Despite record-breaking volatility in 2020, the new year seems intent on one-upping its predecessor. For a little over two weeks, members of the WallStreetBets chatroom on social news-sharing website Reddit have been banding together to take on Wall Street hedge funds and investment banks.
This group of retail investors, which stood 7.5 million strong as of Jan. 31, has been targeting stocks with high short interest -- i.e., companies where a large number of shares are held by pessimists who are angling for a stock's share price to move lower. By pushing up the share price of heavily short-sold stocks, these retail investors have created short squeezes galore.
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Through January, video game and accessories retailer GameStop (GME -3.94%) and movie-theater chain AMC Entertainment (AMC 8.23%), the poster-child stocks of this Reddit rally, were up by a respective 1,625% and 525%. But the reality is, neither company's underlying business comes anywhere close to matching its current valuation.
Without digging too far into the weeds, GameStop is busy closing physical stores to reduce its operating expenses, while AMC Entertainment is issuing shares and debt in an effort to avoid bankruptcy. Neither scenario merits a 1,625% or 525% share-price appreciation, especially when GameStop and AMC aren't guaranteed to survive over the long run.
Rather than chase these Reddit darlings, might I suggest buying the following five stocks, all of which have true 10-bagger potential this decade?
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Teladoc Health
Instead of worrying about whether your stock holdings will be around in two or three years, you could buy shares of telehealth kingpin Teladoc Health (TDOC 2.46%), which is on track to be one of the fastest-growing large-cap healthcare stocks this decade.
Although the coronavirus disease 2019 (COVID-19) pandemic helped Teladoc's virtual visit count more than triple in the second and third quarters, it's more than just a COVID-19 play. Telehealth is a win for all involved. It's more convenient for patients, allows physicians to fit more visits into their busy schedules, and generally can be billed at lower rates than in-office visits. This latter point makes telemedicine a logical go-to for health-benefit providers.
Furthermore, Teladoc Health acquired applied health-signals company Livongo Health in early November. Livongo has been consistently doubling or nearly doubling its diabetes-member subscriber count, and the company turned the corner to profitability despite only securing a little over 1% of the U.S. diabetes patient pool.
With Livongo expected to expand its services to include hypertension and weight management, and Livongo/Teladoc able to cross-sell between their networks, the patient-pool potential for the new Teladoc is huge. This is a big reason why Teladoc is the stock I'm most excited about right now.
Image source: Square.
Square
You might be under the impression that payments-company Square (SQ 1.68%) has come too far, too fast, especially with the U.S. economy still on shaky legs. But my belief is that we'll be looking back in nine or 10 years and realizing that Square was still just clearing its throat prior to liftoff.
Square's seller ecosystem should continue to be a steady source of growth and gross profit. This operating segment provides point-of-sale devices and analytics predominantly to small businesses.
Prior to the unprecedented disruption to small businesses effected by COVID-19, the gross payment volume on Square's network had grown by an annualized rate of 49% between 2012 and 2019. What's worth watching is the increasing number of medium- and large-sized businesses that are suddenly utilizing Square's seller ecosystem. As a merchant fee-driven segment, Square would gladly welcome bigger merchants.
Of course, the big buzz about Square is peer-to-peer payment platform Cash App. Although Cash App lets Square collect merchant fees and bank-transfer fees, the growth potential looks to be all about investing and bitcoin exchange. In less than three years, we've seen Cash App's monthly active user count more than quadruple to 30 million and will likely surpass the seller ecosystem in 2021 as the biggest driver of gross profit.
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Trupanion
If you want true paw-tential, forget about AMC and GameStop and buy into a feel-good growth story, like companion-animal health-insurance provider Trupanion (TRUP -0.45%).
The statistic that should have investors excited about Trupanion is the total addressable market. Only around 1% of companion pet owners in the U.S. have health insurance on their dog or cat. By comparison, companion-pet insurance rates are considerably higher overseas (e.g., 25% in the U.K.). If Trupanion can penetrate even 25% of the U.S. market, that's an addressable market worth more than $32 billion in today's dollars. Because of this low penetration rate, Trupanion should have little issue sustaining a double-digit growth rate throughout the decade.
Additionally, Trupanion has built invaluable rapport with veterinarians at the clinical level. This is a company that's been around for two decades and is currently the only companion-animal health-benefits provider in the U.S. with software enabling direct payments to veterinarians at the time of checkout. That's quite the incentive for veterinarians to suggest Trupanion coverage options.
Image source: Getty Images.
OrganiGram Holdings
The next decade should also see marijuana stocks shine. While U.S. pot stocks have a much larger runway for success, one Canadian licensed producer offering 10-bagger potential to patient investors is New Brunswick-based OrganiGram Holdings (OGI 0.53%).
OrganiGram is an interesting case, as it's the only major grower in Canada with a single cultivation facility (Moncton, New Brunswick). Having a single facility makes it a lot easier for OrganiGram to adjust its output and expenses to match prevailing market conditions. You could argue that the company's supply chain should be far more efficient, too, with everything located at a single facility. As one final note on the Moncton grow farm, OrganiGram is utilizing a three-tiered growing system in licensed rooms, which'll help to maximize yield.
Beyond just efficiency, OrganiGram has devoted a healthy portion of its product portfolio to derivatives. It purchased fully automated equipment capable of producing up to 4 million kilos of chocolate edibles each year, and the company developed a proprietary powder that can be added to beverages to speed up the timeline for when cannabinoids take effect. Derivatives offer much juicier margins than dried cannabis flower, and they'll be key to OrganiGram's push to recurring profitability.
Image source: Pinterest.
Last but not least, social media up-and-comer Pinterest (PINS 1.02%) will have folks forgetting all about AMC and GameStop.
Similar to Teladoc, Pinterest benefited in a big way from the COVID-19 pandemic. With people stuck in their homes, they spent more time than ever online. This led to a surge in monthly active users (MAU) and an acceleration in MAU growth from the previous three years.
In particular, Pinterest has been gaining the majority of its new MAUs from overseas markets. Although advertisers tend to pay a lot more to get their products in front of U.S. MAUs, the rapid increase in international MAUs should allow the company to double its average revenue per user multiple times this decade.
Pinterest is also perfectly set up to become a leading e-commerce destination. Think about it... no other social platform allows users to willingly and easily share the products, places, and services that interest them. This makes the company's MAUs the perfect targeted base for small businesses to cater to. All Pinterest has to do is keep its users engaged and ensure that small businesses have the tools necessary to turn browsers into buyers.
Forget the Reddit-rally stocks and focus on businesses with tangible potential.
