Early investors in Intel (INTC -1.24%) minted themselves a fortune by simply buying a few shares before everyone else and then hanging on for a profitable ride. Which stocks look capable of doing the same for their investors from today's price? We asked a team of investors to weigh in and they picked TrueCar (TRUE 1.94%), Square (SQ -0.76%), and Teladoc (TDOC -1.48%).
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A better car-buying mousetrap
John Rosevear (TrueCar): This company isn't just like Intel, but it's following a time-tested path to start-up greatness: Build a better mousetrap.
The "better mousetrap" that TrueCar has built is a good one: The company has created a way to buy a new car that gets rid of most of what people hate about the car-buying process. TrueCar isn't profitable yet, but it's growing nicely -- and a recent stumble has created a nice buying opportunity.
Consumers who are looking to buy a car use TrueCar's site to select the exact vehicle they want, including color and options, and learn the average price paid for similar vehicles in their area. They can then opt to have TrueCar send their information sent to local dealers, who will respond with their best price on that exact vehicle. Best of all for the consumer, it's all free: The dealer pays a fee to TrueCar when the sale is complete.
Last quarter, over 250,000 vehicles were sold via TrueCar's service, up 15% from the same period last year, with the company receiving an average fee of $306 for each. It expects revenue to grow to between $321 million and $323 million in 2017, up from $277.5 million last year. Profits may still be several quarters away, but CEO Chip Perry is making the right investments to sustain growth and get to solid profitability.
So why buy now? TrueCar's stock took a hit in early November after the company said that a key referral partner's new website wasn't generating as many referrals as the old one. But that's not likely to be a long-term problem, and it doesn't impact the essential case for an investment in TrueCar: It's a better car-buying mousetrap.
An ecosystem built for small businesses
Travis Hoium (Square): Building a nest egg is all about investing in companies with durable competitive advantages that will make great long-term investments. Square fits that profile as a leader in digital payments and a provider of the infrastructure small businesses need to grow.
Square is a lot more than just a credit card reader for food trucks and salons. It's the foundation on which thousands of small businesses are built. Square's payment system ties into employee scheduling, service reservations, and even small business loans. This ecosystem of services makes the payment processor, which is where the money is made, more attractive for businesses. And the company is constantly adding services and features that expand its ecosystem of potential businesses.
The challenge Square has had is turning its strong market position into profits. In the third quarter, revenue was up 33% to $585 million, but net loss was still $16 million. Losses are due largely to the fact that management is investing heavily in the development of new products and services that will attract new customers.
Long term, I think Square is the kind of company that drives a new generation of small businesses and has the ecosystem of products and services to drive growth for many years to come. When building your nest egg, this is a stock I would put high on the buy list.
The (virtual) doctor will see you now
Brian Feroldi (Teladoc): Every patient knows how time-consuming a visit to the doctor's office can be. Between scheduling, traffic, parking, checking in, and the waiting room, it isn't uncommon for a simple checkup to turn into a multihour affair. That's why some patients choose to forgo medical treatment altogether when they are dealing with a minor illness or mental health issue.
This is a problem that Teladoc is working hard to solve. Teladoc runs one of the largest telehealth service networks in the country. At its core, telehealth is basically video conferencing with a doctor. For patients, the benefits of using this technology are that they can get a fast medical opinion from a trained professional from the comfort of your own home (the average time to connect with a doctor is less than 10 minutes). For insurers, allowing patients to get help over the internet is much cheaper than paying for a traditional office visit. This creates a win-win scenario for everyone.
Predictably, the advantages of receiving telehealth medical care are resonating with consumers. Teladoc's management team believes that its platform will complete more than 1.4 million visits in 2017. If they can hit that number, then it would represent greater than 50% growth year over year. While that's impressive, it still only means that a tiny fraction of the 22.6 million paid members who currently have access to Teladoc's services are using it. That alone provides this company with an amazing runway for future growth.
Zooming out to the big picture, Teladoc's management team believes that its total addressable market opportunity currently exceeds $57 billion. By contrast, Wall Street only expects this company to pull in about $230 million in total revenue for the year.
If you're looking to get in on the ground floor of a company that is packed with potential, Teladoc could be for you.
