🔥 Top 10 Hot Stocks You Can’t Miss This Month! 📈

Welcome to our selection of the Top 10 Hot Stocks for this month! 🔥

While we’re excited to share these picks with you, please note that this is not financial advice. Investment decisions should be made based on your individual risk profile and sector preferences. Always do your own research before making any investment choices. Happy investing! 📈

1. Lululemon

Team: Rule Breakers
Investing Type: Moderate
Last Month: #4

Lululemon Athletica (NASDAQ: LULU), an athleisure retailer, is often associated with high-priced clothing aimed at a specific female demographic and investors willing to pay premium valuations. While this perception has held true in the past, it doesn't reflect the current status of the company or its stock. Drawing inspiration from David Gardner, it's clear that Lululemon may be navigating through some challenging conditions, yet there’s visibility beyond them.

Once peaking at over $500 per share in late December 2023, Lululemon's stock price has nearly halved, reducing its price-to-earnings (P/E) ratio from over 64 to a more reasonable 20.3. Its forward P/E ratio of 18.8 reinforces the notion that the stock is now fairly valued, especially for a company in the discretionary market. Given rising interest rates and tighter budgets, it’s plausible that consumers might delay purchasing yoga pants.

Despite these challenges, Lululemon is performing well:

• In the latest quarter, net revenue increased by 7% year-over-year to $2.4 billion, with international revenue rising 29%.

• Earnings per diluted share grew by 17.5% year-over-year.

• Gross margin improved to a respectable 59.6%.

• The company launched 10 new company-operated stores, bringing its total to 721.

Looking ahead, Lululemon's growth will stem from its five-year plan initiated in 2021, which aims to double its men’s segment, double its digital operations, and quadruple its international sales, targeting over $12.5 billion in revenue by 2026.

2. PayPal

Team: Hidden Gems
Investing Type: Moderate
New in Top 10

2024 has been a successful year for PayPal (NASDAQ: PYPL) and its shareholders:

• Over the past year, the company processed more than 26 billion transactions, amounting to $1.6 trillion.

• Key performance indicators such as monthly active users and transactions per active account have also grown.

• Following strong second-quarter results, which featured an 11% increase in total payment volume and a 36% rise in non-GAAP earnings per share, PayPal raised its earnings and cash flow guidance for the year.

• The share buyback program has increased from at least $5 billion to $6 billion.

PayPal reported particular strength in branded checkout, Braintree, and Venmo, achieving the highest transaction margin growth rate since 2021. The company is focusing on strategic partnerships with Amazon (NASDAQ: AMZN), DoorDash (NASDAQ: DASH), and Meta Platforms (NASDAQ: META) to solidify its checkout solutions. As competition from tech giants like Apple (NASDAQ: AAPL) and Shopify (NYSE: SHOP) rises, these partnerships are crucial to enhancing PayPal's presence in the checkout process.

While the days of double-digit growth in sales and active users may be behind it, PayPal is concentrating on improving financial performance with increased cash flow and earnings. With shares trading at their lowest multiples in three years, this may be an opportune time to increase your PayPal holdings as the company focuses on strategic partnerships and earnings growth.

3. Wingstop

Team: Rule Breakers
Investing Type: Moderate
New in Top 10

Wingstop (NASDAQ: WING), our latest recommendation from Team Rule Breakers, impresses us with its operational simplicity and rapid growth. These elements work in tandem to drive success:

With straightforward menus and a focus on digital ordering and delivery, Wingstop restaurants are easy to operate. This simplicity allows for continuous growth in same-store sales, which surged 28.7% domestically last quarter. Additionally, the uncomplicated business model facilitates swift store expansion, with a 13% increase in store count over the past fiscal year. These factors combined led to a remarkable 45.2% year-over-year revenue increase in the latest quarter.

This rapid growth is partly due to Wingstop's franchise model. Franchisees appreciate the business's profitability to the extent that many are eager to open additional franchises. In 2022 and 2023, over 90% of new franchised locations were launched by existing franchisees. Satisfied franchisees translate to significant growth and satisfied shareholders.

While we have a fondness for Wingstop, we're also mindful of potential risks. The competitive landscape in the restaurant industry is something we are monitoring closely. While Wingstop currently occupies a unique market niche, it's feasible for another major chicken competitor to adapt and challenge them directly. Additionally, we need to keep an eye on commodity prices, especially chicken, as consumers facing financial strain may be less willing to accept price hikes, which could limit Wingstop's ability to pass on increased costs.

Despite these risks and the stock's relatively high valuation, we believe Wingstop's growth potential and strong financial performance make it an attractive investment opportunity at this time.

4. Apple

Team: Rule Breakers
Investing Type: Cautious
New in Top 10

With a market cap around $3.5 trillion, Apple (NASDAQ: AAPL) is predominantly known for its iconic iPhone, although it has achieved considerable success with its other devices and software services.

The iPhone remains a significant revenue driver, serving as a platform for introducing new services and revenue streams. The newly launched iPhone 16 is no exception—it’s set to debut Apple's take on artificial intelligence, dubbed Apple Intelligence. We anticipate features like new colors, extended battery life, and enhanced security will encourage upgrades from older models. However, the emphasis on AI may turbocharge this upgrade cycle, as Apple promises its Apple Intelligence toolset will enhance productivity, foster creativity, and elevate its digital assistant, Siri.

Beyond the iPhone, Apple is making strides in the health sector, with the latest Apple Watch capable of detecting sleep apnea. Through incremental but impactful device enhancements, Apple keeps its loyal customers returning for more.

However, not every product category Apple ventures into proves successful. The mixed-reality headset, Apple Vision Pro, launched to much excitement earlier this year, has not performed as expected, with forecasts suggesting sales may not reach 500,000 units by year's end.

Despite this setback, we appreciate Apple’s continual innovation in new devices, and we believe the company's track record of entering and refining product categories to delight consumers will continue to drive sales. If you haven't added Apple to your portfolio yet, now may be an excellent time to consider acquiring some shares of this proven market leader.

5. Unity Software

Team: Hidden Gems
Investing Type: Aggressive
New in Top 10

Unity Software (NYSE: U) stands out as a leading content creation platform, providing customers with software tools to develop 2D and 3D augmented and virtual reality applications. While the majority of its clients are game developers, Unity's functionality extends to various industries, including automotive, construction, engineering, and retail.

If you were to glance at Unity's stock chart, you might think it’s just another software company lacking a clear path to profitability. Its 2022 acquisition of IronSource for $3 billion might seem like a costly mistake, and its 2023 introduction of a runtime fee for game developers was intended to drive profitability but ended up alienating its revenue-generating community.

However, there are positive developments on the horizon:

• In May, Unity appointed Matthew Bromberg as CEO, who has extensive experience in the gaming sector, including roles at Zynga and Electronic Arts (NASDAQ: EA).

• On September 12, Unity announced it would scrap its unpopular gaming runtime fee.

• The company is set to release an updated version of its Unity platform in October, integrating IronSource to help game developers monetize through embedded advertising.

Unity still needs to demonstrate that it can retain and expand its customer base while achieving profitability, but it is laying the groundwork. In the second quarter, its GAAP gross margin reached 76%, up from 70% the previous year. Positive and growing free cash flow suggests good things lie ahead.

6. Progressive

Team: Hidden Gems
Investing Type: Cautious
Last Month: #6

Progressive (NYSE: PGR) has a solid history of technological innovation that enhances its insurance offerings and profitability. Its focus on technology has boosted its underwriting margin to an impressive 10.9% for the first half of 2024, surpassing the single-digit margins of previous years, which were already commendable compared to the industry’s negative margins.

The combined ratio, a measure of underwriting success, is trending positively. Management aims for a combined ratio below 96% (lower is better, with under 100 indicating underwriting profit). This year, Progressive's combined ratio stands at 89.1%, significantly improved from last year's 99.7% for the same period.

We also appreciate Progressive's growth. If you've recently received an insurance renewal notice, you’re likely aware of rising prices. Progressive's technology focus enables it to deliver compelling value to customers, reflected in a 20% growth in written premiums this year, outpacing the industry’s average growth rate of 5%.

The competitive landscape in the insurance industry is intense, and we’re keeping a close watch on how Progressive navigates these challenges. Additionally, we’re observing the rapid changes in the auto industry, such as the rise of electric vehicles and advancements in driver-assist technology, which could impact the insurance sector. Given Progressive’s history of technological advancement, we’re confident the company will thrive amid these changes.

7. Roblox

Team: Rule Breakers
Investing Type: Aggressive
New in Top 10

Roblox (NYSE: RBLX) showcased its ongoing innovation in spatially immersive social gaming at its recent developer conference, which some may refer to as “the metaverse.” New subscription and affiliate monetization options, alongside a partnership with Shopify (NYSE: SHOP) for the virtual commerce of physical goods, will attract diverse developers to its user-generated content platform. Further advancements in AI-assisted coding and 3D creation are expediting developers' transition from concept to functional prototype.

After addressing a revenue hiccup in Q1 caused by older tech devices affecting platform stability and user engagement, Roblox improved user experience. By Q2, engagement hours on Roblox grew by 24% year-over-year. We commend CEO Dave Baszucki for directly tackling these issues, aligning them with Roblox’s mission to optimize the user experience across all devices.

Supporting devices at every level is essential to achieving Baszucki’s vision of capturing 10% of the $180 billion gaming market through the Roblox ecosystem.

Roblox’s lofty growth ambitions, targeting 1 billion daily active users, are supported by significant stock-based compensation. This non-cash incentive helps attract top talent but dilutes existing shareholders. Currently, this strategy yields positive cash flow returns, but we’re looking for leadership to establish fiscal discipline as growth rates naturally slow.

8. DoorDash

Team: Hidden Gems
Investing Type: Aggressive
New in Top 10

Despite concerns regarding declining restaurant demand, DoorDash (NASDAQ: DASH) is thriving. The delivery giant continues to experience robust consumer demand. Remarkably, over half of all first-time food delivery customers are choosing DoorDash over its competitors, which is even more impressive in international markets, where DoorDash is expanding at 5 to 6 times the rate of some rivals.

This growth is a result of capturing market share in an expanding industry, combined with the food sector's shift toward digital omnichannel strategies, benefiting DoorDash's core delivery business. With only single-digit penetration in restaurant sales, the company has significant room for growth in multiple verticals.

New verticals—grocery, convenience, alcohol, and retail—will be crucial for DoorDash's ongoing expansion. CEO Tony Xu emphasizes a “no rush” strategy to ensure successful expansion. This steady approach is already yielding positive unit economics, even in grocery. However, competition remains fierce, and we’ll be watching to see how Xu’s careful focus translates into increased customer value, market share growth, and superior performance.

9. Paycom Software

Team: Hidden Gems
Investing Type: Moderate
New in Top 10

If you examine Paycom’s (NYSE: PAYC) stock price history, you’ll notice a sharp decline of 38% on November 1, 2023. This drop occurred after the company announced that its new payroll processing software, Beti (Better Employee Transaction Interface), was resulting in fewer errors. Since Paycom generates revenue each time payroll is processed, fewer errors meant lower revenue for the firm.

Paycom's quarterly revenue growth figures illustrate this shift:

• Prior to Q3 2023, revenue growth ranged from approximately 25% to 30% each quarter.

• In Q4 2023, growth slowed to 17%.

• The first two quarters of 2024 saw a 10% decrease in growth each quarter.

While revenue growth has decelerated, profit growth remains strong. For the 12 months ending June 30, 2024, operating income was $585 million, a 37% increase from $428 million in the same period last year.

Focusing on customer satisfaction is a strategy that typically pays off, even if it incurs short-term costs. With a P/E ratio of 20.9, Paycom appears reasonably priced for a company that has achieved a 24% annual growth in earnings per share over the past five years.

10. Enphase Energy

Team: Rule Breakers
Investing Type: Aggressive
New in Top 10

Although Enphase Energy's (NASDAQ: ENPH) stock price has dropped nearly two-thirds from its late 2022 peak, the company remains a leader in offering top-notch residential solar energy solutions, including microinverters, battery storage, and software for customers and installers.

Now could be an opportune moment to buy shares while market expectations are subdued and the business cycle appears to be turning in Enphase’s favor. The impacts of inventory destocking and high interest rates should lessen on Enphase's earnings and sales.

This price decline was not without reason. Enphase reported several weak quarterly results throughout late 2023 and early 2024. Since Q2 2023, revenue has nearly halved, and EBITDA has dropped by over two-thirds year-over-year. Management had previously forecasted over 20% growth and invested in expanding capacity.

Several challenges caught management off guard:

• Elevated interest rates hampered customers' financing of expensive solar installations.

• Regulatory changes in key markets like California and the Netherlands reduced incentives for exporting solar energy during peak production times.

• Contractors had over-ordered, resulting in excess inventory.

However, Enphase now sees a potential turnaround as interest rates decline, inventory issues resolve, and battery demand rises.

Additionally, Enphase’s board has authorized a $1 billion stock buyback plan to leverage what it believes is a temporary low in the business cycle. This may be an ideal time to increase our holdings in the company.