There's absolutely no question that 2020 is going to be a year that investors never forget. In a matter of weeks in late February and early March, the U.S. stock market went from humming along at all-time highs to the fastest decline into bear market territory in history (just 17 trading sessions) in the wake of the coronavirus disease 2019 (COVID-19) pandemic. Ultimately, the widely followed S&P 500 shed 34% of its value in a span of just 33 calendar days.
While panic-selling can certainly be unnerving if you're a short-term trader, it's always been an opportunity to buy into great companies at a discount if you're a long-term investor. Throughout the 33-calendar-day decline in the broader market in February and March, I took the opportunity to add quite a few new companies to my investment portfolio.
The problem is, I wasn't able to buy anywhere near a large enough stake in five great stocks that I believe have long-term game-changing potential. Now with cash at the ready, I plan to focus on adding to the following five stocks when the next correction strikes.
Image source: Getty Images.
Intuitive Surgical
The first high-caliber business that I can't wait to buy a larger stake in is surgical system developer Intuitive Surgical (ISRG 3.04%), a company I've referred to as the "closest thing to a surefire investment."
The single greatest thing about Intuitive Surgical is the fact that the company's operating margins are built to improve over time. Though it might seem like selling pricey da Vinci surgical systems would be a great thing for the company, these systems are highly intricate to build and don't yield the best margins. Instead, Intuitive Surgical generates the bulk of its margins and profits from selling instruments and accessories with each procedure, as well as by servicing its installed machines. In other words, as the number of installed da Vinci systems increases worldwide, these higher-margin revenue streams will grow into a larger percentage of total sales, thereby boosting operating margins.
It's also encouraging to know that Intuitive Surgical's competitive moat is practically insurmountable. It ended the first quarter with 5,669 da Vinci systems installed worldwide, which is more than all of its competitors combined. Tack on the fact that Intuitive Surgical is just scratching the surface in terms of soft tissue surgical market share, and you'll see why I'm so excited about where this company is headed.
Image source: Square.
Square
There may not be a more disruptive company in the financial technology space than Square (SQ 2.90%). Although I was able to nab shares of Square at a ridiculously attractive price (sub-$40) during March's panic selling, I don't feel I own nearly enough in my portfolio relative to what I believe the company is capable of over the long run.
As you can imagine, most folks are honed in on Square's seller ecosystem, which had $106 billion in gross payment volume (GPV) cross its network in 2019. What's of particular interest, though, is that Square is seeing larger businesses with higher annualized GPV using its point-of-sale platform. If Square can continue to attract larger businesses in what's already a consumption-driven economy, its impressive growth rate could accelerate even more.
Additionally, Square's Cash App has proven to be a growth beast over the past couple of years. Active user count has more than tripled over the past two years, with gross profit skyrocketing 115% in the first quarter of 2020 from the prior-year period. With Cash App users able to send and receive money, invest directly from their account, and link their account to Cash Card, Square could easily double sales and profits over the next three years.
Image source: Pinterest.
Social media is another segment where big gains can be made over the long run. Although I also purchased Facebook during the March downturn, it's Pinterest (PINS 0.10%) that has my undivided attention. In my view, Pinterest is an opportunity for investors like myself who missed the Facebook run to get a second chance at a game-changer in the social media space.
Though a wag of the finger might be focused on Pinterest's somewhat sluggish U.S. user growth, what investors should realize is that international growth is what's so exciting about this company. Over the past five quarters, Pinterest's user base has grown by 102 million monthly active users (MAU), with roughly 90% of these MAUs coming from international markets. Last year, average revenue per user (ARPU) from international users more than doubled to $0.54 from $0.25. If Pinterest is successful in continuing to build its overseas MAUs and improve engagement, there's no reason increased advertising dollars couldn't lead to international ARPU growth of 400% or more over the next decade.
The Pinterest growth story is also about e-commerce. With users already focused on sharing their interests, Pinterest aims to capitalize on this by helping small and medium-sized businesses reach a larger pool of potential consumers. If Pinterest is successful in creating a healthy revenue stream from e-commerce, it'll only enhance the company's ad-dominant sales growth approach.
Image source: Getty Images.
Livongo Health
There aren't many companies I've beaten the drum on more in 2020 than healthcare solutions provider Livongo Health (LVGO +0.00%). One hand, I always enjoy the instant gratification of being up more than 160% on a purchase made a little over two months ago. But on the other hand, the Warren Buffett in me is annoyed, because I want to own a heck of a lot more of Livongo Health than I currently own.
What allows Livongo Health to stand out is its approach to help people with chronic illnesses, such as diabetes and hypertension. By using mountains of aggregated data and artificial intelligence, Livongo is able to incite behavioral changes in patients with chronic conditions to help them live healthier lives. Remember, it's not just the co-morbidities associated with chronic illnesses that are of concern to patients. Their ability to stay on top of their illness plays a big role, too.
Maybe the best part about Livongo Health is that its unique approach to personalized medicine is yielding incredible results. Livongo's Diabetes member count effectively doubled year-over-year to more than 328,000 in the first quarter, with the company delivering its second consecutive surprise quarterly profit. Livongo doesn't even have 1% of the U.S. diabetes market enrolled yet, but is already turning the corner to profitability. It's going to be an absolute juggernaut for a long time to come.
Image source: Getty Images.
Amazon
And of course, I can't forget about Amazon (AMZN +0.63%). Even though the e-commerce giant is already one of the largest companies in the world, its operating cash flow growth is simply drool-worthy.
Most folks are likely familiar with Amazon's retail ecosystem, which along with advertising and streaming content make up the bulk of the company's revenue. According to Bank of America analyst Justin Post, Amazon garnered about 44% of U.S. e-commerce market share in 2019. For context, Walmart was a very distant second at 7%. Amazon's low overhead, intricate logistics, and more than 150 million worldwide Prime memberships all ensure that consumers stay within Amazon's ecosystem of products.
However, e-commerce isn't why Amazon's operating cash flow is going to explode higher in the years to come. Instead, it's Amazon Web Services (AWS). AWS is Amazon's infrastructure-as-a-service offering that's grown from 11% of total sales in 2018 to 13.5% of total sales as of Q1 2020. Since cloud-service margins are significantly higher than retail and ad margins, Amazon's operating cash flow is expected to soar as AWS becomes a larger component of total sales.
