For more than a century, the stock market has been the greatest wealth creator on the planet. Despite crashes and corrections happening with fairly common frequency, the market's major indexes have handily outperformed other assets and commodities over the long run.
But things changed when Bitcoin (CRYPTO:BTC) and other cryptocurrencies made their debut. Over the past decade, it's digital currencies that have predominantly left equities eating their dust. The euphoria surrounding crypto, coupled with Bitcoin hitting a recent all-time high of nearly $65,000, paved the way for one of the most anticipated initial public offerings of the year last week: Coinbase Global (NASDAQ:COIN).
Is this the mother of all FOMO trades?
In Coinbase's own words, it's "building a cryptoeconomy" that will allow everyone access to buy, sell, and use many of the world's most popular digital currencies. At the end of the first quarter, Coinbase had 56 million verified users and was securing $223 billion in total assets. For some context, that's up from $90 billion in total assets just three months prior. It also brought in $1.8 billion in revenue in Q1 2021, which is more than the company generated in all of 2019 and 2020 combined. Maybe it shouldn't be a surprise that it ended its first week as a public company with a market valuation of $67 billion.
Then again, the risk factors Coinbase listed in its March prospectus are a veritable mile long. For instance, a majority of the company's revenue comes from trading in Bitcoin and Ethereum. If the price of and/or interest in these popular digital currencies fades, Coinbase can be adversely impacted. Take note that its annual trading revenue fell off a cliff between 2017 and 2018 -- $927 million to $520 million -- as Bitcoin declined from what was then a record high.
Coinbase is also exposed to competition and a potentially low barrier to entry. Over time, we watched as traditional brokerages undercut each other on price and eventually drove away trading commissions on stocks entirely. There's nothing to stop other cryptocurrency platforms from undercutting Coinbase's transaction fees and reducing its returns over time.
Regulation is another serious concern. As digital currencies gain in value, the likelihood of government oversight increases exponentially.
The point is this: Coinbase is nothing more than an investment in FOMO (fear of missing out). It's reliant on assets that have no financial backing and often extremely limited or nonexistent utility. Betting on investors' emotions is not something you should consider doing with your money.
Forget Coinbase: These stocks are much better buys
Instead of throwing a dart at Coinbase and hoping investors don't lose interest in cryptocurrencies, I'd suggest putting your money to work in a trio of sound companies with clearly identifiable competitive advantages. These are some of the best stocks you can buy right now.
Don't let its size fool you: Social media giant Facebook (NASDAQ:FB) is still in the early to middle innings of its growth phase. This means there's plenty of upside still to come for patient investors.
With Facebook, the proof is in the pudding. It ended 2020 with 2.8 billion monthly active users visiting its namesake site, as well as another 500 million unique visitors heading to Instagram or WhatsApp, which it also owns. That's 3.3 billion people (over 42% of the adults on planet Earth) visiting a Facebook-owned asset on a monthly basis. Advertisers wanting to reach a highly targeted or broad audience don't have a more attractive place to spend their dollars.
Now, here's where things get interesting. Even though Facebook brought in $84.2 billion in advertising revenue last year, this was almost entirely generated from its namesake site and Instagram. Neither WhatsApp nor Facebook Messenger has been meaningfully monetized as of yet. When Facebook does green-light some form of significant monetization from these extremely popular social platforms, its cash flow will soar.
Also, don't overlook Facebook's moneymaking potential beyond advertising. It's set to introduce its own cryptocurrency sometime this year, which could spur growth for Facebook Pay. It's also seen plenty of interest for its virtual reality Oculus devices.
With a 20%-plus growth rate and a price-to-earnings-growth ratio just above 1, Facebook remains a steal of a deal.
As you can imagine, 2020 was a coming-out year for this provider of virtual health services. It handled close to 10.6 million virtual visits on its platform, up from 4.14 million in 2019. As long as the pandemic is ongoing, virtual consultations will be favorable for persons at high risk of catching or spreading the coronavirus disease 2019 (COVID-19).
But here's the thing about telemedicine: It provides benefits up and down the healthcare treatment chain. It's far more convenient for patients, and it allows physicians to keep closer tabs on high-risk patients who might otherwise not be able to visit a hospital or doctor's office often. Even more important, virtual visits are billed at a lower rate than office visits, which makes telehealth something health insurers are sure to pound the table on.
Teladoc further differentiated itself in early November when it acquired leading applied health signals company Livongo Health. Livongo collects copious amounts of data on chronically ill patients and uses artificial intelligence to send nudges and tips to its members. It's signed up more than a half-million diabetes members and aims to turn its attention to patients who are hypertensive or having issues controlling their weight. In other words, Livongo's potential patient pool encompasses a large percentage of the U.S. adult population.
Teladoc has all the tools necessary to be a 10-bagger this decade.
A third stock that would be many, many times better to buy right now than Coinbase is Singapore-based Sea Limited (NYSE:SE). The beauty of Sea is that it has three extremely fast-growing operating segments.
To begin with, the company's digital entertainment division is generating the bulk of its earnings before interest, taxes, depreciation, and amortization (EBITDA). With people staying home in 2020, the company's quarterly active gaming user base grew 72% to almost 611 million. Meanwhile, its paying gamer base jumped 120% to a little over 73 million. It's pretty evident from these numbers that Sea's games are resonating with users worldwide.
But the bigger growth story here can be seen with e-commerce platform Shopee. Shopee, which is targeting emerging markets such as Southeastern Asia, South America, and Latin America, saw gross orders rise 133% to 2.8 billion in 2020, with the total value of all merchandise sales growing 101% to $35.4 billion. We've all seen what Amazon is capable of, and Sea's Shopee platform has caught the attention of Wall Street and investors.
Lastly, the company's mobile wallet segment handled $7.8 billion in payments and had more than 23 million paying users to end the year. Considering that many of the regions Sea operates in are underbanked, its digital financial services segment could be a serious moneymaker.
With sales projected to more than quadruple by 2024, according to Wall Street, Sea has all the look of a stock investors should own.