gross margins of 40.9%, up from 39.7% in Q2 of this year and 39.3% in Q3 of 2011. In addition, year over year adjusted EBITDA was up more than 250% compared to Q3 2011. The company is growing its developer base, unique users, user profiles, and audiences. Millenial Media is a strong pick to play the coming mobile ad secular trend. Mobile is growing at a very healthy pace, and there is a significant gap between media consumption via mobile at 10%, and the resulting ad spending, up just 1%. Advertiser demand generally follows consumer usage so I think MM is poised to take advantage of this shift. The company counts 75 of the top 100 global advertisers as clients, including 24 of the top 25.

Expedia (NASDAQ: EXPE) continues to show solid execution, strong organic tailwinds, and an aggressive expansion strategy that has allowed the company to gain market share and record accelerating results, despite the challenging macro environment. Expedia still stands to benefit from the roll out of its revamped air and package platforms over the next couple quarters. In addition, I anticipate Expedia will continue to gain share and begin to see modest leverage in 2013, with at least low double-digit cash flow growth sustainable on a long-term basis. It is important to highlight that Expedia recently implemented a platform changes on the core Expedia.com that is lifting the conversion rate, resulting in faster growth in hotel room nights and revenue. Prominent investor Ken Fisher initiated a position in the stock last quarter.

Ulta Salons (NASDAQ: ULTA) is a very attractive retail story. ULTA delivered another exceptional quarter, with both top and bottom lines ahead of expectations, highlighted by 9.3% same store sales growth. I think that growth should continue as ULTA will be introducing a number of new Clinique boutiques to go along with its Lancome roll out. Guidance remains encouraging, and I remain bullish as the company expanded gross margin and leveraged SG&A, resulting in 180 basis points of operating margin improvement with earnings growth of 42% to $0.54 per share. Top portfolio manager Steve Mandel, founder of Lone Pine Capital, increased significantly his position last quarter.

I believe that investors should focus on strong growth stories, evaluate a company's current valuation, and time the entry with proper technical analysis methodologies. These stocks show strong growth in both revenues and earnings, positive business prospects, and institutional sponsorship. As explained in my blog, I encourage investors to add some growth stories to their portfolios! 

 


martinzaldua has no positions in the stocks mentioned above. The Motley Fool owns shares of Ulta Salon, Cosmetics & Fragrance and has the following options: short JAN 2013 $150.00 calls on Salesforce.com and long JAN 2013 $150.00 puts on Salesforce.com. Motley Fool newsletter services recommend Salesforce.com and Ulta Salon, Cosmetics & Fragrance. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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