Over the very long term, no investment vehicle has been more rewarding than the stock market. Though there have been periods where commodities like gold have outperformed the broader market, it's stocks that have led to the most consistent and robust returns.
That was until cryptocurrencies came along a little over a decade ago. In that time, we've watched as high-profile digital currencies like Bitcoin (BTC -0.20%) have skyrocketed from under $1 to about $54,000 per token, as of Tuesday evening, May 4. Despite three massive drawdowns over the past decade, Bitcoin has averaged an annual return in the triple digits.
But it's not Bitcoin that's drawing most of the buzz in the crypto space at the moment. That title belongs to Dogecoin (DOGE 9.92%).
We're witnessing a telltale pump-and-dump scheme with Dogecoin
On May 4, Dogecoin blasted past its previous all-time high of $0.44, set less than two weeks prior, and pushed briefly above $0.60. That may not sound like much nominally, but it lifted Dogecoin's market cap to as much as $78 billion. For some context here, Dogecoin's market cap was larger than electric utility giant Duke Energy, South American e-commerce growth stock MercadoLibre, and about equal with auto company General Motors.
The euphoria surrounding Dogecoin looks to revolve around its lower transaction fees, relative to the big two in crypto (Bitcoin and Ethereum), increasing real-world utility, and the belief among investors that it has the "best community."
But I see things differently. When I look at Dogecoin, I see a classic pump-and-dump scheme unfolding before our eyes. If you're wondering why I'm highly skeptical of Dogecoin, here are a handful of reasons:
- Its fees aren't the lowest: Enthusiasts like to point to its lower transaction fees relative to Bitcoin and Ethereum, but fail to mention that cryptos like Nano, Stellar, Dash, Litecoin, and Ripple all offer lower transaction fees.
- It's not the most efficient network: To add to the above, Nano, Stellar, Dash, and Ripple also validate and settle payments quicker than Dogecoin.
- Extremely limited utility: Most businesses don't accept cryptocurrency -- that's a fact. But after eight years, Dogecoin has managed to wrangle up only 1,300 businesses worldwide that'll accept it as payment. Based on an estimate of 582 million entrepreneurs worldwide, Dogecoin is accepted by 0.000223% of all businesses. Not very convincing utility.
- Ongoing dilution: Approximately 5.26 billion new Dogecoin are created annually via block rewards paid out to miners. In 2021, this works out to outstanding coin inflation of a little over 4%. It's been over a decade since the U.S. inflation rate hit 4%.
- Driven by tweets: Dogecoin's primary catalyst is tweets from Tesla CEO Elon Musk. Imagine your core investing thesis being based on hoping Elon Musk tweets today or mentions Dogecoin on Saturday Night Live.
- History is its enemy: To boot, all next-big-thing investments that have gone parabolic in price always burst.
This has all the signs of a pump-and-dump asset that's going to trap unsuspecting FOMO (fear of missing out) investors.
Ditch Dogecoin for these smart stocks
Instead of putting your money to work in a literal joke of a coin, consider buying into stocks that have tangible outlooks and serve a real purpose for society. The following trio of stocks would make for much smarter buys than Dogecoin.
The first stock that would be a much smarter buy than Dogecoin is cybersecurity specialist CrowdStrike Holdings (CRWD 1.42%). Cybersecurity has evolved into a basic-need service no matter the size of a business or the state of the U.S. economy. That should create a steady double-digit growth opportunity.
What allows CrowdStrike to stand out from a relatively crowded field of cybersecurity stocks is its cloud-native Falcon platform. Built entirely in the cloud and reliant on artificial intelligence, Falcon is designed to grow smarter over time at identifying and responding to potential threats. With the platform overseeing more than 5 trillion events on a weekly basis, it's not difficult for Falcon's AI aspect to improve its detection and response efficiency.
We've also witnessed an incredible response from CrowdStrike's customers. In each of the past 12 quarters, dollar-based retention rates have ranged from 123% to 147%. Put plainly, this means existing customers have spent between 23% and 47% more than they did in the year-ago quarter. Also, 63% of CrowdStrike's clients purchased four or more cloud module subscriptions in the fourth quarter of fiscal 2021, which is up from 30% three years ago.
Best of all, because CrowdStrike operates on the subscription model, it generates robust margins from its customers. Even though the company is still in the relatively early innings of its growth, it's already hit its long-term subscription gross margin target of 75% to 80%-plus.
Another stock that's a considerably smarter way to put your money to work is technology-driven real estate company Redfin (RDFN 6.69%).
To address the elephant in the room, Redfin has absolutely benefited from historically low lending rates and a huge uptick in housing demand. Record-low mortgage rates won't last forever, so this will prove to be a dated catalyst for Redfin. But there's much more to like here than just low mortgage rates.
One of the primary differences between Redfin and traditional real estate companies is the focus on cost-savings, without sacrificing service. Homeowners look to sell are facing a 1.5% listing fee, while those who buy and sell through Redfin can expect a listing fee as low as 1%. That's up to 2 percentage points lower than traditional real estate firms. This may not sound like much, but with home prices soaring, Redfin is progressively saving sellers a lot of money.
Redfin also focuses on service personalization as a differentiating factor. Its RedfinNow package, which operates in a handful of U.S. cities, purchases homes from sellers for cash. Doing so virtually eliminates the hassles and price haggling that comes with selling a home. Further, Redfin Concierge helps with staging and other home improvement aspects that are designed to get top-dollar for a seller's home. Concierge costs up to 2.5% the selling price of a home.
With the company more than doubling its share of U.S. home sales since 2015 (0.44% in 2015 to 1% in 2020), it's plainly evident that its cost-saving services and personalization are resonating with buyers and sellers.
Finally, you should strongly consider ditching pump-and-dump asset Dogecoin in favor of social media kingpin Facebook (META 1.70%).
With a market cap north of $900 billion, you might be thinking that Facebook's best days are in the rearview mirror. Such thinking would be misplaced. At the end of March, it had 2.85 billion people worldwide visiting its namesake site each month, along with another 600 million unique visitors to WhatsApp and Instagram, which Facebook also owns. Put another way, 3.45 billion people, or 44% of the world's population, visits a Facebook-owned asset monthly. There isn't a social platform in the world that offers a broader audience for advertisers.
The wild thing about Facebook is it's not even operating at full strength. The $25.4 billion in ad revenue generated in the first quarter (up 46% from Q1 2020) came almost exclusively from its namesake site and Instagram. It's yet to meaningfully monetize WhatsApp or Facebook Messenger, despite both being two of the six most-visited social sites on the planet. Facebook still has significant levers its can pull to pump up sales and profit growth.
Furthermore, keep an eye on Facebook's "Other" revenue. This category includes projects like Facebook Pay and the sale of virtual reality devices from Oculus. This Other category saw sales growth of 146% in the first quarter to $732 million.
Unlike Dogecoin, Facebook has a bright future with a tangible outlook.