A stock market rally could begin in October: 2 brilliant growth stocks to buy now and hold for the long term

October has historically been a good month to have money in the stock market. The S&P 500 has risen at least 10 percent on 61 occasions since World War II, and nearly a third of those rallies began in October, according to Bespoke Investment Group.

An example is the bear market that began on January 3, 2022 and ended on October 12, 2022. The S&P 500 rose more than 60% during the subsequent bear market. And history says that upward momentum could intensify in October and beyond due to holiday spending.

Past performance is never a guarantee of future returns, but Shopify (STORE -1.91%) and Uber technologies (UBER -1.23%) they are valuable long-term investments, regardless of what happens next month. Here’s why.

Shopify: The market leader in e-commerce software

Shopify offers software and commerce services for businesses of all sizes. Its platform enables merchants to manage sales across offline and online channels, including social media, marketplaces and custom websites. Shopify also offers adjacent commerce solutions for marketing, payments, and logistics. This turnkey approach has helped the company secure a leading position in e-commerce and omnichannel commerce software.

Shopify initially prioritized small and medium-sized businesses, but is attracting larger brands with Shopify Plus and Commerce Components. The former is a complete commerce platform designed for enterprises, and the latter allows enterprises to adopt individual elements of Shopify’s commerce stack. Both include wholesale tools that expand Shopify’s addressable market beyond retail.

Shopify looked strong in the second quarter. Revenue rose 21% to $2 billion, including a 4 percentage point headwind from the sale of its logistics business. Meanwhile, non-GAAP (adjusted) earnings rose 85% to $0.26 per diluted share. President Harley Finkelstein told analysts, “More and more merchants around the world are putting their trust in Shopify’s unified commerce operating system to fuel growth and simplify complex operations.”

Importantly, the company made progress in physical retail, wholesale and international markets, three strategic growth vectors. In the second quarter, offline gross merchandise volume (GMV) increased 27% and wholesale GMV increased 140%, both outpacing the 22% increase in total GMV. Meanwhile, the number of international merchants using Shopify has grown by 30%.

Wall Street expects earnings to grow 45% annually over the next three years. That makes the current valuation of 82 times earnings look reasonable. Whether or not a stock market rally begins in October, I think investors who buy a small position in Shopify today will be happy with their decision five years from now.

Uber Technologies: Market Leader in Sharing

Uber divides its businesses into three categories: the mobility segment connects riders with transportation, the delivery segment connects consumers with local grocery stores and restaurants, and the freight segment connects shippers with carriers. Uber operates the largest ride-sharing platform in the US, measured by revenue, and the second-largest food delivery platform, according to Bloomberg.

One thing that sets the company apart is its ability to offer ride-sharing and delivery services through a single platform. Uber can encourage consumers and drivers on both sides of its ecosystem to engage with the opposite side, and its cross-promotion activities are paying off. According to a company presentation, 22% of first-time mobility trips are from the delivery app, and 31% of first-time delivery trips are from the mobility app.

Uber has another big advantage in its proprietary data. The Company develops a deep understanding of user tastes and preferences by providing sharing and delivery services and uses this information to connect consumers with relevant advertising. User data also creates a network effect that helps Uber predict demand and route drivers more efficiently over time.

Uber reported solid financial results in the second quarter. Monthly active platform consumers grew 14% to 156 million and trips increased 21% to 2.7 billion, meaning users are engaging more often. In turn, revenue rose 16% to $10.7 billion, led by strong mobility sales growth, and GAAP earnings rose 161% to $0.47 per diluted share.

Wall Street expects Uber’s earnings to grow 48% annually over the next three years. That consensus makes the current valuation of 84 times earnings look reasonable. Investors should feel comfortable buying a small position in Uber at the current price, provided they plan to hold the stock for at least three to five years.