Cryptocurrencies are among the hottest topics on Wall Street these days, and many investors have found themselves tempted by the frequently quick, market-thumping returns that have occurred within this emerging industry.
Intense investor focus, especially when mixed with sharp volatility, rarely tilts the odds in your favor as an investor, though. That's as true for cryptocurrencies as it is for risky, highly publicized events like initial public offerings.
With that in mind, three Motley Fool investors offer a few attractive stock investment choices below. Buying eBay (NASDAQ:EBAY), Stitch Fix (NASDAQ:SFIX), or Netflix (NASDAQ:NFLX) might not put you in the middle of Wall Street's latest craze, but it's more likely to set you up for better long-term returns.
Keeping it simple
Demitri Kalogeropoulos (eBay): John Oliver recently described cryptocurrencies as "everything you don't understand about money combined with everything you don't understand about computers." That's a bit unfair to these financial instruments, since they aren't quite that opaque. Still, when picking investments it's usually a good idea to stick to underlying businesses that are easy to understand.
E-commerce giant eBay fits that description well. Unlike rival Amazon.com, the platform acts strictly as an intermediary between buyers and sellers. That means it profits from the fees it charges sellers rather than through the sale of its own merchandise. This asset-light approach means eBay generates far higher profitability than its integrated peers, which have to worry about risky and expensive things like building fulfillment infrastructure and maintaining large warehouses of inventory that have to scale up during peak selling periods and ramp down when demand trends calm down again.
The $800 million of free cash flow that eBay generated over the holiday season amounted to a whopping 30% of its sales base. And, with revenue growth projected to accelerate for the third straight year in 2018, it's not hard to see how that would translate into significantly higher profits, and bigger returns for shareholders, in the years ahead.
A unique stock with high upside potential
Jeremy Bowman (Stitch Fix): The cryptocurrency boom was great for early investors, but the peak now seems to have passed. According to Google Trends, searches for bitcoin peaked last December and are now less than a quarter of what they were then, while the price of the coin itself is down more than 50% from its top.
The high upside potential of crypto is what captivated and attracted investors, but the stock market presents such opportunities as well. One stock that I think also has the ability to deliver massive returns is Stitch Fix. The online styling service went public in November and is unique in the market. It sends users five clothing items at a time on a subscription basis based on their own size and style specifications. In recent quarters, Stitch Fix has put up solid revenue growth around 25% and the company has demonstrated that it can be profitable.
Stitch Fix has recently expanded its business, going into men's and plus-size, and also just launched Extras, allowing shoppers to buy items like underwear and socks directly on the website, the first time it's allowed users to shop directly. Such initiatives show the company has a number of potential growth avenues. Stitch Fix is also riding two significant trends in retail, e-commerce and personalization, which should help it maintain a long-term growth rate around 20%-25%.
In some ways, Stitch Fix is similar to Netflix, as the company collects data on consumer preferences and uses that to design its own clothes for its exclusive brands. That should give the company an advantage over traditional retailers and manufacturers, becoming more meaningful as it grows.
An industry behemoth
Rich Duprey (Netflix): When it comes to cryptocurrencies, I tend to act like Warren Buffett used to around tech stocks: I don't understand it so I avoid it. John Oliver's quote above pretty much describes my outlook. While Netflix isn't quite something I can put my hands on and touch, I can still see the end result of its efforts, and what I'm seeing lately makes me think dropping some coin on the streaming service is a better investment than some cryptocurrency.
Netflix is a juggernaut that is now not only delivering what other companies produce, but is a content creating force in its own right. Few companies have the financial wherewithal to devote $8 billion to produce original programming, yet Netflix is doing so and planning to add to its already formidable lineup of shows.
Moreover, last quarter, Netflix added 6.36 million international subscribers and 1.98 million U.S. subscribers, for a record 8.33 million additions in the period. And it accomplished this even though it raised prices for its service, which gives it additional resources to produce even more original content.
CEO Reed Hastings thinks Netflix can reach 90 million U.S. subscribers, which is about 64% above its current 55 million, and represents penetration of about 28% of U.S. population.
While cryptocurrencies are slowly gaining acceptance in more corners, there are vast swaths of the public that will remain leery of something they can't see and feel. You might not be able to touch Netflix, but you can certainly see what it is doing: growing its sphere of influence. That makes it something much more tangible, and should make it a better bet than digital coinage.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Demitrios Kalogeropoulos owns shares of Netflix. Jeremy Bowman owns shares of Netflix and Stitch Fix, Inc. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends AMZN, eBay, and Netflix. The Motley Fool has a disclosure policy.