One of the lessons that became clear during the recent bear market is that not all stocks are created equal. The widespread concern about the COVID-19 pandemic gave rise to the fastest bear market slump in stock market history. The market peaked on Feb. 18, and the S&P 500 subsequently fell 27% in just 23 days. The index eventually lost more than a third of its value in about five weeks. As with most panic-driven declines, investors ended up throwing out the baby with the bathwater.
In the subsequent recovery, some of the stocks that recovered the quickest were those that were already successfully disrupting their respective industries before the pandemic, and have continued their impressive growth since, proving once again that buying quality stocks and holding them for years, or even decades, is the surest path to long-term wealth.
If you have $5,000 in spare cash (or less) that you don't need for immediate expenses or to augment your emergency fund, these five top stocks could make you a fortune over the coming decade.
1. CrowdStrike: Stopping cybersecurity threats before they start
A byproduct of the pandemic was the massive influx of employees working from home. This took many workers out from under the protective umbrella of corporate firewalls, leaving endpoint users working from home and facing a far greater threat of intrusion. That's where CrowdStrike Holdings (CRWD 3.18%) comes in.
The company's cloud-native Falcon platform works to protect the endpoints -- servers, desktops, laptops, and mobile devices -- from known threats. But it doesn't stop there. The company "crowd-sources" data from its customer base and analyzes the information with ever-evolving artificial intelligence algorithms that get increasingly smarter over time. This helps the system not only recognize existing threats, but also predict future ones, and then stop them in real-time.
Business is booming. In the first quarter, net new subscription customers grew by 105% year over year. Existing customers are equally lucrative. The number of clients who are subscribed to four cloud protection modules increased to 55% of total customers and those with five or more increased to over 35%. The net revenue retention rate, which measures additional spending by current customers, exceeded 120%.
This kicked revenue growth into high gear, increasing 85% year over year, while subscription revenue and annual recurring revenue (ARR) each climbed 89%. CrowdStrike is still losing money, but is edging ever closer to profitability. Even more impressive, cash flow soared to $98.6 million from $1.4 million in the prior-year quarter.
As the wave of remote work continues, CrowdStrike is perfectly positioned to strike while the iron is hot.
2. Livongo Health: A better approach to treating chronic conditions
Once upon a time, those with chronic conditions like diabetes would periodically see the doctor for their malady, but they were largely forced to muddle through, managing the condition on their own between visits, typically without much in the way of feedback.
Livongo Health (LVGO) is working to change that. The company gathers vital statistics from patients using connected devices, aggregates and analyzes the data using artificial intelligence, and provides users with reminders and personalized coaching to help keep them healthy, while also lowering overall healthcare costs.
This win-win is quickly gaining converts. Livongo's client count grew 44% year over year, while Livongo for Diabetes members more than doubled. Revenue increased 115% year over year, while net losses improved dramatically, putting the company on the fast track to profits.
Livongo has expanded beyond diabetes and now helps manage other health considerations, including hypertension, weight management, diabetes prevention, and behavioral health issues like depression and anxiety. By adding a host of new conditions to an already scalable business model, Livongo is carving out a wildly successful niche in the healthcare market.
3. Shopify: Empowering the next generation of e-commerce
There were already a host of website builders around in the early 2000s but there was simply no easy way to build an e-commerce platform. And then Shopify (SHOP 12.54%) was born. The company's mission is "Making commerce better for everyone," providing the tools to make it easier to start, run, and grow an online business.
Shopify helps entrepreneurs build and maintain a website, accept and process payments, and schedule shipments, while also providing digital advertising, point-of-sale hardware, email, and even working capital loans.
For the first quarter, Shopify's revenue climbed 47% year over year, while subscription revenue grew 34%. The company continues to generate manageable losses, foregoing profit to expand its market share.
Shopify already serves more than 1 million merchants worldwide, but that could be just the beginning. Global e-commerce sales are expected to top $4.2 trillion in 2020, and Shopify's gross merchandise volume accounted for less than 1.5% of that total last year, giving the company a long runway ahead.
4. Teladoc Health: The doctor will see you now
Telehealth was already experiencing increasing acceptance prior to the COVID-19 pandemic, but the outbreak shined a spotlight on virtual visits and kicked adoption into high gear. The option to connect with your healthcare professional remotely was particularly appealing, not only to insurers who see it as a cost-effective alternative to in-person visits, but also to those that wanted to avoid a trip to the doctor's office for fear of contracting the coronavirus.
Teladoc Health (TDOC 7.34%) is the leader in the space and one of the clear beneficiaries of the trend. Revenue grew 41% year over year in the first quarter, and subscription access fees climbed 29%, but even that doesn't tell the whole story. Paid visit revenue in the U.S. increased by 69%, while revenue from fee-only visits jumped 205%, causing total visit fee revenue to climb 93%.
The metrics of the visits themselves were even more compelling. Paid membership visits in the U.S. increased 77%, while included visits jumped 109%, pushing the total up by 93%. International visits were also robust, increasing by 92%.
Most importantly, once patients have experienced the ease and convenience of a virtual doctor's appointment, most want to continue going forward. A recent survey of 1,800 patients found that half had used telehealth during the past three months, 71% were willing to use right now, and 83% of respondents said they plan to use telehealth again, even after the pandemic is a distant memory.
The shift to digital healthcare is now undeniable, and Teladoc is at the peak of health.
5. The Trade Desk: Revolutionizing digital advertising
Digital advertising has long been an area where pricing -- and how it's calculated -- was murky at best. It left many advertisers seriously befuddled about the return on their investment. Along came The Trade Desk (TTD 3.47%) to disrupt the status quo in the small -- but growing -- niche of programmatic advertising.
The company developed state-of-the-art algorithms to place ads in front of customers that are actually interested in the product or service being sold, ensuring that advertisers got the most bang for their buck. However, in a break with long-held industry practices, the company discloses the cost of the original ad placement along with the markup for its services.
This combination of cutting-edge technology and transparent pricing has advertisers clambering to join up. The Trade Desk grew revenue 33% year over year in the first quarter, at eight times the rate averaged across the ad industry, which shows that the company is stealing market share from the competition. Customer retention remained above 95%, as it has every quarter going back five years. But even that doesn't tell the whole story.
Several of The Trade Desk's newest opportunities are growing at a much faster rate. Mobile in-app spend grew 55% year over year, while mobile video increased by 74%. Spending on audio and connected TV ads also shined, jumping 60% and 100%, respectively.
The Trade Desk is tapping a large and growing opportunity and is creating a new advertising paradigm in the process.
The usual disclaimers
Astute investors will have noticed these high-risk, high-reward stocks have several characteristics in common: They're beating the broader market by a wide margin so far this year, they boast significant revenue growth, and each sports nosebleed valuation of between 18 and 47 times forward sales -- when a good price-to-sales ratio is generally considered to be between one and two.
Thus far, however, investors have been willing to pay up for the potential that these companies could continue to deliver robust growth for the foreseeable future, thereby increasing the chances that these real-deal stocks could make investors a fortune several years down the road.