It's impossible to predict the stock market, but there are many reasons to be optimistic. With inflation falling and the labor market still strong, many economists are starting to expect a soft landing instead of a major recession, which could be good news for equity valuations. Let's explore why Tesla and Membership Collective Group could be great ways to bet on the next bull market.
Tesla
Up by 82% year to date, Tesla stock has hit the ground running in 2023. The legendary electric vehicle (EV) maker lost much of its value last year because of valuation concerns and possible saturation in the EV market. But the company's growth potential remains stellar. And its deep economic moat can help it keep the competition at bay.
Competition is heating up in the EV industry, with legacy automakers like Ford Motor and General Motors racing to develop electrified models. But from an investor's perspective, Tesla remains an ideal way to bet on this opportunity because it enjoys "pure" growth in the market while its large rivals are cannibalizing their existing internal combustion engine (ICE) businesses. Further, Tesla is shielded by its size and profitability, which can help it outcompete smaller, pure-play EV competitors.
With high interest rates impacting consumer purchasing power, EV makers are turning to price wars to maintain or capture market share. According to Reuters, Tesla has reduced its prices by 20% globally.
But with a third-quarter operating profit of $3.6 billion, Tesla is much better positioned to survive pricing competition than rivals like Lucid Motors, which burned through $687.5 million in its most recently reported quarter while Rivian lost $1.77 billion. Higher interest rates also increase the cost of external financing (such as debt), making it even harder for Tesla's unprofitable competitors to keep up.
Membership Collective Group
Founded in 1995 and publicly traded since 2021, Membership Collective Group is a luxury hospitality company known for its flagship private members club, Soho House, which started in London before expanding globally. Shares have roared 28% year to date and could rise further as the company positions itself for long-term profitability.
Membership Collective Group stands out because of the massive pent-up demand for its services. As of the third quarter, total members grew by 46.3% year over year to 211,351, and the waitlist for new members increased to an impressive all-time high of roughly 85,000.
Private membership clubs rely on their exclusivity to maintain their quality and appeal. Unlike many such organizations, which often operate just a single location, Membership Collective's Soho House seems to have monetized its luxury experience on a global scale while still keeping that precious sense of scarcity that made it so successful. The result is a business that looks capable of controlling the rate at which it grows and possibly enjoys significant pricing power yet to be exploited.
Total revenue jumped 48% year over year to $266 million. And while the company generated an operating loss of $70.6 million, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) jumped from $8.8 million to $20.2 million after adding back noncash charges such as share-based compensation, severance expense, and an eye-watering $53 million in foreign exchange losses. This loss was likely due to the appreciation of the dollar against European currencies and is unlikely to be replicated.
Which stock is best for you?
Tesla and Membership Collective are excellent ways for investors to capitalize on a potential new bull market in stocks. But they serve different investment strategies. As a large and profitable company, Tesla is probably the safer bet. That said, with its small size, membership Collective could have more room for long-term growth -- especially as it transitions to profitability.
