Last week's brutal slide in stock prices was scary, but I know that I wasn't alone out there as a buyer. When I see stocks that I've been eyeing in recent months come crashing down with their fundamentals largely intact, I'm going to approach the worst weekly market slide in more than a decade as a buying opportunity instead of a setback.
I initiated positions in used-car retailer Carvana (NYSE: CVNA) and multiplex giant AMC Entertainment (NYSE: AMC) last week. I also decided to sell my shares in Sleep Number (NASDAQ: SNBR), the market of adjustable air-chambered mattresses. Let's dive into all three decisions.
Continue Reading Below
The first time you see one of Carvana's gargantuan auto vending machines, it's easy to snicker. What kind of business model finds a company building nine-story glass-enclosed structures only for the showmanship gimmickry of spitting out purchased cars? Then you dive into one of its financial reports and it all starts to make sense.
It's hard to find a car seller growing faster than Carvana. Revenue skyrocketed 137% in its latest quarter, as Carvana sold 116% more vehicles than it did during the same period a year earlier. Expansion and raising the bar in terms of perks for buyers is making Carvana the place to find secondhand rides.
Though Carvana isn't profitable, it's taking big steps in that direction. The gross profit per vehicle sold has gone from $1,742 to $2,303 over the past year, making its goal of $3,000 more feasible with every passing financial update.
Carvana was one of this year's hottest stocks, nearly quadrupling when it peaked in September. The stock has gone on to surrender 58% of its value since its late-summer all-time high. I've been eyeing the stock for months, and now I've got the keys in my pocket as I take it out for a drive.
Buying AMC Entertainment
I love it when the disrupted becomes the disruptor. Theater chains seemed to be dying until MoviePass came along with its head-turning subscription model. MoviePass upended the value proposition of a night at the movies, but instead of ignoring the multiplex experience discounter, the country's largest exhibitor decided to build a better mousetrap.
AMC Stubs A-List sets moviegoers back twice as much as MoviePass, but it's a sustainable product that covers all of the shortcomings of the cash-strapped originator. AMC Stubs A-List offers advance reservations and premium screenings. It's also run by a company that should return to profitability next year.
AMC is coming off a record quarter. It experienced an 8.6% surge in domestic attendance. A good chunk of that came as a result of what is now more than 500,000 on AMC Stubs A-List -- driving average ticket prices 6.6% lower -- but it all adds up to growth in the end. More importantly, AMC's foray into subscription services is getting folks excited about visiting the local multiplex. With AMC Stubs A-List pushing through a 10% to 20% increase in its largest markets next month the ingredients are in place for continuing growth.
AMC Entertainment stock has also corrected sharply since hitting new highs three months ago. The stock has fallen 43% since peaking, and that's pushing its yield to a hearty 6.5%. AMC is reinventing the moviegoing experience, and I'm buying a ticket to the show.
Selling Sleep Number
The one stock I did sell last week was Sleep Number. I bought the company behind Sleep Number beds early last year when it was still called Select Comfort. The company's unique beds -- air-filled mattresses with adjustable "Sleep Number" settings -- have had their ups and downs.
Sleep Number is holding up these days. The stock moved higher after its latest quarterly results, with adjusted net sales rising 12%. However, I bought into Select Comfort on the prospects of Sleep Number 360, billed as the industry's first smart bed. It was supposed to be a big driver this year, but Sleep Number sees net sales merely growing in the mid-single digits for all of 2018. Sleep Number was targeting earnings per share of $2.75 come 2019 back in 2017, a goal that seems highly unlikely these days. I decided to cash out, and I'll stay out unless the Sleep Number 360 smart bed starts moving the needle.
10 stocks we like better than Sleep Number CorpWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Sleep Number Corp wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of November 14, 2018