Despite the year being less than half over, growth-focused investors have already encountered plenty of market volatility in 2021. The tech sector in particular has seen a substantial pullback in recent months, but the upside is that many influential and fast-growing companies in the space are now more attractively valued and could be primed for rebounds and continued rallies.
To help readers identify stocks with huge return potential, we put together a panel of Motley Fool contributors and asked each member to profile a company that they believe is on track to deliver market-crushing results. Read on to see why they believe that these three stocks could take your portfolio to the next level.
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The Trade Desk
Keith Noonan (The Trade Desk): The effectiveness of targeted digital advertising has powered the rise of technology giants including Alphabet and Facebook, but it's also given rise to some smaller players that have posted even more explosive gains in recent years. The Trade Desk (TTD 2.57%) provides a data-based advertising platform that makes it easy for marketers to improve their ad targeting and boost the effectiveness of campaigns, and it's become one of the fastest-growing players in the overall advertising space.
The Trade Desk's share price has skyrocketed more than 1,800% since market close on the day of its initial public offering in September 2016. However, the stock has pulled back substantially after hitting a record high earlier this year, and risk-tolerant investors looking to benefit from the long-term growth of the digital ads space should take notice.
So why has this rapidly growing category leader seen its valuation dinged? Investors have generally became more cautious about growth-dependent technology stocks as market preference has shifted toward value-focused equities that could benefit as economies reopen in territories where coronavirus-related pressures have eased. Concerns that a shift in the way that Alphabet's Chrome browser and market-leading Google search-and-ad platform track user data could negatively impact The Trade Desk have also weighed on the programmatic ad specialist's share price.
There's admittedly some uncertainty on the horizon, but it looks like long-term investors have an opportunity to build a position in a promising company at a discount. With The Trade Desk sporting a market capitalization of roughly $28 billion and trading down 40% from its 52-week high, the stock could be poised for a major rebound.
Redfin
Joe Tenebruso (Redfin): Of all the companies I follow, few have growth opportunities as large as Redfin (RDFN +0.00%). The tech-powered real estate company is disrupting the $100 billion U.S. brokerage industry. And despite years of torrid growth, plenty of gains lie ahead for investors who buy shares today.
Redfin saves its customers a lot of money. By charging fees as low as 1% of the value of a home, compared to the industry standard 3% agent commission, Redfin reduces home seller costs by thousands of dollars. For example, on a $300,000 house, the savings could equate to $6,000.
Redfin's low fees and focus on technology -- such as virtual house showings and closings -- are helping it rapidly gain market share. It now accounts for more than 1.1% of all U.S. existing home sales by value, up from 0.4% in 2015. And thanks to its low-cost structure and tech advantages over its less forward-thinking competitors, investors can expect this figure to continue to climb steadily higher in the coming years.
Redfin is also a leader in the fast-growing iBuying market. More and more home sellers are coming to value the convenience of quickly selling their homes directly to Redfin. Combined with its mortgage and title services, these businesses are helping to expand Redfin's already massive growth potential -- and give investors more ways to win.
Coinbase
Jamal Carnette: While early, this is likely not the public debut Coinbase's (COIN 0.69%) management envisioned. In its first post-direct listing earnings report, the cryptocurrency exchange grew revenue 844% over the prior-year period, from $190.6 million to $1.8 billion, with net income surging 2,300% to $772 million as the price of cryptocurrencies exploded.
Despite the performance, Coinbase shares trade below their reference price of $250. The reason is the recent pullback in the crypto markets. Coinbase benefits from higher crypto prices because it increases engagement and new accounts, but also because the company uses variable percentage-of-transaction pricing, which means the company books more revenue per transaction when crypto prices are higher.
The natural argument, as made by my colleague Timothy Green, is the "crypto crash is a disaster for Coinbase." While directionally accurate, I believe the impacts are not as dire as Green predicts. Think less of a "disaster," and more of a "manageable headwind."
For one thing, Coinbase is an exchange and (like stock exchanges) benefits from moves in either direction. The critical component here is volatility; the more the better. Although higher crypto prices lead to higher per-transaction commissions, sell-offs increase transactions and new accounts looking to "buy the dip."
For example, the recent crypto sell-off led to a surge in traffic that temporarily crashed Coinbase's website. It wasn't the company's finest hour, but this shows engagement peaked.
Perhaps a bigger risk is Coinbase's current valuation. Currently shares are trading for nearly 17 times sales versus traditional brokerages like Interactive Brokers and Charles Schwab which trade at 12 and eight times sales, respectively, as analysts expect Coinbase will report a full-year revenue increase of 400% this year.
Admittedly, that's a high bar and a crypto sell-off followed by a lower-volatility environment could lead to deceleration from the first quarter's results, but it's unlikely that cryptocurrencies like Bitcoin and Ethereum will sell off for a year and then become a low-volatility asset like utility stocks. Coinbase isn't for the faint of heart, but for long-term investors with a high risk tolerance the stock is certainly worth a second look.
