For more than a century, the stock market has been one of America's top wealth creators. Although there have been short periods of time where other asset classes have outperformed, no investment vehicle has delivered higher average annual returns over the very long run than stocks.
However, the stock market has been knocked off of its perch over the past decade by the insane returns of cryptocurrencies. While Bitcoin tends to get all the glory, it's the world's second-largest digital currency by market value, Ethereum (ETH 3.72%), that's been the markedly better performer of late. Over the trailing year, Ethereum has risen by 1,620%, which is over four times higher than Bitcoin's 384% return.
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Ethereum has been on fire, but this move isn't sustainable
If you're wondering why Ethereum is outperforming, look no further than decentralized finance (DeFi). DeFi is a financially focused blockchain that utilizes smart contracts -- protocols that help to verify, facilitate, and enforce negotiated contracts -- and eliminates other financial intermediaries that can slow or block payments, such as banks. Ethereum's smart contracts are exceptionally popular, and have become the foundation from which DeFi is being developed.
Ethereum's underlying blockchain has also had plenty of interest from the business community. The Enterprise Ethereum Alliance, which aims to broaden the adoption of Ethereum's smart-contract-driven blockchain technology, has more than 200 members.
Furthermore, Ethereum has seen its average daily transactions steadily rise over the past year.
While this is all seemingly encouraging, it's a massive stretch to suggest Ethereum is worth close to $400 billion. To put this into some perspective, Visa handled nearly 453 million daily transactions in 2018, according to the Nilson Report. Ethereum's blockchain has been handling closer to 1.5 million daily, of late. Yet in spite of this milewide disparity, Ethereum's market value trails Visa by only $100 billion.
What's more, blockchain suffers from a Catch-22. Businesses are unwilling to switch away from traditional networks without proof that blockchain-based technology can hold up in the real world. Unfortunately, without big businesses making this shift, there's no concrete data proving that Ethereum's blockchain is the superior answer to existing infrastructure.
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Ditch Ethereum for these innovative growth stocks
The fact of the matter is that there are better places to put your money to work right now than Ethereum. If you desire to be on the leading edge of innovation, you certainly don't need the untested crypto space to accomplish it. Instead, consider buying into the following trio of game-changing growth stocks, all of which have the potential to make you rich.
I don't have one really good reason to buy a stake in social media platform Pinterest (PINS 0.85%) -- I have 478 million very good reasons you should consider it.
When the quarter ended in March, Pinterest reported net global monthly active user (MAU) growth of 30% to 478 million. Even though its user growth has been positively impacted by people being stuck in their homes during the pandemic, it's important to note that the company was growing its MAUs by an annual average of 30% in the three years leading up to the pandemic. It really hasn't mattered whether people are stuck at home or living life normally.
Also of note, a majority of the company's new MAUs have originated in international markets (103 million of the 111 million net MAUs gained year over year, through March 2021). Even though average revenue per user (ARPU) is substantially higher in the U.S., Pinterest's skyrocketing user growth outside the country is what'll allow it to double its overseas ARPU multiple times this decade. In other words, international user growth is precisely why Pinterest should be one of the fastest-growing social media stocks this decade.
Another reason Pinterest is such a no-brainer buy is because its users are willingly providing valuable information about what products, services, and places they like. This makes the platform perfect for targeted advertising and merchants looking to make a sale. Slowly but surely, Pinterest could become a force within e-commerce.
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Skillz
Another innovative growth stock with the potential to make investors very rich over the long run is esports and gaming company Skillz (SKLZ 1.53%).
The gaming industry is highly competitive, and there's a good likelihood that new entrants will get squashed by the more established developers. Instead of spending big bucks to develop new games and hope they resonate with gaming community, Skillz chose to develop a platform that allows esports participants and more traditional gamers to compete against each other for cash prizes. Skillz and game developers are then able to keep a percentage of the cash prize.
The beauty of operating a gaming platform is twofold. First, Skillz isn't tethered to specific developers or gaming genres. In effect, the entire gaming universe could be potential players on its platform. And second, Skillz doesn't have to spend a boatload of money developing games. As a result, its gross margin has consistently been a juicy 95% for two years.
The NFL can also be a significant catalyst. In February, Skillz and the NFL signed a multiyear agreement that'll see gaming developers create NFL-themed games for future competitions. Football is the unquestioned most popular sport in the U.S., which should give the company ample momentum once NFL-focused games hit the platform in late 2021 or early 2022.
Wall Street is looking for Skillz to quadruple its sales over the next four years. With 17% of its players being paying customers (that's well above the industry average), this lofty estimate is believable.
Image source: Getty Images.
Trupanion
A third game-changing growth stock to buy instead of Ethereum is pet-focused health insurance company Trupanion (TRUP 0.14%).
Americans absolutely love their four-legged family members and are more than willing to spend big bucks to ensure their well-being. According to data from the American Pet Products Association, nearly $110 billion will be spent on pets in the U.S. this year. More importantly, it's been over a quarter of a century since we've witnessed a year-over-year decline in pet expenditures. It may not be the fastest-growing industry, but it's about as steady as they come.
Trupanion is sitting on a veritable gold mine in the pet space. Only about 1% of U.S. pet owners has purchased insurance on their cat or dog, which is well below what we see in other developed countries. If the U.S. were to match the 25% penetration rate seen in the U.K., it would mark a close to $33 billion addressable market for Trupanion. For some context, the company generated a sliver over $500 million in sales last year.
Even though the companion animal insurance space is bound to get crowded, Trupanion has spent the past two decades building rapport and partnerships with veterinarians and clinics. These invaluable connections, coupled with its leading software capable of paying clinics at the time of checkout, give it a clear competitive advantage.
Trupanion is still in the very early innings of its growth, which is great news for investors.
