Cryptocurrencies like bitcoin are all the rage these days, but the biggest knock against investing in them is that they are nonproductive assets. That makes it nearly impossible to pin a value on them.
Knowing that, we asked a team of Motley Fool contributors to highlight a stock that they think is a better bet than bitcoin from here, and they came up with Berkshire Hathaway ( BRK.A 1.18% )( BRK.B 1.49% ), PayPal ( PYPL 4.37% ), and HealthEquity ( HQY 4.02% ).
A bitcoin hater
Tim Green (Berkshire Hathaway): What's the polar opposite of investing in bitcoin? How about investing in a $500 billion conglomerate headed by a guy who thinks cryptocurrencies will almost certainly "come to a bad ending"? Berkshire Hathaway CEO Warren Buffett gave that prognosis for bitcoin in January. It's spot on so far, with the price of bitcoin tumbling this year.
While bitcoin has no intrinsic value, Buffett has built Berkshire into one of the largest companies in the world, comprised of high-quality businesses with durable competitive advantages. Berkshire's businesses span insurance, railroads, manufacturing, retail, and nearly everything in between. The company also maintains a massive stock portfolio, headlined by a gigantic position in Apple.
Now might be a great time to pick up shares of Berkshire, because that's what Buffett's doing. After he tweaked his criterion for share buybacks, the company bought back some of its shares in recent months. With the stock market historically expensive, Buffett sees investing in Berkshire itself as a good use of cash.
Berkshire probably isn't going to provide world-beating returns, given its size. But I doubt it will take much to outperform bitcoin in the long run.
Another form of payment
Danny Vena (PayPal): Those looking to cash in on the ongoing shift away from paper money need look no further than PayPal. What began as a checkout button on websites has since evolved to one of the dominant payment forms used not only e-commerce but digital wallets as well.
Since its much-publicized split from eBay in mid-2015, PayPal has partnered with a wide assortment of banks and major credit card issuers, as well as striking accords with a number of tech giants like Apple and Alphabet's Google to be an option in their digital wallets.
These partnerships, as well as a number of recent acquisitions that served to expand its international footprint, have placed PayPal in the enviable position of processing about 20% to 30% of all e-commerce transactions worldwide (excluding China). Its focus on the user experience has resulted in a checkout conversion rate of about 89% -- nearly twice the level achieved by credit and debit cards.
Venmo -- its peer-to-peer payment app -- is another weapon in PayPal's digital arsenal, growing 25 times over the previous four years, as the result of its popularity with millennials. Its recently introduced "Pay with Venmo" gives users the option to use the app to pay commercial merchants for the first time. This could result in more than $1 billion in additional revenue for PayPal over the next three years.
PayPal's stock has soared 50% over the past 12 months, nearly three times the rate of the S&P 500, on revenue that has jumped 18% and operating profits that have soared more than 53%. Expanding operating margins are dropping more to the bottom line, and the company's user base has soared to 224 million, up 18% year over year. Merchants continue to migrate to PayPal as well, recently adding 600,000, bringing the total base to over 19.5 million.
Those looking to benefit from digital payments should avoid the roller-coaster ride of bitcoin and buy PayPal instead.
Huge upside potential
Brian Feroldi (HealthEquity): The biggest reason to invest in crypto assets is that they offer nearly unlimited upside potential if they ever achieve mainstream usage. However, offsetting that upside potential is the fact that cryptocurrencies like bitcoin do not produce any cash flow. What's more, cryptocurrencies are so volatile that they are a terrible store of value.
That's why my investing preference is to ignore cryptocurrencies altogether and focus my attention on cash-producing companies that hold huge upside potential. One of my favorites at the moment is a company called HealthEquity.
HealthEquity is rapidly gobbling up market share in the health savings accounts (HSAs) industry. HealthEquity has done this through organic and acquired growth and from becoming the partner of choice for huge health plans like Blue Cross Blue Shield and Health Plan Alliance. These strategies have helped the company grow into a business with more than 3.5 million accounts that together hold in excess of $6.9 billion in assets.
This scale has enabled mouth-watering financial results. During the fiscal year 2018, sales and net income grew by 29% and 80%, respectively. The company is also cranking our free cash flow and sports a debt-free balance sheet.
As impressive as these numbers are already, they could prove to be small potatoes in the long run. Management estimates that the tax savings offered by HSA accounts will grow the total market to more than 50 million accounts and at least $600 billion in assets. If those numbers are anywhere close to being correct, then the runway ahead of this company is huge.