Chances are that if you weren't already a long-term investor when the year began, the volatility in the stock market over the past four months has taught you a valuable lesson about thinking long term.
Though panic and uncertainty tied to the coronavirus disease 2019 (COVID-19) led the broad-based S&P 500 to a peak loss of 34% in less than five weeks, the market regained most of these losses over the course of the next three months. Investors without a long-term mindset might have missed out on a significant portion of this rebound.
Historically speaking, all stock market corrections of at least 10% have proved to be buying opportunities for long-term investors. With Wall Street still on edge concerning COVID-19, there's still plenty of opportunity to put your capital to work and pick up seemingly unstoppable businesses.
Best of all, you don't need Warren Buffett's or Bill Gates' pocketbook to get rich on Wall Street. If you have, say, $3,000 in disposable cash that won't be needed for bills or emergencies, you've got more than enough capital to buy the market's most unstoppable stocks.
When investors think of truly unstoppable companies, there's a good chance that e-commerce platform and services provider Shopify (SHOP -7.59%) comes to mind. Despite being a fundamentally expensive company at 44 times Wall Street's consensus 2020 sales estimate, Shopify's addressable market is massive, which is why investors have been willing to pay such a premium for the company.
Shopify has predominantly made its presence known among entrepreneurs and small business owners, which represents an addressable market worth $78 billion as of the end of March 2020. Shopify is able to generate money from recurring subscriptions to its e-commerce platform as well as bring in revenue via various merchant solutions, such as shipping, fulfillment, and digital payments.
The beauty of the Shopify business model is threefold. First, it's built on exceptional margins and very clear cash flow predictability. During the first quarter, subscription revenue accounted for 40% of total sales. While merchant solutions are growing at a faster clip than subscription revenue, these subs provide guaranteed cash flow for the company.
Second, Shopify has some serious partnership power. The company's explosive merchant growth has begun to translate into big-time partnership opportunities, one of which blossomed within the past week. Walmart announced that it would team up with Shopify to allow merchants to list their products on Walmart's third-party Marketplace. As Shopify's merchant base grows, these partnership opportunities should become even more commonplace.
Third, Shopify will benefit as retail consumption pushes online. With e-commerce growing into a greater percentage of total consumption, retailers will have little choice but to expand their businesses online.
Don't for one second believe that just because Amazon (AMZN -1.13%) is a $1.3 trillion company it's in any way near being put out to pasture. Amazon is an e-commerce and cloud juggernaut that, in my view, is on its way to $5,000 a share by 2023.
Sort of keeping with the e-commerce theme, Amazon is the online retail kingpin. Based on various estimates, Amazon controls in the neighborhood of 40% of all U.S. e-commerce, which is an enviable position in a consumption-driven economy.
But on the retail side of the equation, Amazon's secret weapon is its Prime membership. Having easily surpassed 150 million Prime memberships worldwide, Amazon has been able to use the fees from these memberships to supplement thin retail margins and ensure that it's undercutting brick-and-mortar retailers on price, all while keeping consumers contained within its ever-growing Amazon ecosystem of products, content, and services.
On a longer-term basis, it's Amazon Web Services (AWS) that deserves most of the attention. AWS is an infrastructure-as-a-service play in the cloud space that allows small and medium-sized businesses to construct the basic foundation of their cloud. Once again, given the COVID-19 crisis, the need to access sensitive information online has only grown in importance, thereby adding more fuel to the fire of cloud infrastructure remaining in high demand.
Since cloud margins are many times higher than what Amazon nets from retail or ad-based sales, it'll see an explosion in operating cash flow as AWS grows into a greater percentage of total sales. Wall Street is looking for a near-tripling in operating cash flow by 2023 to more than $200 per share, which would likely mean AWS growing to perhaps 18% to 20% of total annual sales, in my best estimate, up from 13.5% as of Q1 2020. AWS and Prime make Amazon an unstoppable stock.
If you're wondering, "Why am I hearing about this Livongo Health (LVGO) company so much lately?" it's because Livongo really has a chance to revolutionize patient care for people with common chronic conditions, such as diabetes, prediabetes, hypertension, and obesity.
What really separates Livongo Health from other medical device and solutions companies is its ability to aggregate mountains of data from its patients and utilize artificial intelligence to send tips and suggestions to its members so as to incite behavioral change. In other words, Livongo uses these nudges to help patients with chronic conditions live healthier lives. That's great news considering that staying on top of a disease like diabetes can be half the battle for patients.
Similar to Shopify and Amazon, Livongo isn't a fundamentally cheap company at close to 22 times Wall Street's forecasted sales in 2020. But, once again, it's all about the company's addressable market. With more than 328,000 Diabetes members at the end of the first quarter, Livongo hasn't even captured 1% of the 34.2 million diabetics in the U.S., per the Centers for Disease Control and Prevention. Add on nearly 40 million people with hypertension, and that's around $49 billion in potential subscription revenue. For context, it'll bring in close to $300 million in 2020 sales.
This brings me to another key point: subscriptions. Since Livongo generates its revenue from subscriptions, its sales and operating cash flow tend to be highly predictable. This allows for aggressive platform reinvestment while still ensuring that the company generates a profit.
With a massive addressable market and Livongo's solutions allowing members to communicate their pertinent medical information to a primary care physician, it's the perfect personalized medicine play and an absolutely unstoppable healthcare stock.