1 Magnificent S&P 500 Dividend Stock Down 30% to Buy and Hold Forever

Uber Technologies (UBER 0.86%) has defined the ride-hailing industry. The company is the dominant ride-hailing company in the United States and operates in 70 countries worldwide. But people don’t take rides; they take Ubers. The fact that Uber’s name has become synonymous with ride-hailing speaks to its brand power. Last December, Uber’s success earned it a place in the S&P 500.

But today, the stock is down 30% from its all-time high due to fears that autonomous driving technology from companies like Tesla and Alphabet‘s Waymo will create an existential threat to Uber.

It’s a frightening thought for investors, but it could be overblown. Here is why Uber’s decline presents a compelling buying opportunity in a top-notch growth stock investors can buy and hold, potentially forever.

Uber’s ascension to the S&P 500

You may already be familiar with Uber. After all, people Ubered 9.4 billion times last year across the company’s 70 markets. The company operates a smartphone app that connects people with a network of participating drivers for transportation services. Uber began with rides to a given destination, but it has expanded its business to include food deliveries, vehicle rentals, and courier services.

Uber’s business grew large enough after the pandemic to become highly profitable. The company has generated approximately $42 billion in revenue over the past four quarters, with about $6 billion in free cash flow. Earnings turned consistently profitable according to generally accepted accounting principles (GAAP), which helped Uber get into the S&P 500, and analysts expect earnings growth averaging a blistering 42.5% annually over the next three to five years.

So, why is the stock down?

Technology companies are developing autonomous vehicle technology, which would essentially remove the need for human drivers. Tesla recently outlined plans for its long-awaited Robotaxi business, and Alphabet’s Waymo has already been selling autonomous rides in parts of San Francisco, Phoenix, Los Angeles, and Austin.

Tesla will use its own Robotaxi app. Waymo has partnered with Uber in its existing markets, but the company’s recent announcement of plans to expand to Miami highlighted its Waymo One app, so it may cut Uber out of the loop.

Uber’s cost of revenue (paying drivers for giving rides) was approximately 60% of revenue through nine months of 2024. The fear is that removing a significant portion of that expense with autonomy would enable autonomous competitors to undercut Uber’s pricing and pressure the business.

Why Uber’s sell-off may be unjustified

Investors shouldn’t discredit autonomous competition, but there are some reasons the stock’s sell-off is arguably an overreaction — at least right now.

1. New autonomy markets require testing, meaning a large-scale autonomous threat could still be many years away.
2. Despite Tesla’s goal of launching its Robotaxi service in California and Texas next year, its autonomous technology is still only certified as SAE Level 2, requiring driver intervention.
3. Uber possesses defensive advantages, including the network effects of a massive driver network, first-party data, and the brand value of Uber being synonymous with ride-hailing.
4. Uber could strike partnerships to access autonomous technology. It partnered with Cruise over the summer.
5. Autonomous-vehicle companies may need to spend billions of dollars on fleet vehicles, while Uber’s business primarily offloads those costs to its drivers. Therefore, it’s uncertain what the economics of an autonomous fleet will be versus Uber.

These factors don’t negate the long-term risks that autonomous vehicles can present, but it seems the market is getting ahead of itself.

Is it time to be greedy when others are fearful?

Meanwhile, Uber’s profits are increasing despite its declining stock price. Today, the stock trades at a forward price-to-earnings (P/E) ratio of 32, a bargain for a company expected to compound earnings at 42%. That’s a price/earnings-to-growth (PEG) ratio of just 0.75, making Uber arguably one of the best deals on the market.

Investors are scared of Uber today, but as the great Warren Buffett has said, be greedy when others are fearful. Remember, this is a dominant and highly profitable company, at least for now and probably for the next several years (if not longer). The market may not appreciate Uber’s competitive advantages enough, which positions the stock for lucrative long-term returns if autonomous fears prove overblown. Even if autonomous fleets eventually prove dangerous, it’s not happening overnight.

Therefore, investors should treat Uber’s decline as a long-term buying opportunity. You can change your mind later if needed because a business that is this good (and at such a cheap valuation) will probably make you a lot of money by then.