For many investors, much of the past year has been a roller-coaster ride. But for cryptocurrency investors in bitcoin, it's been a fun one.
Over the trailing year, through Jan. 23, bitcoin rose by a cool 280% -- a return that's nearly 17 times greater than what the benchmark S&P 500 delivered over the same period. Crypto enthusiasts continue to be enamored with the perceived scarcity of bitcoin (only 21 million tokens will be mined), its growing utility with merchants, and the game-changing potential that its blockchain offers to expedite the settlement of payments, especially overseas.
But many of these catalysts are actually fundamental flaws for bitcoin. For instance, its token count is only limited by community consensus and not anything truly tangible. What's more, only 2,300 businesses in the U.S. accept bitcoin as a form of payment, according to Fundera. That's out of 7.7 million businesses with at least one employee.
Rather than buying into what I view as the most dangerous investment of 2021, investors should consider putting their money to work in the following three unstoppable stocks. All of these companies offer innovation and tangible growth potential that can crush bitcoin in 2021 (and probably well beyond).
Image source: Getty Images.
Square
If the digital payments revolution excites you, fintech stock Square (SQ +2.43%) is where you'll want to put your money to work. Square is one of the prime beneficiaries of the coronavirus crisis, but this company was rapidly growing well before the pandemic hit.
Square's most mature operating segment is its seller ecosystem. This is what provides point-of-sale solutions and analytic tools to businesses to help them grow. Prior to 2020, this ecosystem saw the amount of gross payment volume (GPV) traversing its networks grow by an average of 49% annually to $106.2 billion. Merchant fees drive this operating segment, meaning more GPV will yield higher revenue and improved gross profit.
What's interesting about this foundational growth piece for Square is that it's no longer just for small businesses. By the end of September 2020, 61% of all GPV in the seller ecosystem came from companies with an annualized GPV of at least $125,000. By Square's definition, that's a medium or large business. If Square is able to continue attracting bigger merchants onto its platform, the seller ecosystem can sustain double-digit growth.
The even faster-growing segment for Square is peer-to-peer payment platform Cash App. In 2.5 years, Cash App's monthly active user count more than quadrupled to 30 million. Further, Cash App downloads have been regularly outpacing PayPal's Venmo.
The beauty of Cash App is that it engages the next generation of banking customers (millennials and Generation Z) while giving Square many ways to generate revenue. Aside from merchant fees, Cash App can generate sales from bank transfers, investments, and yes... even bitcoin exchange. No matter what happens to bitcoin, Square is getting richer because of trading surrounding the world's largest cryptocurrency.
Image source: Getty Images.
Lovesac
If small-cap stocks are more your thing, modular furniture designer and retailer Lovesac (LOVE 4.06%) is the company for you. That's right, a furniture company is going to outpace the mighty bitcoin in 2021.
The first thing to realize about Lovesac is that it isn't your run-of-the-mill furniture company. It primarily sells sactionals -- modular couches that can be rearranged a multitude of ways to fit a consumer's livable space -- and sacs, which are beanbag chairs. Around 81% of net sales are derived from sactionals.
There are over 250 different machine-washable covers for sactionals that can be ordered to match customers' needs. Additionally, the yarn used in the sactional covers is made from recycled plastic water bottles. If eco-conscious investing is in your blood, you're going to love this company.
There's more to like about Lovesac than the choices it provides its customers and its eco-friendly operations. For example, Lovesac runs a considerably lower overhead operating model than many of its peers. Aside from pop-up showrooms, the company has leaned heavily on direct-to-consumer sales during the pandemic. Without the cost of having hundreds of physical showrooms, Lovesac's low overhead translates into higher operating margins.
Navigating its way through the worst economic recession in decades, Lovesac is likely to have delivered a full-year profit in 2020. That's two years ahead of when Wall Street expected the company to turn the corner to recurring profitability. Relative to its rapid sales growth and innovation, Lovesac is still cheap.
Image source: Getty Images.
Cresco Labs
Another high-growth industry with tangible potential that can crush bitcoin in 2021 is cannabis. Specifically, U.S. multistate operator (MSO) Cresco Labs (CRLBF +7.53%) has all the tools needed to deliver the green to investors.
Marijuana investors are excited about the fact that Democrats control the White House and Congress, which means the prospect of passing federal cannabis reforms is now greater than ever. However, Cresco Labs doesn't need anything to happen at the federal level for its business to thrive.
Like most MSOs, Cresco Labs has established a retail presence. It currently has 20 open dispensaries, 10 of which are located in Illinois. The Land of Lincoln, which opened its doors to adult-use weed sales on Jan. 1, 2020, is a limited license state. This means it's only going to issue a certain of number of retail licenses. With Cresco maximizing its presence in this potential billion-dollar market (a maximum of 10 stores), it should be assured of significant share.
But unlike most MSOs, the most exciting aspect of Cresco's operations has to do with its wholesale segment. Since retail typically leads to higher margins than wholesale, most pot stocks tend to prefer the retail route. Thankfully, Cresco Labs has a trick up its sleeve.
In January 2020, Cresco acquired Origin House, which is one of only a handful of companies that held a cannabis distribution license in California -- the largest marijuana market in the world by annual sales. With this license in hand, Cresco was able to place pot products into more than 575 dispensaries throughout the state. Even if wholesale is a lower-margin venture, Cresco has more than enough volume in the Golden State to make it worthwhile.
Look for Cresco Labs to blaze past bitcoin in 2021.
