Last year, the promise and fear surrounding the coronavirus disease 2019 (COVID-19) drove volatility in the stock market. In early 2021, retail investors have become the market movers.
For roughly a month, retail investors on Reddit's WallStreetBets (WSB) chatroom have effectively worked together to pile into certain stocks. Their targets are often heavily short-sold or have penny-stock share prices. In nearly every instance, they're losing money or struggling to keep their figurative heads above water.
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News flash: There's nothing special about GameStop or Sundial Growers
Two of the most popular stocks among WSB users are video game and accessories retailer GameStop (GME +3.88%) and Canadian marijuana stock Sundial Growers (SNDL +0.70%). Although retail investors have successfully driven up the share price for both stocks, neither company is truly worth investing in.
For example, GameStop has traditionally been a brick-and-mortar gaming company. It's only recently begun pushing digital downloads. Even with e-commerce sales growing by triple digits, the company's total sales have been in freefall, and it's been losing quite a bit of money. GameStop is currently trying to close stores to reduce expenses and backpedal its way into the profit column.
Meanwhile, Sundial Growers has been drowning its investors in new share issuances. Following the exercising of 98.3 million warrants last week, the company has ballooned its outstanding share count by over 1.1 billion since the end of September 2020. Sundial might have close to $680 million in cash on its balance sheet, but its roughly 1.66 billion outstanding shares make it virtually impossible for the company to ever generate any meaningful earnings per share.
The simple fact is that neither company is game-changing or all that innovative.
These stocks are the real deal
If you want investments that offer game-changing, sustainable returns, you should consider buying the following three stocks right now.
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Intuitive Surgical
For the past two decades, robot-assisted surgical system developer Intuitive Surgical (ISRG +0.10%) has been changing how the healthcare industry approaches soft tissue surgeries. Since the beginning of the century, nearly 6,000 of its da Vinci surgical systems have been installed worldwide, which is far more than all of its competitors combined. Intuitive has developed two decades' worth of rapport with medical providers, making it the clear leader in precision-based soft tissue surgeries.
Da Vinci is currently the market share leader in urology and gynecology procedures. However, a much larger runway lies ahead for Intuitive Surgical's top-selling device. In particular, it's expected to gobble up share in colorectal, thoracic, and general soft tissue procedures throughout the decade.
Arguably the best thing about Intuitive Surgical, from an investing standpoint, is that it's built to generate beefier margins over time. Its da Vinci systems are pricey ($0.5 million to $2.5 million each), but they're also costly to build, leading to mediocre margins. Intuitive Surgical generates the bulk of its operating margin from selling instruments and accessories with each procedure, as well as servicing its systems. Put simply, the more systems installed, the higher the percentage of sales from these higher-margin segments.
With Intuitive Surgical not done on the innovation front and regularly introducing new technologies to improve patient care, it should continue to offer double-digit growth potential throughout the decade.
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Square
Another game-changing company that should be bought hand over fist is fintech stock Square (SQ 0.59%). The War on Cash is real, and Square should be a prime beneficiary.
Square's most profitable platform (from the perspective of gross profit) is its seller ecosystem, which provides point-of-sale devices and other analytics tools to businesses. In the previous seven years leading up to the coronavirus pandemic, the gross payment volume (GPV) on Square's seller ecosystem grew by an average of 49% per year.
Though the small businesses have traditionally dominated the seller ecosystem, Square notes that larger merchants, as measured by annualized GPV, are beginning to flock to its payment network. In the third quarter, merchants with at least $500,000 in annualized GPV accounted for 31% of total seller ecosystem GPV. That's up from 24% in the prior-year quarter. Since merchant fees drive this operating segment, bigger clients mean juicier gross margins for the company.
But beginning in 2021, it's likely that we'll see digital peer-to-peer payment platform Cash App lead in the gross profit department. Cash App allows the company to generate revenue from purchasing activity, bank transfers, investments, and even Bitcoin exchange. Cryptocurrency trading could be a serious long-term growth driver for Cash App.
Keeping in mind that this write-up comes before Square released its fourth-quarter operating results, the company has also more than quadrupled the number of monthly active Cash App users over the past three years. Square is an innovator in the finance space you're going to want to own.
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Okta
A third game-changing growth stock you can confidently buy right now is cybersecurity stock Okta (OKTA 0.40%).
Just as we think of electricity and water as essential services for our homes, cybersecurity is a basic need for businesses of all sizes. It doesn't matter how the economy is performing; hackers and robots are always after enterprise and consumer data. As more businesses push online and into the cloud, demand for this protection is increasingly going to fall on third-party providers like Okta, which specializes in identity verification.
Okta is special because its cloud-native solutions rely on artificial intelligence (AI). Being built in the cloud, Okta can respond to and identify threats faster than most on-premises security solutions. With the help of AI, its solutions are growing smarter all the time at identifying threats and keeping enterprise data safe.
Investors will love that 95% of Okta's revenue comes from subscriptions. The subscription-based protection model provides transparent and predictable cash flow, exceptionally high margins, and improvements to the company's already robust client retention rate.
Also, Okta's suite of solutions is designed to scale with its clients' needs. As more of its customers purchase additional services or upgrade their existing identity verification subscription, Okta's margins will climb.
