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Looking to make some serious money in the next bull market? Look no further. Three seasoned Motley Fool investors have teamed up to outline their best stock ideas for the coming flight.

The alphabet (GOOG: 0.97%) (GOOGL: 1.09%), Micro technology (MU: -0.59%)and: LendingClub: (LC: 1.27%) are three outstanding stocks that could take off once the current anti-inflation market sentiment wears off. With a combination of solid fundamentals, industry disruption, and calculated risk, these options can simply deliver wealth-building returns. Whether the market hits in 2023 or not, this trio is poised to help your portfolio for the long haul.

So let’s connect and see what these investment experts have to offer.

Digital advertising is alive and well and just waiting to be elevated to the next level

Nicholas Rossolillo (Alphabet). The decline of the digital ad space has been an oft-repeated point over the past year, but I’ll sound the alarm once again. As the world heads into recession (or maybe already) in 2023, online marketing may slow down. .) — as a result, it cannot be a high-growth business in the near future.

Then, of course, there’s the curveball that OpenAI’s ChatGPT tool presents. I think it’s too early to say that the artificial intelligence (AI) powered conversational responses created by ChatGPT will be disruptive to internet search. After all, ChatGPT doesn’t search the Internet for information like Google does. Rather, it generates responses based on past data it has been trained on. Also, ChatGPT is not monetized yet. Perhaps an OpenAI contributor Microsoft will have some ideas to try.

But either way, I think Alphabet remains at the top of digital advertising for the foreseeable future, which means that an eventual recovery in the global economy will mean a resurgence in the digital advertising business. Down the road, Google Cloud is still pushing ahead (sales up 38% QoQ) and will eventually start turning some profits to fuel the Alphabet machine (Google Cloud’s operating loss margin narrowed to 10% QoQ : 13% loss last year).

If that’s not convincing enough, there’s also the fact that Alphabet remains highly profitable overall ($62.5 billion in free cash flow over the past 12 months) and has been sitting on cash and short-term investments in the end: $102 billion debt-free. In September 2022. Alphabet is using that cash to buy back massive amounts of stock as it returns excess cash to shareholders. It will pay off in spades when the next bull market comes around.

As of this writing, Alphabet trades at less than 19 times trailing 12-month free cash flow. This tech titan looks like a fantastic long-term value to me right now, and I think it could grow when stock market sentiment eventually improves.

The stuff memories are made of

Anders Bylund (Micron Technology). The computer memory market is highly cyclical. The industry is prone to oversupply situations where manufacturing facilities produce more memory chips than device makers can use, flooding the market with cheaper and cheaper chips. Next, you see excessive production cuts and rising chip prices as electronics makers clamor for help. Changes in end-market demand also influence this cycle, often amplifying its effects.

You can set your watch to these cycles, approximately three years apart. It’s easy to see the cyclical ups and downs of the memory market in computer memory giant Micron Technology’s earnings chart.

MU Revenue (TTM) data courtesy of YCharts

As you can see, the memory market recently ended a growth cycle and is now heading south again. In this case, industry leader Samsung is releasing huge volumes of low-cost chips, sparking yet another industry-wide price war.

Micron stock is already showing signs of this continued decline, accelerated by an uncertain macroeconomic climate. The stock is down 40% from its all-time highs almost exactly a year ago.

One might think it would be a bad idea to buy Micron stock during a cyclical downturn. Why not wait until prices stabilize, income starts to rise again, and things look good?

This is due to the fact that investors have long known about the predictable fluctuations of this sector, which enables them to predict future changes to some extent. So overall, you don’t see growth in Micron stock after every rise in the income table but a few months ahead sales curve. In other words, you should expect stock prices to start rising before this price war actually ends;

MU Percent Off All-Time High Chart

MU Percentage Discount All Time High Data by YCharts

I will admit that market volatility is an inexact science and perhaps more of an art. However, I have seen this movie five times in the last 15 years and the plot is exactly the same every time. Based on that experience, Micron appears to be nearing a peak where the stock will rise again for about a year and a half.

Additionally, Micron shares are attractively priced at 10.5 times trailing earnings and 2.2 times sales. That’s also consistent with patterns seen before previous upswings.

I can’t absolutely guarantee this scenario will play out this spring, but Micron is almost guaranteed to make its next big leap before the end of the year. History suggests that it is better to turn these cyclical opportunities around early than to wait too long and miss them entirely. So you might as well take action now.

At these affordable prices, fintech is less risky than the market believes

Billy Duberstein (LendingClub). Once inflation comes down and interest rates normalize, there’s a good chance Fintech stock LendingClub could take off again.

Along with the rest of the fintech sector, LendingClub is 62% sold in 2022. Meanwhile, while some of its peers have very real problems, LendingClub’s business model and profitability should allow it to weather the economic downturn and thrive on the other side. In fact, LendingClub beat revenue and profit expectations in every earnings report last year, even as its stock continued to decline largely on macroeconomic concerns.

LendingClub’s game-changer compared to its peers was the acquisition of Radius Bank back in early 2021. That acquisition transformed LendingClub from a pure marketplace that had to continually sell its personal loans to a hybrid bank model in which it. is able not only to sell the loans, but also to keep them on its balance sheet, secured by cheap deposits.

As interest rates have risen at a rapid pace, loan buyers have been pulling back from the market as their yield requirements have risen rapidly. So if you’re a fintech lending platform that depends on third-party buyers, you’ve been under a lot of pressure over the past year.

LendingClub is not immune to that pressure, as repayment thresholds for loan buyers have risen faster than LendingClub can adjust its APRs. Last quarter, LendingClub had to reduce its market originations by 15% compared to the previous quarter. LendingClub, on the other hand, did too growth the originations it placed on its balance sheet by 13%, making up 33% of its origination.

If you think holding more loans could be a risk, remember that LendingClub has made a big effort over the past year to target prime borrowers in anticipation of tighter financial terms. The average FICO score in LendingClub’s portfolio held for investment is 730, with an average borrower income of $115,000. At the same time, the company appears to have reserved for losses conservatively, maintaining 6.3% against all loans and 7.2% against its core non-performing consumer loan portfolio.

At the same time, LendingClub’s 30-day delinquencies are currently just under 1%, well below the pre-pandemic range of 2% to 2.5%, which is itself well below LendingClub’s reserve ratios. In addition, LendingClub’s balance sheet has conservative capital ratios, with a CET1 ratio of 18.3% as of last quarter, nearly 50% higher than most large banks.

When the Fed eventually slows and/or stops raising interest rates, LendingClub’s delayed rate hikes will feed into the higher cost of capital, which should reignite the selloff in the market. At the same time, the portfolio held for investment may very well exceed the company’s conservative reserve ratios, perhaps leading to a release of reserves.

The stock trades at just 0.8 times book value and just 5 times this year’s earnings estimates. That’s a valuation that reflects an already bad downturn, especially for a company that’s so conservatively bullish and still has bright growth prospects. Once inflation subsides or the recession ends, LendingClub could very well make an upward move to its recent 2021 highs.


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