Although stock market volatility never really disappears, 2020 has been a year unlike Wall Street has ever seen before. The Coronavirus Disease 2019 (COVID-19) pandemic pushed a full decade’s worth of volatility into a four-month window and took investors on their lives. While short-term traders are probably still pulling their hair out, it’s long-term for investors to do well.
Historically, while stock market and bear markets correction are inevitable, long-term investors in high growth, high-quality companies are well positioned for success. This is because emotions only have a relatively short-term grip on stock valuation, while concrete sales and profit growth are what drive valuations higher in the long run.
Right now, we see several exceptionally hot growth stocks with values ranging from mid-cap to large-cap to have all the tools needed to clear a $ 1
Call this a little “gimme” because it’s already halfway there, but fintech stocks Square (NYSE: SQ) and its $ 50 billion plus market cap is set to become megacap materials ($ 100 billion valuation) in the next few years.
As I have previously noted, an exciting development in recent years is a broadening of Squares sales ecosystems to include larger merchants. According to Squares definition, a major merchant describes a company with more than $ 125,000 in annual gross payment volume (GPV). Square’s sales platform has primarily been a payment facilitator for small and medium-sized companies. But recently we have seen that the total dollar value passes the seller’s ecosystem from these larger companies. This can lead to a sharp increase in GPV on Square’s trading platform and more robust fee collection for the foreseeable future.
There’s also the Cash App, which more than tripled its monthly active user count over a two-year period in 2020. With the COVID-19 pandemic that puts hygiene squared (sorry word game) in focus, cash has been emphasized in many transactions. This means that the peer-to-peer payment platform Cash App has seen record months each month (according to Square) and a significant increase in direct deposit activity. In the first quarter, the Cash App accounted for $ 183 million in gross profit, which was a 115% year-over-year increase. At this rate, the Cash App could generate more than half of Square’s gross profit in 2022, giving it a clear path to a valuation of $ 100 billion plus.
If there is a long shot here, it is a provider of healthcare solutions Livongo Health (NASDAQ: LVGO). Livongo has more than tripled since it closed in 2020, but “only” boasted a market capitalization of $ 7.2 billion this past weekend. To achieve megacap status, Livongo Health must return to over 1,000% over the next ten years.
Two factors make Livongo such an exciting growth stock. First, it is how the company is approaching helping patients with chronic illnesses live healthier lives. There are many therapies and devices there to help those with chronic illnesses, but one of the most challenging factors is getting patients to stay on top of their illness. Livongo collects huge pools of data from patients and uses artificial intelligence to send tips and useful nudges to members that can result in meaningful behavioral changes. In other words, it is a personal plan that also has telemedicine appeal, because aggregated data can easily be sent to a primary care physician.
The other factor at work here is Livongo Health’s huge patient pool. Right now, the company is focused on helping diabetic patients. It ended the first quarter with more than 328,000 paying Diabetes members, which doubled from the previous year’s period. But this accounts for less than 1% of the 34.2 million Americans with diabetes. Once Livongo decides to really start focusing on other indications, including weight management, hypertension and prediabetes, its total addressable patient pool is likely to increase over 40% of the US population.
In my opinion, a 40% annual growth rate (CAGR) throughout the 2020s is not questioned. A robust, this robust, together with strong profitability, should be more than enough to send Livongo Health to a market value of $ 100 billion by 2030.
And what kind of hot stock list would be complete without social media up-and-comer Pinterest (NYSE: PINS)? Pinterest is currently weighing in at a valuation of $ 14.1 billion, which means it must sextuple over the next ten years to reach a $ 100 billion valuation. It may sound like a tough task, especially considering other mistakes (ahem, Twitter) has created in social media spaces, but Pinterest has all the tools necessary to dominate.
While user growth has been volatile for most players on social media that is not named Facebook (NASDAQ: FB), Pinterest has continued to deliver strong monthly active users (MAUs), at least in international markets. Since the end of 2018, Pinterest has added 102 million MAU, with more than 90% derived outside the United States. During this time, the average revenue per user in international markets has more than doubled. What we see are advertisers willing to pay more to reach Pinterest’s growing number of eyeballs.
As a further note on the previous point, you should not overlook the latest boycott of Facebook’s advertising platform by a number of large companies as a possible catalyst for Pinterest to attract big brands and hang on to them for years to come.
However, it is the natural transformation of Pinterest’s platform into a personal e-commerce site that could bear the most fruit for the company during the second half of this decade. With 367 million MAUs using Pinterest to share their favorite products and services, it only makes sense to connect these users to small businesses that can fulfill their interests. Although e-commerce is still an emerging revenue channel for Pinterest, I don’t expect it to be that long.