As an investor, it's very exciting to find stocks that are growing like mad and yet are still cheap.
For instance, Silvergate Capital (SI 30.44%) is up 148% in 2020. That's very exciting. And I'm buying more shares on the way up. Another one is fuboTV (FUBO 2.30%), which is up 196% since the start of the year. I have to wait a week to buy this stock, because of Motley Fool trading rules, but you can go ahead and buy it now.
Read more to find out why I like Silvergate and Fubo and why these two stocks still have room to grow.
1. Silvergate Capital is the bank for cryptocurrencies
Silvergate Capital is a tiny bank in California that's been around for 30 years. Back in 2013, it was intrigued by the rise of cryptocurrencies, and it started seeking out digital currency customers. Specifically, Silvergate wanted the crypto-trading platforms, and institutional investors, to become clients.
Its growth in this area has been so spectacular that it has started phasing out all of the ordinary banking activities it has done over the past three decades and plans to focus on its 69 digital currency exchanges. These exchanges are all clients of the bank, as well as roughly 600 institutional investors who want to trade cryptocurrencies.
|2014||2015||2016||2017||2018||Q4 2019||Q1 2020||Q2 2020||Q3 2020|
|Digital currency customers||8||21||58||244||483||804||850||881||928|
Silvergate does not trade cryptocurrencies itself; it just facilitates the exchange of dollars among the companies and institutions that do. The dollars that sit in these trading accounts at the bank are non-interest-bearing accounts, which means it's effectively free money for Silvergate. In the third quarter, the company reports that $2.1 billion is sitting in these non-interest-bearing trading accounts. Silvergate makes money by loaning out this cash for interest.
Cryptocurrencies first saw dramatic growth in 2017, and Silvergate was right in the middle of it even then. At the time, the bank created the Silvergate Exchange Network (SEN), a virtual, real-time trading exchange for the U.S. dollar that operates 24 hours a day, seven days a week. Using the SEN, all the crypto-trading platforms could move dollars around for their trading clients.
In 2019, Silvergate transferred $32.7 billion through its network, representing 296% growth year over year. The bank enjoys powerful network effects from its SEN: As more clients and institutions join the network, it becomes more and more valuable, which causes still more clients and institutions to want to join the network.
Growth is still fantastic. The company reports $76 billion went through the SEN in the first three quarters of 2020. Over $36 billion was exchanged in the third quarter alone, a number higher than all of 2019's transactions.
Silvergate is a small-cap stock with a market cap of $740 million. The bank has a 25% profit margin. Revenue growth is choppy, as the bank's fortunes wax and wane with the growth of cryptocurrencies. Competition might show up, as JPMorgan Chase (JPM -1.74%) has been making noises about entering this space. Yet early first-mover advantage, and the network effect, should protect Silvergate and the SEN. (It might even make the bank an acquisition target.) The stock is up 148% this year. Crypto is tiny right now, but the future is bright.
2. FuboTV is riding high as people cut the cord
One of the big market shifts happening in our world involves people dropping their cable TV subscriptions in search of alternate viewing options such as streaming video on demand (SVOD). Shareholders in two companies -- The Trade Desk and Roku -- have been benefitted greatly from this phenomenon. Now, a tiny company is showing the potential to become another super-stock because of this shift: fuboTV.
FuboTV provides traditional cable television programming over the internet. Do you want ESPN? Fubo provides it. How about local news? Its got it. This company does the heavy lifting of providing all the television options that you used to have before you cut the cord. For $65 a month, the service delivers these popular cable channels to my home:
- WBTV (CBS affiliate)
- WCNC (NBC affiliate)
- Fox Sports 1
- NBC Sports network
- NFL network
- E! entertainment
- Fox News
- ABC News Live
- Disney channel
- BBC America
- Discovery Channel
There are a bunch of other channels on the service as well. Hulu, owned by Walt Disney, would be considered a competitor. With Hulu, you can stream TV cheaply, and pay extra for subscriptions to additional Disney and ESPN networks. The Hulu offer is not a bad deal. But with FuboTV, you have more widespread coverage.
Right now, the popularity of FuboTV is coming from subscribers who are sports fanatics. The company started off providing international soccer to people who were cut off from watching their home teams play. From there, the company expanded into football, basketball, hockey, and baseball. And then it added live news, plus other channels to recreate the cable TV experience for a cheaper price.
FuboTV is seeing fantastic growth. In the most recent quarter, subscribers are up 64% from this time last year, and ad revenue jumped 153%. And so the stock has tripled from the IPO price.
Yet the company is still cheap. Its price-to-sales ratio is nine, about the same as Netflix. Fast-growers like FuboTV usually have a higher P/S multiple. For instance, Roku has a P/S ratio of 26, and The Trade Desk is selling for 61 times revenue.
Why I'm buying
These companies are small-cap companies right now. Silvergate is highly profitable, and FuboTV is growing like a weed. Their long-term upside is huge.