One of the wildest years in history for the market is nearing an end. Unprecedented volatility caused by the coronavirus disease 2019 (COVID-19) sent the benchmark S&P 500 screaming lower by 34% in less than five weeks during the first quarter. Investors have since enjoyed a virtually unstoppable nine-month rally in equities.
If 2020 has taught the investment community anything, it's that buying revolutionary stocks is a smart way to navigate heightened volatility. Companies that offer game-changing products and services can more often outperform in any economic environment.
If you have $500 to spare right now, the following three revolutionary stocks would be perfect for opportunistic long-term investors.
I don't know about you, but when I think of innovation, healthcare stocks come to mind. Over the past couple of decades, we've witnessed incredible advancements in drugs and devices to treat previously untreatable diseases. The upcoming decade will feature plenty of ongoing innovation on the precision medicine front, with Teladoc Health (TDOC 0.05%) leading the way.
As the company's name implies, Teladoc is the leading provider of telemedicine services in the United States. The pandemic has been an unquestioned boon for the company. Virtual visits more than tripled from the prior-year period in each of the past two quarters. I don't want to give the impression that Teladoc was a slouch prior to the COVID-19 pandemic, though. From 2013 to 2019, annual revenue growth averaged 74%.
The beauty of the telemedicine model is that everyone comes out a winner. It's exceptionally convenient for the patient, who doesn't have to leave their home. It presumably allows physicians to fit more patients into their consultation schedule. Health insurers love virtual visits, too, because they're usually billed less for them than office visits.
Equally exciting is Teladoc's now-completed cash-and-stock acquisition of applied health signals company Livongo Health. Livongo collects reams of patient data and, with the help of artificial intelligence, uses it to send its members reminders that help them lead healthier lives. Livongo had well over 400,000 diabetes members in the quarter preceding its merger with Teladoc, and had already turned the corner to recurring profitability.
The ability of Teladoc and Livongo to cross-sell their services to existing and new clients will drive growth for many years to come.
The tech sector is also well known for its innovation. The revolutionary stock that investors should be eyeing with their $500 is cloud-native cybersecurity solutions provider CrowdStrike Holdings (CRWD 0.99%).
CrowdStrike isn't a cheap company by traditional fundamental standards (about 37 times Wall Street's projected fiscal 2022 sales). But it also finds itself in perhaps the steadiest double-digit growth opportunity imaginable. No matter the size of a business or the state of the U.S. economy, cybersecurity has become a necessary service. That means highly predictable demand and cash flow for cybersecurity stocks.
What sets CrowdStrike apart is the fact that it was built in and designed for the cloud. The company's Falcon platform oversees 3 trillion events each week. It uses artificial intelligence to grow smarter at identifying threats. Interestingly, because Falcon was designed within the cloud, it's actually cheaper than on-premises security solutions and more effective at recognizing threats.
Based on CrowdStrike's fiscal third-quarter operating results, it's evident that customers are satisfied with its protection services. In Q3 2021, 61% of its customers had four or more cloud module subscriptions. That's up from just 9% in Q1 2018 (about 3.5 years ago). Falcon is built to be easily scalable, allowing CrowdStrike to rapidly grow right alongside its subscribing customers.
Finally, subscriptions generate high-margin, predictable cash flow. Though CrowdStrike is still in the very early stages of its growth phase, it's already hit its long-term subscription gross margin target of 75% to 80%.
Like CrowdStrike, Square is an expensive stock. Investors are paying more than 200 times Wall Street's forecast earnings for 2021, and close to 8 times sales. That's historically pricey for a financial services company. Thankfully, Square isn't your typical financial services stock.
Square is best known for its seller ecosystem, which has been in place for nearly a decade. This segment provides point-of-sale solutions to small businesses, as well as analytic tools. In return, Square generates revenue by collecting merchant fees on the gross payment volume (GPV) traversing its network. Between 2012 and 2019, this GPV catapulted from $6.5 billion to $106.2 billion. Though GPV will likely decline in 2020 due to the pandemic, its compound annual growth rate of 49% between 2012 and 2019 suggests it'll pick right back up where it left off in 2021.
It's worth pointing out that Square's seller ecosystem has been surprisingly effective at attracting larger merchants in recent years. Merchants with an annualized GPV of at least $125,000 accounted for 61% of total GPV in Q3 2020. Since this is a merchant fee-driven business, bigger companies utilizing the platform should mean big bucks for Square.
Of course, it's Square's peer-to-peer payment platform, Cash App, that's generating most of the buzz. With millennials and Generation Z pushing for increased digital payment options, Cash App has seen its monthly active user base soar (7 million at the end of 2017 to 30 million by mid-2020). Cash App gives Square many ways to collect revenue -- payment transfer fees, merchant fees, investments, and bitcoin exchange. It should become the company's leading driver of gross profit in 2021.