There are few guarantees on Wall Street. However, one constant has been the very long-term outperform of the stock market over other investment vehicles. Stocks may not top oil, gold, or housing every single year, but the benchmark S&P 500 has consistently delivered higher average annual returns than any other asset class.
Then, a little over a decade ago, cryptocurrencies made their debut and turned this veritable truth -- that stocks are one of the best ways to build wealth over time -- on its head. Bitcoin, the world's largest cryptocurrency by market value, has risen from less than $1 to, at one point recently, more than $64,000.
But it's not Bitcoin garnering all the attention from cryptocurrency investors. Rather, it's meme-based digital currency Dogecoin (DOGE -0.47%).
Dogecoin is a bubble waiting to burst
Over the trailing year, Dogecoin has risen from approximately a quarter of one penny ($0.0025) to as high as $0.73. Nominally, that doesn't sound like a lot. But on a percentage basis, investors who held for at least a year were up by as much as 27,000%! Moves like that tend to attract momentum chasers.
The problem is that none of the catalysts driving Dogecoin higher are tangible or accurate. For example, tweets from Tesla CEO Elon Musk have been the primary spark for Dogecoin. Musk, the self-proclaimed "Dogefather," has hyped up Dogecoin on his Twitter feed, and made mention of the joke-born cryptocurrency during a Saturday Night Live skit. Think about how ridiculous this sounds: The core investing thesis for Dogecoin is hoping Elon Musk tweets in a given day.
Dogecoin supporters also frequently talk up its low transaction fees and increased adoption. Unfortunately, neither are accurate or fully truthful statements. Dogecoin is only handling around 50,000 transactions daily -- this compares to 700 million daily for Visa and Mastercard combined -- and a meager 1,300 businesses worldwide have green-lit Dogecoin as an acceptable form of payment. There are also no shortage of popular digital currencies with transaction fees that are a fraction of what Dogecoin charges, including Stellar, Ripple, Nano, Ethereum Classic, Bitcoin SV, and Dash.
Remember how one of the major goals of crypto was to decentralize the network? You won't get that with Dogecoin, either. According to BitInfoCharts, two-thirds of all outstanding Dogecoin is owned by just 99 addresses.
In short, Dogecoin fails the sniff-test all around and has the look of a pump-and-dump scheme.
Smart investors are piling into these stocks instead of Dogecoin
Instead of putting your hard-earned money at risk in an asset that's been hyped and is shrouded in misinformation, perhaps it's time to follow the smartest investors into stocks that have game-changing potential. The following trio of supercharged companies certainly fits the bill.
Rather than buying the hype-driven Dogecoin, successful billionaire money managers have been busy scooping up shares of biotech stock Novavax (NVAX 2.48%). During the first quarter, Israel Englander's Millennium Management doubled its existing stake in Novavax, while Jim Simons' Renaissance Technologies opened a nearly 673,000-share position worth close to $122 million.
The buzz surrounding Novavax has to do with the company's development of coronavirus disease 2019 (COVID-19) vaccine candidate NVX-CoV2373. In a large-scale phase 3 study in the U.K., Novavax's leading vaccine candidate demonstrated a 96.4% efficacy against the original strain of COVID-19 and a still-impressive 86.3% efficacy against the prominent U.K. variant.
While these figures would seem to be more than sufficient to raise some eyebrows and get NVX-CoV2373 in front of regulators in the U.S., U.K., and Europe, there have been delays. The company pushed back plans to file for emergency-use authorization (EUA) in all three countries/regions till the third quarter, and likely won't be at full production capacity till the fourth quarter. This means it could miss out on some near-term low-hanging fruit.
Then again, vaccinated the world isn't going to happen overnight. Additionally, it's looking as if booster shots may be needed. In other words, Novavax's may have missed out on some sales opportunity, but the pie is large enough that it can benefit immensely from a successful COVID-19 vaccine EUA.
This is a cash-rich company with a vaccine that looks to have a better than 50-50 shot at getting the green light from health regulators. That's why smart investors are excited about its recent discount.
Successful money managers also bucked Dogecoin in the first quarter in favor of Esports and gaming company Skillz (SKLZ 5.37%). Cathie Wood's Ark Investment Management scooped up more than 6 million shares of the high-growth gaming company in Q1, with Jeff Yass' Susquehanna International tripling its position with a 1.22-million-share add.
Why Skillz? The simple answer is that the company is working smarter, not harder, in the fast-growing digital gaming space. Instead of taking on big-name game developers, Skillz acts as a platform for gamers to compete head-to-head, and for game developers to showcase their creations. Skillz allows gamers to compete for cash prizes, keeping a percentage of this cash for itself and developers. Since it's a lot cheaper to maintain a platform than it is to develop games, Skillz has reported a gross margin of 95%.
The company really made waves in early February when it signed a multiyear agreement with the National Football League. Football is the unquestioned most-popular sport in the United States. This agreement allows developers to create NFL-themed games that are expected to debut no later than 2022.
Despite its operating losses, mostly tied to increased marketing costs and headcount, few companies in the gaming arena are growing as quickly as Skillz. If the cards fall just right, revenue could effectively quadruple over the next four years to almost $1 billion. If cash outflow shrinks significantly over the next year or two, there'll be plenty of reason for excitement.
Smart investors are also ignoring Dogecoin in favor of semiconductor solutions giant Broadcom (AVGO 1.00%). The latest 13F filings with the Securities and Exchange Commission show that Larry Fink's BlackRock added 1.25 million shares to its existing position, while Susquehanna more than doubled its stake. It's worth pointing out that BlackRock owns stakes in thousands of companies, but Broadcom is among the largest (42nd biggest holding).
There look to be two key catalysts fueling investors' interest in Broadcom. To begin with, there's the 5G revolution. Broadcom generates most of its revenue from providing Wi-Fi and Bluetooth chips for next-generation smartphones, as well as other accessories. It's been a decade since we last saw significant upgrades to wireless infrastructure in the United States. Therefore, we shouldn't be surprised if there's a multiyear consumer and enterprise tech upgrade cycle that follows the transition to 5G speeds.
The other big driver for Broadcom is data -- or more specifically, data centers. The COVID-19 pandemic took a trend that saw businesses pushing online and into the cloud at a steady pace and gave it a kick in the behind. With more businesses than ever storing data in the cloud, demand for data center servers is robust. Broadcom, which makes connectivity and access chips for data centers, should be a clear beneficiary.
With the U.S. and global economy in the midst of an economic recovery, Broadcom should enjoy a multiyear expansion for its top and bottom lines.