Cryptocurrencies are soaring sky-high right now. Led by market veterans bitcoin and Ethereum, many digital asset stores have grown their market value tenfold or more over the past year.
But many investors are nervous about these skyrocketing prices, expecting the bubble to burst at any moment with little warning. So we asked a handful of your fellow investors here at The Motley Fool what could take the pace of cryptocurrencies in a sane portfolio right now. Read on to see why they recommend calming your nerves with a healthy dose of NVIDIA (NASDAQ: NVDA), Applied Optoelectronics (NASDAQ:AAOI), or even Skechers Footwear (NYSE:SKX).
Do the math
Danny Vena (NVIDIA): Cryptocurrency is all the rage, but the excitement regarding these digital currencies has reached a fever pitch, and the bubble could burst at any time. Smart investors looking to profit from the craze without bearing all the risk would be wise to check out NVIDIA.
The verification process for mining cryptocurrency requires a great deal of processing power and is mathematically complex -- and the graphics processing unit (GPU) continues to be the best tool for the job in many cases. The parallel processing capability of these chips allows them to perform a high number of mathematical calculations simultaneously at a high rate of speed, and NVIDIA GPUs have been the choice of many miners.
Investors in NVIDIA get much more than just exposure to the cryptocurrency market. Artificial intelligence (AI) has been driving the company's data center revenue, producing triple-digit year-over-year growth in each of the past six quarters. AI is still in its infancy and presents a growing opportunity. NVIDIA announced partnerships with several of China's biggest tech companies to upgrade to its latest AI-centric platform.
Aside from its foundation in AI, the company stands at the intersection of many of today's hottest growth trends, including virtual and augmented reality, cloud computing, and self-driving cars, all of which require GPUs to power their technologies.
NVIDIA's gaming segment continues to produce the lion's share of the company's revenue and is still displaying impressive growth, having doubled over the preceding five quarters.
Why invest in cryptocurrency when you can have that and so much more?
Amazon's amazing advantages -- amplified!
Anders Bylund (Applied Optoelectronics): Investors with a yen for high-risk, high-reward investments like bitcoin and Ethereum are likely to want something more than a solid, safe, and boring blue-chip stock. I could have recommended high-flying online retailer and cloud computing giant Amazon.com (NASDAQ:AMZN) here, but let's take the logical step to one of Amazon's top suppliers.
Applied Optoelectronics makes fiber-optic networking components. You'll find its products in telecom and cable connection centrals around the world, but also in corporate data centers. In particular, top customers Amazon and Microsoft (NASDAQ:MSFT) use Applied Optoelectronics' fiber-optic transceivers to keep the data flowing around their cloud computing servers. These two clients added up to 73% of the company's total sales in 2016.
There's no question that Microsoft and Amazon will continue to need lots of fiber-powered bandwidth for years to come. Their Windows Azure and Amazon Web Services platforms absolutely demand it and have become important profit centers for their parent companies. Whatever these services need, they will get.
As a result, the company is growing at breakneck speed. At the same time, you can buy Advanced Optoelectronics shares at the bargain-bin valuation of just 9.8 times trailing earnings or 9.3 times free cash flows. The rampant top-line growth hit a speed bump over the summer, when it became clear that Amazon and others are shifting gears into the next generation of high-speed transceivers -- a bit earlier than the component supplier had expected.
So there's currently a mismatch between supply and demand of 40-gigabit and 100-gigabit transceivers, and Advanced Optoelectronics is ramping up its next-generation production lines as quickly as possible. Shares plunged on the news and haven't recovered five months later. Investors are nursing a 59% haircut, compared to August's all-time high. That's still good enough for a 68% gain over the last 52 weeks.
This stock will come back swinging, possibly matching Bitcoin's skyrocketing returns while also providing products of obvious real-world value.
A boring company with real value
Tim Green (Skechers): Cryptocurrencies are exciting. Skechers, a footwear and apparel company, is not. But when you buy a share of Skechers, you own a piece of a growing, profitable business. A business with assets. A business that has intrinsic value. When you buy cryptocurrency, you get none of that.
Shares of Skechers shot up after the company reported its third-quarter results in October, and for good reason. The company blew past analyst estimates for earnings and produced strong double-digit revenue growth. The international wholesale business grew sales by 25.7% year over year, while the U.S. wholesale held its own with 1.4% growth. Comparable sales at Skechers' retail stores jumped 4.4%, a solid result in a difficult retail environment.
Earnings per share jumped 40%, driven by higher revenue and a lower tax rate. Analysts expect Skechers to produce $1.71 in per-share earnings this year, putting the price-to-earnings ratio at about 20. That may seem expensive, but it ignores Skechers rock-solid balance sheet. Back out the $719 million in net cash, and Skechers PE ratio falls to just 17.6.
Skechers stock isn't as cheap as it was earlier this year, but given the company's international growth prospects, the valuation seems reasonable to me. While its nice to think about cryptocurrencies surging in value and making you rich, buying shares of a high-quality company for a reasonable price is a much better option.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Anders Bylund owns shares of Amazon. Danny Vena owns shares of Amazon and Skechers. Timothy Green owns shares of Skechers. The Motley Fool owns shares of and recommends Amazon, Nvidia, and Skechers. The Motley Fool has a disclosure policy.