This has been a trying year for Wall Street and the investment community. Though volatility is always present in the stock market, the swings we've witnessed this year are far beyond historical norms. For instance, the uncertainty caused by the coronavirus disease 2019 (COVID-19) initially sent the benchmark S&P 500 lower by 34% in less than five weeks. For some context, it's taken the S&P 500 an average of 11 months to decline 30% during previous bear markets.
But not all assets have been clobbered by COVID-19 concerns. The most popular cryptocurrency on the planet, bitcoin, has been virtually unstoppable this year. By the early afternoon of Wednesday, Nov. 18, bitcoin was up 148% on a year-to-date basis, which is considerably better than the year-to-date return of 10% for the broad-based S&P 500.
Why the resurgence for bitcoin? There's no obvious answer. With bitcoin not being tethered to a fiat currency or having traditional fundamental metrics that can be critiqued by investors, its price movements are almost always driven by emotions.
What I can comfortably say is that bitcoin is a potentially dangerous (if not terrible) long-term investment. The market value of all bitcoin currently circulating is $328.3 billion, which pales in comparison to global gross domestic product of $81 trillion in 2017. What's more, around 40% of all bitcoin holders aren't using their digital tokens -- they're simply sitting on them for investment purposes. This means bitcoin's utility is minimal in the real world. Broader-based adoption at the retail level is extremely unlikely.
Bitcoin also lacks scarcity. Whereas physical materials like gold can be truly scarce (i.e., we can only mine the gold we find on Earth), bitcoin's perceived scarcity is a product of software programming. It can, in theory, have its token count increased.
I strongly believe investors should ditch bitcoin and put their money to work in innovative growth stocks. These companies have tangible fundamentals, substance behind their financial reports, and real products.
Here are three growth stocks that can run circles around cryptocurrency.
It might not be the fastest-growing industry this decade, but there's little doubt that cybersecurity is going to be the safest double-digit growth trend of the 2020s. That's why cloud-native cybersecurity stock CrowdStrike Holdings (CRWD -3.95%) is a much smarter long-term investment opportunity than bitcoin.
Cybersecurity is now a basic-need service. Hackers and robots don't care if the economy is in a recession or if a business is struggling. With the pandemic forcing businesses online and, in many instances, into the cloud, those businesses have no choice but to seek out on-premises or third-party security solutions to protect sensitive data.
Built within the cloud, CrowdStrike's Falcon platform is considerably cheaper than on-premises cloud-security solutions. It also happens to be faster and smarter at detecting threats. That's because Falcon leans on artificial intelligence to evaluate more than 3 trillion events each week.
The beauty of CrowdStrike's subscription-based model is that it's designed to scale with its clients' growth. Back in the fiscal first quarter of 2018, a mere 9% of the company's clients had subscribed to four or more cloud modules. But by the fiscal second quarter of 2021 (13 quarters later), 57% of its clients had four or more cloud module subscriptions. Scalability and increased spending by existing clients enabled CrowdStrike to reach its long-term adjusted subscription gross margin target of between 75% and 80%.
Cybersecurity looks to be a surefire winner for patient investors, and CrowdStrike should be one of the top performers within the industry.
U.S.-focused marijuana stocks also have a good chance at outperforming emotionally driven cryptocurrencies like bitcoin over the long run. I'd suggest investors consider multistate operator Cresco Labs (CRLBF 0.60%).
Though it's listed on the over-the-counter (OTC) exchange and not a major U.S. exchange, don't be alarmed. Cresco can't uplist to a major exchange only because cannabis is illegal at the federal level. While OTC-listed stocks don't have the best reputations, Cresco is the exception to that rule.
The first of two operating models that will drive Cresco Labs' growth is its retail operations. Nearly half of its operational dispensaries are located in Illinois. The Land of Lincoln opened its doors to recreational weed sales on Jan. 1, 2020, and should become a market capable of more than $1 billion in annual sales by 2024.
The second and arguably more exciting opportunity for Cresco is its wholesale segment. In January 2020, Cresco acquired Origin House in an all-share deal. Whereas most pot stock deals were about capacity, this buyout was about Cresco Labs getting its hands on Origin House's cannabis distribution license in California. The completion of this deal meant Cresco could place its products into more than 575 dispensaries throughout the most lucrative state for weed sales in the country. In the recently ended third quarter, Cresco racked up an industry-leading $90.5 million in wholesale revenue.
With a real shot at hitting recurring profitability in 2021 and perhaps topping $1 billion in sales by 2022 or 2023, Cresco Labs is a much smarter buy than bitcoin.
Megacap stocks can be growth stocks, too. Just because social media kingpin Facebook (META) has a $775 billion market cap doesn't mean its growth rate has slowed to a crawl. In fact, I'm pretty confident that Facebook can run circles around bitcoin.
Facebook ended September with 2.74 billion monthly active users and 3.21 billion family monthly active people, up about 40 million and 70 million from the end of June, respectively. These family plans include other owned sites, such as Instagram and WhatsApp. Advertisers fully understand that there isn't a platform on this planet that gets them more targeted eyeballs. This gives Facebook exceptional ad pricing power, even during a pandemic.
Facebook hasn't even played its full deck of cards yet. It's monetizing Facebook and Instagram via ads, but not Facebook Messenger and WhatsApp. These are four of the six most-visited social platforms in the world, and Facebook has only tapped the keg, so to speak, on two of them. There's real opportunity for Facebook to double its sales and cash flow over the next four years if it introduces ads or revenue channels on WhatsApp or Facebook Messenger.
The company also has opportunities to expand its revenue base. For now, ads comprise 99% of Facebook's sales. However, Facebook has avenues to expand into the payment space, or it could become a popular content streaming destination in coming years.
The choice between owning bitcoin and Facebook stock is a no-brainer: Facebook all the way.