What a whirlwind of a year it's been for investors. The coronavirus pandemic pushed the broad-based S&P 500 to its fastest bear market decline in history, as well as the quickest 30%-plus drop on record (less than five weeks) in March. Amazingly, though, the S&P 500 has regained close to three-quarters of what was lost, while the tech-heavy Nasdaq Composite hit a record high.
Though the benchmark S&P 500 remains down slightly for the year, as of this past weekend, many of the smartest investors find themselves in the green on a year-to-date basis after purchasing, or simply sticking to their convictions on, high-growth stocks with revolutionary potential. Below you'll find three growth stocks whose potential appears limitless.
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Livongo Health
Despite being a defensive sector, healthcare stocks have been very hit-and-miss in 2020. But that's not been the case at all for healthcare solutions provider Livongo Health (LVGO), which has more than tripled since its March closing low.
If the name doesn't ring a bell, don't feel bad. Livongo had its initial public offering (IPO) less than one year ago, and it was only founded 12 years ago, so it's still in the process of becoming a mature company and getting its name out, so to speak. But even at its young age, Livongo is making one heck of a difference in the lives of diabetics.
What Livongo Health does that separates itself from a long line of healthcare solutions providers is aggregate copious amounts of patient data and use artificial intelligence to provide helpful tips for people with chronic illnesses in order to incite behavioral changes so they live longer, healthier lives. A recent investor presentation found that more than 40% of its Diabetes members have been helped by these "nudges" to improve their health and disease oversight habits. It also doesn't hurt that Livongo can aggregate diabetes information that can be sent to a primary care physician, thus making it part of the growing telemedicine movement.
Maybe what's most impressive about Livongo Health is that the company has already generated profits in each of the past two quarters despite not even holding a full 1% of diabetes market share in the United States. Livongo has over 328,000 Diabetes members, but there are 34.2 million diabetics in the United States. Imagine how good this company is going to be as its diabetes market share expands and it moves its solutions into other indications, such as hypertension and weight management.
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The Trade Desk
Another high-growth company that smart investors have latched onto (getting rich in the process) is cloud-based advertising platform The Trade Desk (TTD 2.96%). Despite a peak decline of 44% on a year-to-date basis in mid-March, the company is now up 52% year to date through this past weekend, and more than 1,300% since its IPO in September 2016.
While there's little question that growth is going to slow a bit in 2020 as advertisers pull back on spending following the shutdown of nonessential businesses throughout much of the country, there are other factors that investors need to consider here. For instance, the U.S. and global economies spend considerably longer expanding than they do contracting, which means there's a longer growth runway for advertising than people realize.
It's even more important to understand that The Trade Desk is breaking down the traditional advertising model and replacing it with something that's considerably more nimble, data-driven, and effective in helping reach targeted consumers. Best of all, The Trade Desk can provide pricing transparency with its ad platform that's highly unusual in the advertising industry. This transparency should play a key role in allowing demand for The Trade Desk to escalate quickly following this recession.
Lastly, make no mistake about the fact that digital advertising is the future. The Trade Desk's first quarter featured spending growth of 74% on mobile video, 100% on connected TVs, and 60% on audio, from the prior-year period. This stock might look fundamentally expensive, but these spending figures suggest that it can maintain quite the premium valuation.
Image source: Amazon.
Amazon
Even when the stock market was in meltdown for five weeks, beginning in mid-February, e-commerce giant Amazon.com (AMZN -1.23%) was outperforming the broader market. Its peak decline this year was a mere 9%, with the company's stock now up 44%, through this past weekend. You might be tricked into thinking that its $1.3 trillion market cap means its growth days are in the rearview mirror, but I believe it remains on track to become the first $2 trillion company.
Most folks are familiar with Amazon for its marketplace. Depending on your preferred source, Amazon controls in the neighborhood of 40% of all e-commerce in the United States, which is a pretty enviable position considering that 70% of U.S. gross domestic product is driven by consumption.
Amazon also benefits from its growing base of Prime users, which has surpassed 150 million worldwide. These Prime memberships are important for two reasons. First, they help keep members loyal to the brand and within Amazon's ecosystem of products and services. And second, the fees Prime members pay can help offset thin retail margins, thereby giving Amazon more room to undercut brick-and-mortar retailers on price to drive new traffic and retain existing customers. Plus, it certainly doesn't hurt that Prime members spend far more annually than non-Prime members.
But the real star for Amazon looks to be its infrastructure-as-a-service cloud segment, Amazon Web Services (AWS). It's growing at roughly twice the rate of the company's other segments, and generating margins that blow retail and advertising out of the water. In other words, as AWS grows into a larger percentage of total sales (11% of total sales in 2018, and 13.5% in Q1 2020), Amazon will see its operating cash flow ascend to the heavens.
