2 Breakout Stocks to Buy Now

Key Points

• The surging demand for cruises isn't slowing down, which is very bullish for Carnival's prospects.

• Toast is seeing growing adoption of its cloud-based restaurant management platform, as restaurant owners look to upgrade to cutting-edge technology solutions powered by AI.

• 10 stocks we like better than Carnival Corp. ›

The major market indices are in a V-shaped recovery since the sell-off in March over recession fears. With a new bull market underway, investors should take note of stocks that are surging to new 52-week highs, as this can indicate where the smart money see opportunities.

Here are two breakout stocks to consider buying right now.

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Image source: Getty Images.

1. Carnival

Shares of Carnival (NYSE: CCL) have surged 18% year to date, beating the S&P 500 return of 8% at the time of this writing in late July. The stock is poised to move higher from strong demand for travel. The company has posted eight consecutive quarters of record revenue, with a favorable outlook for bookings into next year that should lead to strong earnings.

While other consumer-related industries are experiencing softness in sales, such as apparel, consumers are not hesitant to plan cruise trips. After a strong first half of the year, analysts anticipate Carnival's revenue increasing to $25 billion for 2025, with adjusted earnings per share landing at $2.00, according to Yahoo! Finance.

The cruise industry has been steadily growing since the pandemic. It remained resilient even during the spike in inflation in 2022. Entering 2024, 82% of those who had already taken a cruise plan to do so again, according to the Cruise Lines International Association.

Carnival not only benefits from industry trends, management is executing well on its growth strategy. During the Q2 earnings call in June, management noted strong demand for bookings well into 2026, while having only limited capacity. This is supporting higher ticket prices, which should continue to boost margins and earnings.

Carnival stock's conservative forward price-to-earnings multiple of 15 could potentially support more market-beating returns over the next few years. Analysts forecast Carnival's earnings to grow at an annualized rate of 21%.

2. Toast

With artificial intelligence (AI) sweeping across every industry, restaurant operators are eager to get their hands on cutting-edge technology to make running a restaurant simpler and more cost-efficient. Toast (NYSE: TOST) appears to be the best stock to profit off the digital transformation of the restaurant industry. After bottoming out with the broader market a few years ago, the stock has been on a tear year to date, climbing 33%.

Restaurant management software is a competitive market, with a countless number of companies offering solutions. But Toast has the finances, technology, and easy-to-use software to win a large share of this market. Its intuitive user interface makes onboarding employees fairly straightforward. It offers powerful tools like handheld devices and a cloud-based all-in-one system.

Toast added more than 6,000 net locations in Q1, bringing its total base to around 140,000. This marked a 25% year-over-year increase, translating to a 31% increase in annualized recurring revenue. Importantly, Toast's strong revenue growth is starting to pull margins up. Growth in high-margin areas like subscriptions and payment solutions is driving higher recurring gross profit, which grew 37% year over year in Q1.

As Toast continues to post strong financials, it is reinvesting in new tools that can keep momentum going. Its ToastIQ feature could be a game changer. This feature uses AI to pull insights from millions of transactions across Toast's customer base. This means ToastIQ is getting smarter the more locations that use the platform -- a classic network effect competitive advantage.

Wall Street may be starting to recognize the advantage that Toast is building. The stock seems to be in the process of being rerated as a sustainable, high-growth software company. Toast is going after a huge addressable market, with an estimated 875,000 restaurants in the U.S. alone. The stock's recent breakout is a bullish signal on where it's headed over the long term.

Should you invest $1,000 in Carnival Corp. right now?

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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Toast. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.