It's no secret that the best way to generate wealth is putting your hard-earned money to work buying stock in quality companies and holding that stock for years, if not decades. Merely earning the returns generated by the major benchmarks or even index funds will easily trounce the rates offered by most savings accounts and certificates of deposit -- or stuffing your money under a mattress.
Yet investors willing to do just a little more homework can get far better returns than the averages, which can really add up over the course of years and decades, due to the joy of compounding interest. One way investors can improve their chances of success is to find the biggest, most unstoppable secular trends around, find the companies at the forefront of these shifts, buy their stocks, and let the power of time do the rest.
However, there are more overarching trends out there that investors can profit from. Let's look at three megatrends and seven stocks that have the potential to generate significant gains over the coming year -- and beyond.
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1. Digital payments
Online payment methods are nothing new, but after working in virtual obscurity for years, digital payments are finally getting their day in the sun. The advances of financial technology (fintech) and the accelerating adoption of e-commerce caused by the pandemic have combined to fuel the rise of digital payments like never before.
When it comes to digital payments, PayPal (PYPL 0.01%) is the granddaddy of them all, born during the dot-com boom of the late 1990s, while also surviving the dot-com crash that followed. In the ensuing years, the company has gone from a simple online payment method to a leading provider of digital payments, mobile wallets, and other financial technology. PayPal's Venmo app is the company's crown jewel and is frequently cited among the most popular and widely used peer-to-peer (P2P) payment systems. The app began as a way to send money between friends or split a restaurant or takeout check, but it has evolved into a full-service fintech ecosystem.
PayPal's revenue grew 25% year over year in the third quarter, while net income jumped 121%. It also marked the second consecutive quarter of record results. In fact, over the preceding two quarters, PayPal has added 36.5 million new user accounts, more than it added in all of 2019.
PayPal's not the only way to play the digital payments revolution. The new kid on the block and heir apparent is Square (SQ +2.01%). The company began with the development of its namesake square payments dongle for mobile devices and has evolved and come into its own as a world-class family of fintech products and services.
In the third quarter, Square's net revenue jumped 140% year over year on the back of soaring bitcoin transactions. Excluding the bitcoin-bump, revenue climbed 25%. At the same time, net income increased by 28%. The headliner, however, was the rapid adoption of Square's Cash App. Engagement has increased, as Cash App customers have adopted multiple products and the number of Cash App customers has nearly doubled over the past year.
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2. Digital advertising
Cord-cutting is accelerating. The biggest pay-TV providers shed 4.9 million subscribers in 2019, a 210% increase year over year, marking the largest single-year decline in cable TV history, according to a report by Leichtman Research Group. One of the consequences of this wholesale defection away from traditional broadcast and cable TV is the need for marketers to reach an increasingly fragmented audience across a variety of platforms, increasing the demand for digital advertising.
One company that has proved particularly adept at reaching consumers where they live is The Trade Desk (TTD 1.56%). The company uses a cutting-edge platform that is capable of 12 million ad impressions and quadrillions of permutations each second, using data-driven insights to ensure its ads find the right audience.
The Trade Desk's omnichannel approach continues to drive growth. Revenue climbed 32% year over year in the third quarter, but even that masks the massive increases in several of the company's high-growth channels. Ad spend in the connected TV segment grew 100% year over year, while the mobile video and audio segments each grew 70%. This is a testament to the company's ability to target the consumer most likely to act on the ad.
Another major player in digital advertising space, which might seem out of place at first glance, is Roku (ROKU +0.07%). While the company is known for its dominant streaming platform, Roku has significant overlap in the area of digital advertising.
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Because of its audience reach, which recently topped 51 million active accounts, Roku negotiates a cut of the advertising inventory that appears across its platform, but it doesn't stop there. The company keeps all the proceeds for ads that appear on The Roku Channel, as well as on its home page. It also takes a cut of any subscriptions sold on its platform. It bears noting that Roku acquired adtech platform DataXu in late 2019 to boost its advertising capabilities.
Business is booming. While Roku's revenue grew 73% year over year in the third quarter, its platform revenue grew even faster. The segment, which includes advertising, The Roku Channel, and licensing of its smart TV operating system, grew 78% year over year and accounted for roughly 71% of the company's total revenue.
One digital advertising stock that might fly under the radar of most investors is Magnite (MGNI 2.83%). The company was born of the merger between Telaria and The Rubicon Project earlier this year. While The Trade Desk works on the demand side, buying available advertising, Magnite works on the sell-side, selling ad space. At a roughly $3 billion market cap, the company is much smaller than The Trade Desk, which tops out at $38 billion. What it lacks in size, however, it makes up for in ambition.
Magnite is focused on the emerging and lucrative connected TV (CTV) market to make its fortunes, though it also makes money on desktop, mobile, and audio ads. Revenue grew 62% year over year in the third quarter, while CTV revenue climbed 51%. As a small player, Magnite is riskier, but could also result in greater gains.
Digital advertising is already an enormous market, but its growth continues unabated. After cresting $325 billion in 2019, worldwide digital ad spending is expected to top $526 billion by 2024. That ongoing migration to digital advertising should continue to drive The Trade Desk, Roku, and Magnite higher in the months and years to come.
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3. Precision/personalized medicine
The trend toward more personalized medical care was already gaining steam in recent years -- even before the advent of the pandemic. The use of telehealth and virtual care increased by more than 100% between 2016 and 2019, and roughly 28% of physicians have added this approach to their medical bag, according to a study released by the American Medical Association (AMA). At the same time, the treatment options resulting from gene-editing technology have the potential to revolutionize personalized medicine.
Teladoc Health (TDOC 2.21%) is the global leader in virtual care, providing app-based visits between patients and medical professionals, allowing them to forego the trip to the doctor's office. The company's recent acquisition of Livongo Health expands its reach by helping patients manage their chronic conditions with the help of connected devices. These conditions include diabetes, hypertension, weight management, diabetes prevention, and behavioral health. By lowering medical costs and improving quality of life, it's truly a win-win.
We've yet to see the freshman quarter of consolidated results, but both healthcare companies were generating triple-digit percentage revenue growth, as well as triple-digit percentage growth in patient enrollments, in the most recent quarter.
CRISPR Therapeutics (CRSP 3.49%) is another company providing groundbreaking technology in the area of personalized medicine. The company and its partner, Vertex Pharmaceuticals (VRTX 0.64%), have already shown the utility of CRISPR's flagship gene-editing technology -- CRSPR-Cas9. CRISPR released the safety and efficacy data for the first two patients treated with its lead pipeline candidate -- CTX001 -- in late 2019. The early-stage study targeted two rare blood diseases, beta thalassemia and sickle cell disease, and the results were encouraging. Subsequent studies involving more patients suggest that CTX001 could potentially cure these diseases.
CRISPR also plans to begin testing its revolutionary gene-editing therapy on a number of other conditions, including diabetes, various cancers, and a host of inherited diseases. It's important to note that if any of these trials flop, CRISPR's stock could come crashing down.
