Great companies to invest in can be found in any market environment if you know how to look. One important consideration for finding a great investment opportunity is to give more credence to the underlying business than to the stock price. Another is to diversify your holdings.
When investing for the long term, put your cash (whether it's a large amount or a relatively small investment of $500) into companies across a range of sectors. This will help you expand your portfolio steadily with time while ensuring that you're not overly reliant on a single type of business.
If you have $500 to invest in stocks right now, here are two top growth stocks to that can help diversify your holdings.
1. Hims & Hers
Hims & Hers (HIMS 0.85%) is an online healthcare business that helps users access virtual care services, prescriptions, and even over-the-counter drugs all from a remote location. Operating in the U.S. and the U.K., Hims & Hers currently focuses its services on hair loss prevention, dermatology, mental health, sexual health, and weight loss.
It provides a platform for patients to make online appointments with a licensed healthcare professional who can diagnose potential issues and prescribe medications if needed. Prescriptions are then fulfilled through licensed partner pharmacies. Platform users can also subscribe to receive recurring deliveries of various over-the-counter products they need. Hims & Hers also provides users with wellness content, educational programs, and other information to assist in their health journey.
Most of the company's revenue is subscription-based, but it also makes some of its revenue from non-prescription product sales derived from retailers with whom it has wholesale purchase agreements. The company originally started with a focus on men's wellness, offering solutions for conditions like hair loss and erectile dysfunction. It's since expanded into women's health, now offering healthcare consumers access to products and services across a range of practice areas. Hims & Hers partners with an extensive network of licensed healthcare providers while also offering a platform that features cloud pharmacy fulfillment, digital prescriptions, and an electronic medical records system.
Healthcare consumers increasingly want the ease and flexibility of telehealth options. Hims & Hers makes the process seamless, from speaking with your healthcare provider to getting a prescription to enjoying free shipping of the product to your front door.
More recently, the company expanded its footprint to include weight loss treatments. In a time where treatments like Novo Nordisk's Wegovy (Ozempic is the version approved for diabetes) and Eli Lilly's Zepbound are raking in billions, Hims & Hers recently announced that it would now offer access to GLP-1 injections in addition to weight management oral medication kits. These compounded GLP-1s purport to include the same active ingredient as Wegovy at lower costs than the branded medications.
Hims & Hers reported revenue of $278 million in the first quarter of 2024, up 46% year over year. It managed a gross margin of 82% while net income was $11.1 million. The company also delivered free cash flow of about $12 million in Q1, with net cash from operations of approximately $26 million.
Hims & Hers is growing profitability, revenue, and cash while expanding into fast-growing segments of the healthcare industry. Investors might want to consider even a small position in the stock, which is already up around 130% since the start of 2024.
2. Cava Group
Cava Group (CAVA 1.29%) is a fast-casual restaurant chain focused on offering Mediterranean cuisine. The company was founded in 2006 in Washington, D.C., and today has 323 restaurant locations in 25 states.
In the first quarter of 2024, Cava reported revenue of $256 million, up more than 30% from one year ago. Notably, it was Cava's fourth consecutive quarter of profitability and its first quarter to generate positive free cash flow. The company generated a net income of $14 million in Q1. Adjusted earnings totaled $33 million, a 94% increase from the same quarter in 2023. Cava delivered cash from operations of $38 million in the quarter, with free cash flow coming in at just shy of $5 million. Of Cava's revenue in the quarter, 37% was derived from digital orders.
Restaurants are known to be a particularly low-margin business. The average restaurant profit margin can be as low as 3%. Cava delivered a restaurant-level profit margin of 25% in the first quarter.
According to a report by Technavio, the fast casual market in the U.S. is on track to hit a valuation of $150 billion by 2028. That's a compound annual growth rate of about 12% from its valuation in 2023.
Restaurant stocks aren't for every investor, but if this is an industry you're interested in, you want to look for businesses with strong financials, margins, and a competitive edge in their respective market.
Cava's focus on its niche of Mediterranean cuisine, measured approach to its restaurant expansion, and steady growth in profits as well as revenue are all green flags here. Investors with a risk appetite for growth stocks might find this looks like an intriguing addition to a long-term portfolio.
