Like it or not, summer is over, and the fall season is fast approaching. If one thing remains constant, however, it's our zeal for finding market-beating investments, regardless of the season.
One way to accomplish that goal is to focus on companies that effectively balance innovation with a knack for creating shareholder value. So we asked three top Motley Fool investors to each discuss an innovative stock that they believe investors would be wise to purchase in September. Read on to learn why they chose GoPro (NASDAQ: GPRO), Trex (NYSE: TREX), and T-Mobile US (NASDAQ: TMUS).
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Buy ahead of GoPro's return to profitability and new product launches
Steve Symington (GoPro): GoPro stock sits around 37% lower than it stood at this time one year ago, when the innovative company was crushed following production issues for its then-new HERO5 camera line and a recall of its Karma drone shortly after launch.
But GoPro has made big strides in its turnaround since then. The stock has climbed more than 20% so far in 2017, helped by a strong second-quarter report in August and encouraging preliminary third-quarter results announced earlier this month. More specifically on the latter, GoPro told investors to expect revenue in Q3 to arrive near the high end of its $290 million to $310 million guidance range, while gross margin should also be at the high end of its expected 36% to 38% range. GoPro also told investors it would return to adjusted (non-GAAP) profitability this quarter -- though it won't make money on a GAAP basis just yet, which excludes items like restructuring costs and stock-based compensation.
Perhaps even more important, GoPro confirmed that its channel inventories have been reduced, and that the company is on track to launch its new HERO6 and 5.2K spherical camera products by the end of this year. To that end, I should hope GoPro has learned from last year's failures and will launch those new products in time for the lucrative 2017 holiday season. And I'm betting the launches would coincide with or come slightly ahead of GoPro's official third-quarter release in early November. If all goes as planned, I think investors who buy GoPro stock in September should be poised for more market-beating gains in the months ahead.
This home improvement innovator is well-positioned for the next housing trend
Jason Hall (Trex Company Inc): Trex is the absolute leader in the wood-alternative decking industry, with a market share of more than 40% and a track record of expanding its market share every year. The company has built this big lead over its competitors by steadily investing in product development and marketing to increase brand recognition, while also steadily building up what is now the broadest distribution in the segment. Trex is by far the most recognizable and widely available alternative wood decking brand.
And while it may seem too expensive, with shares trading for 31 times trailing earnings and 4.7 times sales, the long-term growth prospects for Trex make it worth a close look. Trex's dominant market position in the alt-wood decking segment belies how big the growth opportunity is. Trex only sells about 6% of the total board-feet of decking sold each year in North America when regular wood is included. In other words, there's a massive runway of future growth for Trex.
Here's the real kicker for me: Millennials are starting to buy homes. They're doing it later in life, but the pace of first-time homebuyers under 40 is ticking up, and it looks like it will continue to accelerate as more millennials recover from the slow start caused by the Great Recession. Considering that millennials are far more likely to buy environmentally conscious products like Trex decking, Trex is set for decades of growth to come.
The company that's upending mobile phone service
Chuck Saletta (T-Mobile US): Cellular network provider T-Mobile US is driving a radical change in the way cellular service is delivered. Affectionately known as the "un-carrier" T-Mobile US has aggressively courted customers with features like unlimited data, talk, and text for $40 per month per line including taxes and fees. As if those low-cost, all-inclusive plans weren't enough on their own, T-Mobile US throws in all sorts of extras, such as giveaways on Tuesdays and free Netflix subscriptions.
While making it easy and attractive for customers to switch to its network, T-Mobile US has also been investing in upgrading its network capacity. It even claims more network capacity per customer than other major carriers.
The investments in network and customers appear to be paying off. T-Mobile US has captured a huge fraction of new cellular service subscribers and is guiding toward strong cash flow growth over the next several years. Other carriers have been struggling to meet expectations as they try to play catch up with T-Mobile US' offers, making it clear that the un-carrier's strategy is currently the winning play.
Innovation takes many forms. T-Mobile US has upended the costs, contracts, and services associated with delivering cellular service, and its innovative go-to-market model is clearly currently winning. With cash flows expected to continue rising, this September may very well be a reasonable time to consider investing.
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Chuck Saletta has no position in any of the stocks mentioned. Jason Hall owns shares of Trex. Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends GoPro and Trex. The Motley Fool recommends T-Mobile US. The Motley Fool has a disclosure policy.