The latest CPI report indicated that inflation is once again cooling. CPI only increased by 3.4% year-over-year and was up by 0.3% in April. While inflation can still ramp up as it did in the first quarter, any deceleration can prompt the Federal Reserve to reduce interest rates sooner.
Investors are starting to anticipate that scenario and have been accumulating more stocks. Equities tend to perform well during interest rate cuts since lower rates reduces the cost of borrowing money. Those lower interest rates can incentivize companies to take more risks, hire more workers, and serve more markets. These stocks look like winners after the encouraging CPI reading.
Alphabet (GOOG, GOOGL)
Businesses will have more capital to spend once interest rates get lower. They can more easily borrow money and deploy it into their business models. Investors should consider how companies will spend their newfound money. Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is positioned to receive plenty of those extra dollars.
The advertising giant generates billions of dollars in ad revenue each quarter. It’s cloud computing platform also attracts a lot of customers, and artificial intelligence features should drive up demand.
Investors got to see the company’s efforts pay off in Q1 2024. Revenue increased by 15% year-over-year while net income surged by 57% year-over-year. Many big tech leaders have been trimming their headcount and taking a closer look at their bottom lines. Alphabet even announced its first ever dividend, further establishing that the company is focused on its bottom line. Alphabet stock is up by 27% year-to-date and has jumped by 213% over the past five years. Shares trade at a 28 P/E ratio.
Crowdstrike (CRWD)
Business owners aren’t the only ones who can access money more easily. Cyber criminals can also take out loans to fuel their enterprises. While most banks wouldn’t entertain cybercriminals, these bad actors can keep their identities a secret when borrowing money.
Cyber hacking is a lucrative industry. Corporations can lose millions of dollars from a single attack. Some hacks can temporarily shut down a company’s entire operations. Luckily, businesses can turn to cybersecurity giants like Crowdstrike (NADSAQ:CRWD) to add extra layers of digital protection.
The Falcon Platform helps companies identify and address threats before they get serious. The technology has prevented many cyberattacks, and it’s also helped investors. The stock has gained 40% year-to-date and is up by 439% over the past five years. Crowdstrike achieved 33% year-over-year revenue growth in Q4 FY24 and reached $53.7 million in GAAP net income attributable to the business. The cybersecurity leader also has $3.44 billion in annual recurring revenue.
Chipotle (CMG)
Chipotle (NYSE:CMG) offers healthier food than most fast food restaurants. This advantage has allowed the fast food restaurant chain to run multiple price hikes without much issues. Lower inflation should make Chipotle less prone to higher prices.
Even if Chipotle continues to raise its prices, consumers have shown a willingness to visit its restaurants. Revenue increased by 14.1% year-over-year in Q1 2024 to reach $2.7 billion. The company also reported a 23.9% year-over-year increase in diluted earnings per share.
The company opened 47 new restaurants in the quarter and is on pace to open 285-315 restaurants in 2024. Chipotle expects full-year comparable restaurants sales growth to range in the mid to high-single digits. The stock has comfortably outperformed the stock market leading to its 50-for-1 split. Shares are up by 43% year-to-date and have rallied by 385% over the past five years. The stock currently trades at a 69 P/E ratio.
Duolingo (DUOL)
Duolingo (NASDAQ:DUOL) makes it easier for people to learn new languages. The educational app is approaching 100 million monthly active users and recorded 31.4 million daily active users in Q1 2024.
Revenue growth has always been a stronghold for the company. Net sales increased by 45% year-over-year to reach $167.6 million. Although that’s good, recent developments with the company’s profitability have spurred more optimism. Duolingo reported $27.0 million GAAP net income in the quarter compared to a $2.6 million net loss in the same period last year. Duolingo’s valuation should become more attractive as its profit margins continue to expand.
A 41% year-over-year increase in total bookings suggests that growth will continue. The stock looks like a long-term winner, but investors will have to endure volatility for now. The stock was up by most of the year but has endured a sharp correction since the start of May. The lower price target makes the stock more appealing for investors who buy on dips.
Meta Platforms (META)
Meta Platforms (NASDAQ:META) stands to benefit from lower inflation and subsequent interest rate reductions. Businesses will have more room in their budgets for ad spend. As the company wants for these trends to unfold, it’s making meaningful progress with its profit margins.
The social media giant reported 27% year-over-year revenue growth and 117% year-over-year net income growth in the first quarter of 2024. The firm reported a 33.9% net profit margin during that quarter. Meta Platforms’ financial strength has resulted in a solid 36% year-to-date gain. Shares are also up by 161% over the past five years.
User base growth accompanied the company’s financial highlights. Daily active users across the company’s family of apps grew by 7% year-over-year. Meta Platforms now has 3.24 billion total users. The average price per ad increased by 6% year-over-year. While artificial intelligence is in its early stages, it can be a good revenue opportunity in the future. For now, investors get exposure to a solid advertising business.
HubSpot (HUBS)
HubSpot (NASDAQ:HUBS) offers customer relationship management software. Lower inflation should give businesses more capital to invest into their growth, and HubSpot should receive some of those funds. The corporation has steadily grown over the years. Its revenue increased by 24% year-over-year in the fourth quarter of 2023. Q4 subscription revenue can to $570.2 million which was up by 24% year-over-year.
The company also reported a net loss of $13.6 million in the quarter which was better than the company’s $15.6 million loss from the same period last year. Shares increased by 12% year-to-date and have more than tripled over the past five years.
Investors have been gathering around HubSpot amid speculation that Alphabet may buy the company. Alphabet is likely to pay a premium to acquire the CRM giant which can offer a short-term pop for the stock. HubSpot has plenty of value on its own, but speculation of a potential buyout makes it more attractive.
Broadcom (AVGO)
Broadcom (NASDAQ:AVGO) is a semiconductor and software conglomerate that continues to deliver impressive returns for investors. Shares are up by 29% year-to-date and have gained 445% over the past five years.
Semiconductors are in high demand thanks to the amount of devices, appliances, and everyday items that rely on this technology. You will find semiconductors in computers, smartphones, cars, refrigerators, and other resources. Artificial intelligence has drummed up more demand for this technology, and it should continue to fuel Broadcom for several years.
Broadcom recently reported 34% year-over-year revenue growth in Q1 2024. The recent acquisition of VMware contributed to the firm’s strong results. Broadcom anticipates generating $50 billion in fiscal 2024 revenue. While the future looks bright, Broadcom continues to reward shareholders in the present. The tech conglomerate repurchased $8.29 billion worth of shares in the quarter and issued its quarterly dividend of $5.25 per share. Broadcom has maintained an annualized dividend growth rate of 17.49% over the past five years.
On this date of publication, Marc Guberti held long positions in GOOG and AVGO. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.comPublishing Guidelines.