Investing in the stock market isn't hard. The difficult part is being patient and allowing your investment theses to play out over time. History pretty conclusively shows that the longer you remain invested, the more likely it is that you'll generate wealth.
But over the past decade, this buy-and-hold thesis in the stock market has been turned on its head by cryptocurrencies. The world's largest digital currency, Bitcoin, could once be purchased for less than $1 per token. As of this past week, a single Bitcoin fetched $45,000.
But it's not Bitcoin that investors have been eyeing of late. Rather, it's the so-called "people's currency" Dogecoin (DOGE 0.27%).
Dogecoin is a hype-driven bubble ready to burst
At one point earlier this month, Dogecoin had a trailing six-month return of more than 27,000%. To put this into perspective, the benchmark S&P 500 delivered total returns, including dividends, of 23,454% between 1964 and 2020. Dogecoin outpaced 56 years of returns in the most widely followed stock index in only six months.
Dogecoin has predominantly been rallying on the back of supportive tweets from Tesla's (TSLA 3.78%) CEO Elon Musk. Musk recently posted a poll questioning whether or not Tesla should accept Dogecoin. He's also tweeted that he's working with Dogecoin developers to make the blockchain more efficient. For those who might recall, Tesla recently announced plans to stop accepting Bitcoin as payment for its electric vehicles due to the adverse environmental impact of crypto mining activity.
Beyond Elon Musk, Dogecoin has rallied on strong support from retail traders, its perceived adoption among businesses, and its lower transaction fees, relative to Bitcoin and Ethereum, the big two in crypto.
But the truth of the matter is that there's absolutely nothing tangible behind Dogecoin's insane run higher. It's been built on speculation, ignorance, and misinformation.
In no particular order:
- Dogecoin's transaction fees aren't even close to the lowest in the industry, and its settlement/validation times lag many of its peers, including Bitcoin. If this is truly about efficiency, Dogecoin is definitely not the solution.
- The blockchain only handles around 50,000 transactions per day, which doesn't even move the needle next to Visa and Mastercard (MA 1.16%).
- Only around 1,300 businesses worldwide out of an estimated 582 million entrepreneurs accept Dogecoin as a form of payment.
- Just 103 addresses own 67% of the 129.6 billion Dogecoin in existence, which destroys the idea of decentralization that crypto is built upon.
And the list goes on.
The point is that Dogecoin has been driven solely by hype, which makes this move unsustainable.
It's time to ditch Dogecoin and buy stocks with real substance
Instead of tossing your hard-earned money at the world's most expensive joke currency, I'd suggest putting it to work in stocks that offer real substance. I'm talking about businesses with genuine prospects and real-world utility. The following trio of stocks would make for much better buys than Dogecoin.
If you really want to be on the leading edge of next-generation payments, Mastercard is a good place to put your money to work, not Dogecoin.
The beauty of Mastercard's operating model is that it's aligned with global growth. Even though recessions are inevitable, economic contractions don't last very long. This means Mastercard navigates its way through rough patches every so often but subsequently experiences multiyear periods of expansion where an increase in consumer and enterprise spending drives its merchant fees higher. It's a simple numbers game that patient investors are almost assured to win.
What's more, Mastercard has chosen to stick with payment processing and avoid lending. Although some of its peers do generate interest income during periods of expansion, these lenders are also exposed to potential credit and loan delinquencies when recessions arise. Since Mastercard doesn't lend, it's not required to set money aside for delinquencies. This is a big reason why it bounces back so quickly after economic downturns.
Mastercard's growth runway is also longer than most folks probably realize. A majority of the world's transactions are still conducted in cash, meaning there's a multidecade opportunity for Mastercard to expand its infrastructure into emerging and underbanked markets. Despite its huge market cap, Mastercard has the potential to grow by a low double-digit percentage for a long time to come.
For those of you looking for a blend of growth and value, consider putting your money to work in data analytics company Cloudera (CLDR).
With a name like Cloudera, you'd probably assume that it's knee-deep in the cloud computing space, but that's not entirely accurate. Cloudera is in the midst of a multiyear transition away from legacy data software and toward hybrid public and private cloud platforms for enterprises. Because revenue is now recognized over the life of its hybrid-cloud subscriptions, as opposed to upfront with legacy software, sales growth for Cloudera has been rather ho-hum. However, annual recurring revenue (ARR), which directly ties into the company's higher-margin cloud subscriptions, grew by a heartier 10% in fiscal 2021. This double-digit ARR growth is Cloudera's ticket to faster long-term revenue growth and higher operating margins.
While undergoing this transition, Cloudera is ensuring that its shareholders are being taken care of, as well. Though the company continues to innovate, it was able to repurchase 26 million shares of its stock held by Intel in late December. As a general rule, repurchasing stock can improve earnings per share since net income is divided into a smaller number of outstanding shares.
Cloudera is also a clear value relative to its full-year sales forecast of $907 million to $927 million in fiscal 2022. Whereas most cloud stocks are valued at a multiple of 10 to 50 times forward-year sales, hybrid cloud company Cloudera can be picked up for less than four times projected sales this year.
Bristol Myers Squibb
The great thing about healthcare stocks is that they're a sound investment in any environment. Since people don't get to decide when they get sick or what ailment(s) they develop, there tends to be constant demand for prescription medicines and medical devices. This makes a company like Bristol Myers very resistant to recessions.
The Bristol Myers Squibb growth story revolves around internal development and a key acquisition. In terms of organic growth, Eliquis, which was co-developed with Pfizer, has become the world's leading oral anticoagulant. Meanwhile, cancer immunotherapy Opdivo brought in $7 billion in sales last year and is being examined in dozens of ongoing clinical trials. If Opdivo's label is expanded in even a small number of these studies, it could offer $10 billion or more in peak annual sales potential.
As for acquisitions, Bristol Myers made a doozy when it closed on cancer and immunology drug developer Celgene in November 2019. The prize of Celgene's portfolio is multiple myeloma drug Revlimid, which has been growing by a double-digit percentage every year for more than a decade. Revlimid has benefited from label expansion, longer duration of use, strong pricing power, and improved cancer screening diagnostics. This key drug, which brought in $12.1 billion in 2020 sales, is protected from a flood of generics until the end of January 2026.
At roughly eight times forward-year sales, you'd struggle to find a more attractive value stock than Bristol Myers Squibb.