There are lots of ways to build wealth. Over the long run, few have been more fruitful than investing in the stock market. The benchmark S&P 500 or Dow Jones Industrial Average might not outperform every year, but they have a knack for making investors money. Since 1980, the average annual total return (including dividends) for the S&P 500 is about 11%.
But a new asset class has emerged that's run circles around the broader market: Cryptocurrencies. In a little over a decade, Bitcoin has advanced from under $1 to as much as $64,000. As recently as a few weeks ago, the combined value of the crypto market was well over $2 trillion.
But it's not the largest digital currency by market value that's the apple of cryptocurrency investors' eyes. That title belongs to the Shiba-Inu inspired Dogecoin (DOGE -1.13%).
The "people's currency" is going to cost investors a boatload of money
How exceptional has Dogecoin been? In a six-month stretch between early November 2020 and early May 2021, Dogecoin's price steamrolled higher by as much as 27,000%. It gained more in six months than the broad-based S&P 500 has returned, including dividends, in the past 56 years (and counting). This has, naturally, attracted a lot of momentum chasers.
But what's terrifying is that Dogecoin has been built up on a combination of hype, ignorance to fact, and misinformation. It might be dubbed the "people's currency," but if history proves accurate, it's going to be the currency that costs people a boatload of their hard-earned money.
If you visit community chat rooms devoted to Dogecoin, you'll hear about its cheaper transaction fees relative to the "Big Two" (Bitcoin and Ethereum) and its increasing adoption. But the vast majority of available data doesn't back up these claims.
Dogecoin's blockchain is handling only around 50,000 transactions daily, and it's taken eight years just for 1,300 mostly obscure businesses to accept it as payment. Dogecoin's transaction fees are also higher than many popular cryptos, with processing and settlement speeds that lag its peers (including Bitcoin). Put bluntly, there's nothing special about Dogecoin's blockchain that would merit this buzz.
Equally disturbing, the primary factor that's swung the price of Dogecoin violently of late is tweets from Tesla CEO Elon Musk. The self-proclaimed "Dogefather" is working with Dogecoin developers to make its network more efficient. Keep in mind that these tweets have no tangible effect on adoption or network efficiency, yet they're leading the rally in a joke-based cryptocurrency.
These top-notch stocks can crush Dogecoin
I have a simple solution that'll allow you to keep your hard-earned money: Forget about Dogecoin. Instead of putting your money to work in an asset that the data tells us is clearly not special, consider buying the following trio of top-notch stocks. These are companies with tangible growth prospects that can make investors rich.
First up is transformational stay-and-hosting company Airbnb (ABNB -1.10%). It's a fundamental work in progress following the coronavirus crash, but it's already established itself as a travel and hotel industry disruptor.
Prior to the pandemic, Airbnb's bookings had essentially quintupled in three years -- from 52 million in 2016 to 272 million in 2019. Amazingly, it's done this with "only" 4 million worldwide hosts.
That might sound like a pretty large number of potential destinations on Airbnb's marketplace, but it represents only a fraction of U.S. and global households. There are in the neighborhood of 130 million households in the U.S. and close to 1 billion globally. As homeowners begin to realize the moneymaking potential behind this platform, the number of hosts should rise significantly.
One of my favorite statistics about this company was presented by my colleague Jon Quast not too long ago. Jon noted that only 9% of Airbnb bookings through the first nine months of 2020 came from advertisements. Put another way, it means the vast majority of the company's customers are booking because they're familiar with the brand. Airbnb appears to have exceptionally strong brand recognition, which should help it carve out a sizable piece of hotel industry market share.
Yet Airbnb isn't only focused on redefining the hotel stay. It also aims to be a leader in travel activities. The company's aptly named Experiences segment relies on local experts to lead travelers on adventures. This is probably just the tip of the iceberg with regard to innovative ventures on the travel side of its business.
Green Thumb Industries
U.S. marijuana stocks also have the potential to make investors rich and they're a considerably smarter investment choice than Dogecoin. U.S. multistate operator Green Thumb Industries (GTBIF 1.00%) could give you the investment high you're looking for.
Although global cannabis markets are growing at a steady pace, none is going to hold a candle to the United States. New Frontier Data estimates total weed sales of as much as $41.5 billion annually by 2025. For some context, marijuana analytics company BDSA is only forecasting a little over $6 billion for Canada in 2026. With more than 70% of its states now legal in some respect, the U.S. is where you want to focus your cannabis investments.
One of the things that allows Green Thumb to stand out is the company's focus on big-dollar states and markets that limit the number of licenses they'll issue. For example, Green Thumb aims to maximize its presence in Illinois, which initially capped licensed retailers at 10 stores. By focusing on markets where retail stores are limited, Green Thumb ensures it'll face a reduced level of competition.
Another reason it's been such a successful pot stock is that close to two-thirds of its revenue comes from derivatives, such as edibles, vapes, oils, and topicals. Derivatives have considerably higher price points than dried cannabis flower and are less likely to face oversupply concerns. In short, they're a much higher-margin product, which is why Green Thumb has already turned the corner to recurring profitability.
With more than $1.1 billion in sales expected in 2022, Green Thumb could have investors seeing green.
Palo Alto Networks
During the coronavirus pandemic, workplaces were disrupted like never before. This forced businesses to shift online and move their data into the cloud to make it accessible to employees. As more data has moved into the cloud, the onus of protecting enterprise and consumer information has been placed on third-party providers. To put things simply, cybersecurity has quickly become a basic-need service, which is music to Palo Alto's ears.
The interesting thing about Palo Alto Networks is that it's been reinventing itself over the past couple of years by shifting away from physical firewall products in favor of cloud-based subscriptions designed to protect enterprise data. This move was made to better compete against other security players, as well as lock in higher margins and more predictable cash flow with subscriptions. Through the first nine months of fiscal 2021, 74% of its sales have come from subscriptions and support. That's up from 69% in the comparable period last year.
Palo Alto also hasn't been afraid to put its capital to work via bolt-on acquisitions. The company's numerous buyouts diversify its cloud-based cybersecurity solutions, as well as help it appeal to a broader audience of businesses.
Taking into account the company's $4.4 billion in deferred revenue and the basic-need nature of cybersecurity, Palo Alto should have no trouble sustaining a double-digit growth rate throughout the decade.