Here's something to wrap your head around: As fast as the world has changed in the last decade, the pace of innovation is actually accelerating. We went from a world without iPhones in 2007 to one dominated by the product just 10 years later. Uber didn't exist when Barack Obama was elected; now, it's an international heavyweight.
The point is, if you aren't investing in companies that have innovation in their DNA, and the ability to adapt over time, you'll be looking at negative returns.
Image source: Getty Images.
Below, three Motley Fool investors point out stocks that they believe are truly innovative, and worth buying in October. Read below to find out why iRobot (IRBT +0.00%), Alphabet (GOOG 2.84%) (GOOGL 2.77%), and Wal-Mart (WMT +1.90%) all fit the bill.
If you are going to do one thing, do it well
Tyler Crowe (iRobot): It's pretty easy to criticize iRobot as a company. As it stands today, the company is a one-trick pony with its Roomba automated vacuum cleaners, which may make some investors uneasy considering it sells a high-margin consumer product that seems ripe for commoditization over time. That hasn't been the case thus far, though.
One of the things working in iRobot's favor is its head start over the competition. Being one of the first companies to sell an autonomous vacuum cleaner, it carved out a massive market share that has made the Roomba synonymous with automated vacuum cleaner. More importantly, though, is that the company continues to develop improvements for its flagship product that help to maintain a level of pricing power that allows the company to grow its business fast without sacrificing margins too much.
What is also encouraging is that management is looking to leverage its spatial awareness and navigation technology for the Roomba into other automated household products, and eventually into a complete smart home. With big win options out there like mops, pool cleaners, and lawn mowers, there's a chance that iRobot's products could be household "must haves" that make this stock an interesting one to follow.
Alphabet's not resting on its laurels
Brian Stoffel (Alphabet): Alphabet is one of my largest personal holdings -- almost 13% of my family's portfolio -- precisely because of the company's commitment to innovation. It would be easy to simply rake in the profits from the leading advertising business in the world, or to just focus on bolstering that business.
But Alphabet goes above and beyond.
The very reason Alphabet was formed -- instead of sticking with the "Google" moniker -- was to emphasize that the company was taking moonshots at innovations that could change the course of humanity by an order of magnitude. Many of these innovations will be flops -- already Google Glass failed to take off, and many are wondering how long the company will "waste" money on its other bets.
But all it takes is one of the company's long-shots to become a success for the investments to have paid off. It is becoming increasingly likely that the first of those investments will be in the autonomous driving system developed by Alphabet's subsidiary Waymo. But Alphabet won't stop there; it is trying to solve some of the most vexing problems in humanity.
Trading this month for 26 times trailing free cash flow, I don't think Alphabet is "cheap," but I think it's a fair price for such an important company.
An innovative retailer
Tim Green (Wal-Mart Stores): Mega-retailer Wal-Mart may be the last company you think of when you hear the word "innovation." But Wal-Mart is doing some truly innovative things as it aims to maintain its brick-and-mortar dominance while plowing into the e-commerce market.
For starters, Wal-Mart rolled out free two-day shipping on orders over $35 earlier this year. This followed a test of an Amazon Prime-like subscription, but the company decided that truly free shipping was a better option. Wal-Mart has also spent this year ramping up its online grocery business. Customers can place their orders online and have their groceries loaded into their cars at over 1,000 Wal-Mart locations, at no additional cost.
Wal-Mart's innovative streak doesn't stop there. The retailer launched its pick-up discount program earlier this year, offering discounts on certain online items to customers willing to pick up their order at a store. It's cheaper for Wal-Mart to ship an item to one of its stores than to a customer's doorstep, and it's passing on those savings. Wal-Mart is also testing out other ideas, like having store employees deliver orders on their way home from work. And the company plans to implement Jet.com's smart-cart technology, which can lower prices for customers, on Walmart.com.
These efforts are already bearing fruit. Wal-Mart's U.S. online sales soared 60% year over year in the latest quarter, driven in part by an expanded online assortment of 67 million SKUs. The company is aiming to be a viable alternative to Amazon.com. Given Wal-Mart's success in revitalizing its online business, I'd say it's on track to do just that.
