Peter Lynch's record as an investor has few parallels. Under his management from 1977 to 1990, the Fidelity Magellan Fund (NASDAQMUTFUND: FMAGX) was the best-performing mutual fund in the world, absolutely crushing the market during his tenure. Yet despite his market-beating success as a professional, Lynch was a steadfast believer that individual investors could -- and should -- be able to beat Wall Street at its own game.
Lynch wrote several best-selling books explaining his principles, as well as the advantages individuals have over the "smart money," and even used as evidence many examples of investing ideas he discovered well away from the mahogany halls of the big investment firms.
We asked three Fool.com contributors with a solid understanding of Lynch's investing principles to offer their most "Lynch-like" investing ideas today, and they came up with three picks you might not have expected to see: Momo (NASDAQ: MOMO), iRobot (NASDAQ: IRBT), and Amazon.com (NASDAQ: AMZN). Keep reading to learn why we think Lynch would love them, and whether they might belong in your portfolio.
Image source: Getty Images.
China's online-dating leader
Leo Sun (Momo): Peter Lynch often recommends buying stocks that trade at lower P/E ratios than their earnings growth rates. One stock that fits the bill is Momo, a Chinese company that owns two of the country's most popular dating apps -- Momo and Tantan.
Momo's stock plunged about 40% over the past 12 months on concerns over the trade war, the removal of Tantan from China's app stores, Apple's (NASDAQ: AAPL) suspension of in-app payments for Tantan, and the suspension of its news feed posts for both Momo and Tantan for an internal review.
Those issues sound dire, but the temporary suspensions won't cut current users off from its apps, and Momo generates most of its growth and over 70% of its revenues from live video streams on Momo -- which aren't affected by the recent suspensions. Momo also shook off some of those concerns last quarter, as its sales surged 35% annually and its adjusted net income rose 1%.
Momo expects its revenue to rise 27%-30% during the second quarter, which it called a "conservative" forecast that assumes that the suspensions will continue. Wall Street expects Momo's revenue and adjusted earnings to rise 24% and 19%, respectively, for the full year -- solid growth rates for a stock that trades at just 9 times forward earnings. That low multiple indicates that investors are shunning the stock, but they could return quickly if Momo restores its apps and the Chinese economy stabilizes.
The niche player in a huge but boring industry
Steve Symington (iRobot): You may not know much about the world of robotics. But chances are you know a thing or two about the pains of keeping your house clean. And that's entirely the point of iRobot's growing -- and increasingly autonomous -- portfolio of home robots.
In fact, late last month the company unveiled a new robotic vacuum, the Roomba s9+, and a floor-mopping robot, the Braava jet m6, that can work together to first vacuum and then mop your floors, complete with advanced mapping, navigation, recharge-and-resume functionality, and, in the Roomba's case, even the ability to empty its own dirt bin for weeks at a time.
Then later this year, iRobot will launch its first robotic lawn mower, Terra, both in Germany and as a beta in the United States, opening up a new multibillion-dollar market in the process.
Perhaps best of all, iRobot shares are still reeling from a steep post-earnings drop in April after the company released first-quarter results that were technically mixed relative to Wall Street's expectations but arrived exactly in line with its own internal projections.
As such, I think opportunistic investors would do well to grab shares of iRobot before the stock rebounds, and before its relative strength and growth potential become more clear to the broader market.
A Lynch favorite hiding in plain sight
Jason Hall (Amazon.com): In One Up on Wall Street, Peter Lynch stressed the value of using what you already know as an advantage. And while, in general, the intent of his message was to teach people to open their eyes to new opportunities that hadn't shown up on Wall Street's radar, I think we can apply a version of the same idea to Amazon, a household name for millions of consumers and Wall Street's biggest investors.
Here's how I see it. Amazon is my first, and often last, destination for a growing list of items from the mundane to the exotic -- fresh jackfruit, anyone? -- because I know I'll pay a reasonable price, and Amazon has fixed the few problems I've had quickly and to my satisfaction.
But that's only part of it. Second, and maybe more importantly, is that I see more and more other companies using Amazon's cloud service, Amazon Web Services (AWS), to support their own operations, even ones that sell cloud services to consumers. And AWS is incredibly profitable for Amazon, even as it continues to prove to be one of the cheapest cloud services enterprise-level users can buy.
Third, Amazon is quickly seeing the revenue it earns selling advertisements grow, too. Simply put, the traffic to its website is enormously valuable to marketers, and the company's smart to monetize that value.
The combination of dominant existing businesses, massive growth prospects, and a lot more optionality than it seems strike me as a perfect growth business hiding in plain sight. Seems to me like a stock Lynch would love -- and load up on.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jason Hall owns shares of Amazon and iRobot. Leo Sun owns shares of Amazon and Apple. Steve Symington owns shares of iRobot. The Motley Fool owns shares of and recommends Amazon, Apple, and iRobot. The Motley Fool recommends Momo. The Motley Fool has a disclosure policy.