This year has tested the resolve of investors like few years before it. We've navigated our way through the fastest bear-market plunge of at least 30% in history (it took about a month), as well as the quickest rebound from a bear-market bottom to fresh all-time highs. You could rightly say we've experienced investment-related whiplash.
For long-term investors, these wild vacillations have rolled out the red carpet to pick up innovative, high-quality companies at a perceived discount. But for short-term traders, this volatility has acted as a dangerous lure.
Online-investing app Robinhood, which you might know for its commission-free trades, fractional-share investing, and gifting of free stock to new members, has seen its membership skyrocket this year. What's notable about Robinhood's member base is that they're young and somewhat inexperienced. The average age of a Robinhood investor is only 31, and they've gained quite the reputation on Wall Street for chasing whatever stock is the flavor of the week.
If you don't believe me, take a gander at Robinhood's leaderboard -- i.e., the 100 most-held stocks on the platform. Though you'll find a handful of brand-name companies, you'll also see things like levered oil exchange-traded funds and penny stocks. The fact is, Robinhood investors have a penchant for chasing awful companies.
The good news is that time is the ally of young investors, so mistakes can be made early without terrible repercussions. But it certainly would help millennial and/or novice investors if they were thinking about the long-term from the get-go and focusing on innovative businesses, rather than chasing whatever happens to be the pumped-up small-cap stock of the week.
To truly find success over the long run, Robinhood investors should consider buying these three stocks hand over fist.
In recent weeks, edge cloud-computing services provider Fastly (FSLY 2.63%) was clobbered by an earnings revision. With TikTok representing 12% of the company's revenue through the first half of 2020, and the Trump administration threatening to halt downloads stateside, demand for Fastly's solutions that speed-up the process by which content securely reaches end users has slowed. Ultimately, Fastly lowered its third-quarter sales guidance to a range of $70 million to $71 million, down from a previous forecast of $73.5 million to $75.5 million.
Earlier this week, we got a good look under the hood at Fastly's challenged quarter, and suffice it to say, the fears look wholly overblown. Following the second quarter, which saw the company's customer count grow at its fastest pace since its initial public offering, Fastly added another 96 customers in Q3 2020, upping its total count to 2,047.
Perhaps the most impressive figure in its entire report is that dollar-based net expansion rate (DBNER) increased 10 percentage points to 147% from the sequential quarter. Even with revenue from TikTok pressured in the latest quarter, this DBNER expansion suggests that existing clients are spending a lot more. Since existing clients upping their usage of Fastly's content delivery and security solutions is the key to margin expansion, it shouldn't come as a surprise that Fastly reported a very small ($0.8 million), but nevertheless positive, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). That reverses a year-ago EBITDA loss of $5 million.
Fastly still looks to be well on track to tripling its full-year sales between 2019 and 2023, and it's now a lot cheaper, relatively speaking, than it was just a couple of weeks ago. Robinhood investors should use this sell-off to buy Fastly hand over fist.
If there's a trend that's absolutely the friend of millennial investors, it's the growth of the U.S. pet industry. That's what makes companion pet health insurance company Trupanion (TRUP 5.00%) a paw-tentially great buy.
The biggest catalyst in Trupanion's sails is that Americans love their pets. Data from the American Pet Products Association shows no year-over-year decline in U.S. pet expenditures dating back at least a quarter of a century, with more than $30 billion expected to be spent on veterinary care and health products in 2020. As someone who has an elderly dog who's nearing the end of his life, I can speak firsthand about the costs I'm more than willing to incur to keep him feeling as well as possible.
Insurance stock Trupanion is exciting because it's only managed to penetrate between 1% and 2% of the companion-animal market in North America. In the U.S. alone, this equates to around 85 million households with a companion pet. With relatively low penetration, the growth runway for Trupanion implies it could deliver double-digit growth for decades as it leverages its longtime partnerships with veterinarians at the clinic level.
Trupanion should also benefit from its business model being based primarily on subscriptions. The subscription model tends to be high margin, conducive to low churn rates, and it leads to highly predictable cash flow.
Long story short, Trupanion may not be rolling in the dough at the moment, but it has a clear path to double its revenue every four to five years for a long time to come.
As I write this, a day before Facebook releases its third-quarter operating results, I note that Facebook ended the June quarter with 2.7 billion monthly active users on its home site and 3.14 billion if accounting for family monthly active users (i.e., including Instagram and WhatsApp). Even with the advertising boycotts Facebook contended with in the latest quarter, advertisers know that they can't go to any other platform and reach a more diverse base of targeted eyeballs. This gives Facebook unparalleled ad-pricing power.
But what's most intriguing about Facebook is that it's still in the early-to-middle innings of its growth phase. You'd think a company that began the previous week at close to an $800 billion market cap would be maturing and seeing growth slow. However, Facebook has only monetized two of its four major social platforms (Facebook and Instagram). Both WhatsApp and Facebook Messenger have yet to be monetized in any meaningful way. When they finally are, the company will receive another shot in the arm of organic growth.
Also, don't forget just how dominant Facebook's social platforms are. Facebook, WhatsApp, Instagram, and Facebook Messenger (not in that order) are four of the six-most-visited platforms in the world. We're talking about a company that can double its sales between 2019 and 2023, yet is only valued at roughly 11 times Wall Street's estimated cash flow for 2023.
Facebook can be bought hand over fist with confidence by Robinhood investors.