Investing in 2020 hasn't been easy. Whether you're a relatively new investor or have been putting your money to work in the market for decades, you were taken on a historic ride in the first quarter.
But not all stocks have given their shareholders indigestion in 2020. Electric-vehicle (EV) manufacturers have been red-hot, with China-based NIO (NIO 0.28%) leading the charge (pun intended). Through Dec. 7, NIO has returned more than 1,020% on a year-to-date basis.
EV manufacturer NIO is up by quadruple digits this year
Why NIO? EVs are the future of the auto industry, and NIO is focusing on the largest auto market in the world (China). Over the past two quarters, NIO's aggregate deliveries for its premium EV SUVs have totaled roughly 22,500 -- more EVs than the company delivered in the entirety of 2019. Investors are clearly excited about the company's accelerating sales and vehicle margins, as well as its opportunistic battery-as-a-service program that's designed to improve brand loyalty.
But there's another side to this story. At $61 billion, NIO's market cap is essentially as large as General Motors' (GM 1.37%). GM has over a century of history behind it, is almost always profitable, and cranks out millions of vehicles each year. The storied automaker has also pledged $27 billion through 2025 for EVs and autonomous vehicles. In other words, despite their nearly identical valuations, NIO is a fly on the windshield compared to General Motors.
Increasing competition in China is also worrisome for NIO. While there's no question China can be a huge market for EVs, NIO will be one of many manufacturers in the region. Historically, making automobiles is a capital-intensive, low-margin, and easily disrupted business model. NIO's EV focus doesn't change decades-old industry dynamics.
If you're after serious growth stocks with plenty of upside potential, I suggest forgetting about NIO and buying the following three hypergrowth companies instead.
CrowdStrike's Falcon platform was built entirely within the cloud to protect enterprise data. The beauty of its cloud-native platform is that it's more cost-effective than on-premises network protection. Further, Falcon is evaluating north of 3 trillion events each week with the aid of artificial intelligence. It's become smarter at identifying potential threats, which is a key reason the company's customers are so loyal to CrowdStrike's solutions.
As a testament to this loyalty, CrowdStrike's third-quarter operating results showed a 124% dollar-based net retention rate, suggesting that its customers are continuing to spend more. Also, 61% of its clients had four or more cloud module subscriptions in the fiscal third quarter. That's up from just 9% 3 1/2 years ago. CrowdStrike's subscription revenue wouldn't be doubling or nearly doubling every year if the company weren't satisfying its customers' needs.
With cloud spending expected to skyrocket in the years ahead, it wouldn't be surprising to see CrowdStrike's sales double every three years.
If you want an industry with hypergrowth potential that can deliver recurring profits well before NIO, take a gander at U.S. marijuana stocks -- and, more specifically, multistate operator Cresco Labs (CRLBF -1.88%).
Cresco has two avenues to grow its cannabis empire. First, it will lean on retail stores to drive growth. Cresco holds 29 total dispensary licenses and 19 operational retail locations. Of these 19 stores, roughly half are in the limited license state of Illinois. That means the Land of Lincoln will only issue a set number of dispensary licenses throughout the state. Assuming analyst estimates are correct and Illinois pushes north of $1 billion in full-year weed sales by 2024, Cresco should have no trouble gobbling up a healthy share of this market.
Cresco Labs' wholesale business is even more exciting. Although wholesale cannabis revenue is generally lower-margin than the retail side of the equation, volume is definitely on Cresco's side. In January, it completed the acquisition of Origin House in an all-stock deal. Origin House is one of a few companies that hold a cannabis distribution license in California, the most lucrative pot market in the world. By purchasing Origin House, Cresco gained access to more than 575 dispensaries throughout the Golden State.
On track to more than triple its full-year sales in 2020, Cresco should turn the corner to recurring profitability in 2021.
Another hypergrowth stock with incredible paw-tential is companion pet health insurer Trupanion (TRUP -0.37%).
You'll never want to bet against the companion pet industry. Between 1988 and 2020, the number of U.S. households with a pet increased by 11 percentage points to 67%. Today, an estimated 84.9 million households own a companion pet. Most pet owners view their pet as a member of their family and will spend big bucks to ensure their well-being. U.S. pet expenditures have never declined on a year-over-year basis during the past quarter-century.
Yet few pet owners have a health insurance policy on their four-legged family members. Trupanion has only penetrated between 1% and 2% of the North American companion animal market. That's both disappointing and a massive long-term opportunity. With steady subscriber growth in the double digits, Trupanion has an opportunity to deliver superior and sustainable long-term growth.
Despite increasing competition, Trupanion has also spent the past two decades building rapport with veterinarians and pet clinics. These relationships are highly valuable and essential to building up Trupanion's subscriber base at the grassroots level.
Though insurance is traditionally a slow-growing business model, look for Trupanion to double its full-year sales by 2024.