The stock market had an unprecedented year in 2020, putting up better-than-average gains while facing down a global pandemic. The S&P 500 added more than 16% last year, but the tech-heavy NASDAQ was the big winner, soaring nearly 44%. Some of the biggest technological trends came clearly into focus last year, as streaming video, cloud computing, and telemedicine gained legions of converts.
So far this year, however, investors have been buying stocks that they believed would benefit from the recovery, rotating out of many tech stocks in the process. This has left plenty of bargains among these high-growth stocks in categories that combine best-in-class products and services, huge tailwinds, and large addressable markets. Finding companies with that trifecta of drivers could ultimately help boost your fortunes.
Let's look at three businesses that meet these lofty criteria and could make you richer in April and beyond.
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Roku: At the crossroad of streaming video and digital advertising
Roku (ROKU -3.05%) was one of the standout performers of 2020, gaining 148% for the year, yet given its industry-leading position, the opportunity ahead remains vast for the streaming pioneer.
While the company is best known for its streaming boxes and plug-in devices, Roku has a secret weapon. The company created a smart TV operating system (OS) from scratch, which is licensed by a growing number of TV manufacturers. As a result, it's now the most popular smart TV OS in North America, found in 38% of TVs sold in the U.S. and 31% of those sold in Canada.
A look at the company's fourth-quarter results shows that strategy is bearing fruit. Total revenue grew 58% year over year, but that tells only part of the story. Roku sells its players at or near cost to expand its ecosystem. The company's platform segment, which includes digital advertising, The Roku Channel, and the Roku OS, grew 81%, its highest rate of growth in nearly two years. At the same time, its average revenue per user (ARPU) increased 24% and engagement climbed, as streaming hours jumped 55%. Viewers spent 17 billion hours using Roku-enabled devices in Q4, or roughly 3.5 hours per day glued to the platform.
Because Roku straddles several categories, it's difficult to pin down just how big the company's total addressable market is. It competes with the traditional (linear) television advertising market and streaming device makers such as Amazon's (AMZN -2.56%) Fire TV -- which Roku overtook to close out 2020 -- but the company's biggest opportunity is digital advertising.
Analysts at Left Brain Research crunched the numbers and concluded that Roku's total addressable market (TAM) was $535 billion in 2019 and is projected to grow to $769 billion by 2024. Roku's total revenue last year was $1.78 billion, which illustrates the massive opportunity that remains.
It doesn't hurt that the stock is selling at a 20% discount to its recent highs.
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NVIDIA: At the intersection of gaming, AI, and cloud computing
The events of the past year have proven beyond any doubt that cloud computing is here to stay. What many investors may not realize is that artificial intelligence and cloud computing are inexorably linked. Every major cloud provider layers its offerings with artificial intelligence (AI) to help companies analyze and manage their data. The sophisticated algorithms inherent in AI help recognize patterns that might otherwise be missed.
NVIDIA (NVDA -10.01%) is best known for its best-in-class graphics processing units (GPUs). Parallel processing, or the ability to handle a host of complex mathematical calculations simultaneously, has made it the gold standard, favored by serious gamers. That's not all. It turns out that the same processing capability that renders lifelike images in games also makes GPUs a natural when it comes to cloud computing and AI.
That's why NVIDIA GPUs are the top choice of nearly every major cloud provider. This includes Amazon's AWS, Microsoft's Azure Cloud, Alphabet's Google Cloud, International Business Machines' IBM Cloud, and Alibaba Cloud -- and that's just the big dogs. The lightning-quick processing speeds make NVIDIA GPUs a no-brainer for the legions of smaller data centers worldwide.
This was clear in NVIDIA's fourth-quarter results. Gaming revenue still dominates, growing 67% year over year and bringing in half the company's total revenue. At the same time, the data center segment, which includes AI, cloud computing, and data center revenue, grew 97% year over year and now accounts for 38% of the total.
That could just be the beginning. NVIDIA management estimates its addressable market will total $250 billion by 2023. NVIDIA generated $16.68 billion last year, which helps illustrate the magnitude of the opportunity that remains.
While NVIDIA gained 123% last year, its stock had recently fallen as much as 23%. Investors have started to wise up, however, and while the stock is still on sale, it's currently down just 8%.
Image source: Getty Images.
Teladoc: Set up shop at the corner of medicine and technology
The future of medicine came into focus last year with the accelerated adoption of virtual care, telemedicine, and connected healthcare devices. The demand for app-based doctor visits soared. That put industry-leading provider Teladoc (TDOC -1.52%) in the pole position. Now that an end to the pandemic is in sight, some investors believe the vast majority of patients will forego the ease and convenience of digital appointments in favor of a return to in-person visits. The evidence simply doesn't support that view.
Patients are embracing virtual care, and recent studies suggest that the majority will continue to do so. A survey of 2,700 patients revealed that 90% found the quality of care received during app-based video visits with their physician was as good, if not better than regular office visits, according to research conducted by Accenture. Some 60% of respondents said they planned to use telehealth solutions with even greater frequency in the future to communicate with their healthcare providers and manage chronic conditions.
Teladoc's results paint a compelling picture. Revenue grew 98% in 2020, while total patient visits surged 206%. While the bottom-line results were muddled by acquisition-related costs and income tax complications, the company's adjusted EBITDA increased 298%.
The recent acquisition of Livongo Health puts Teladoc at the forefront of another booming trend: the use of connected devices to manage chronic conditions. With more than 147 million patients with at least one chronic condition, dealing with them regularly can be time-consuming and expensive. By providing timely reminders and hints via connected devices and apps, patients enjoy an improved quality of life. The process also reduces the cost of healthcare, which benefits insurers, creating a true win-win.
The combined addressable market of Teladoc and Livongo tops out at more than $64 billion. When taken in the context of the $1.09 billion in revenue Teladoc delivered in 2020, it illustrates the long runway for growth ahead.
Teladoc shares soared last year, gaining 139%. Right now, however, long-term investors can pick up shares at a significant discount. Teladoc got caught up in the rotation out of tech stocks and is down 40% over the past two months -- on no company-specific news.
Data by YCharts
You get what you pay for
It's important to note that these three high-flyers aren't cheap in terms of traditional valuation metrics, which are pretty useless when evaluating high-growth stocks. Roku, NVIDIA, and Teladoc are selling for 26, 21, and 15 times sales, respectively, when a good price-to-sales ratio for a stock is generally between one and two.
However, given the industry-leading position, secular tailwinds, and massive addressable market of each of these companies -- as well as their market-beating gains last year -- investors have been willing to pay up for the robust top-line growth and the potential that profits will grow exponentially.
