Looking back more than a century, the stock market has arguably been the most consistent generator of wealth on the planet. Even though stocks don't outperform bonds or commodities every year, they've delivered the highest average annual total returns over the very long run.
However, this thesis has been put to the test over the past decade by the rise of cryptocurrencies. For instance, Bitcoin has generated a triple-digit average annual return over the past decade.
But it's not Bitcoin that's entranced retail investors. That honor goes to the so-called "people's currency," Dogecoin (DOGE +0.16%).
Image source: Getty Images.
The Dogecoin bull thesis is full of holes
Investors are typically excited about Dogecoin for three key reasons:
- It's nominally cheap at only $0.33 per coin, as of June 8;
- It's gaining global acceptance by merchants as a form of payment; and
- It's supported by one of the most influential people in the world, Tesla CEO Elon Musk.
The problem is that if you actually take the time to dig into these catalysts, you'll find more holes than you would in a slice of Swiss cheese.
For example, while Dogecoin is nominally inexpensive, it's anything but "cheap" if we factor in the nearly 130 billion Dogecoin in circulation. Block rewards courtesy of mining activity -- crypto miners use high-powered computers to solve complex equations that validate transactions as true -- are creating about 5.2 billion new Dogecoin a year. In 2021, we're talking about inflation of just over 4%. That may not sound like much, but it's been well over a decade since the actual inflation rate in the U.S. has been higher than 4%. This means Dogecoin does a poor job of providing a hedge against inflation in the United States.
There are also a number of holes in the bull thesis that Dogecoin's adoption is growing:
- The blockchain is only handling around 50,000 transactions daily. This means it'd take more than 38 years for Dogecoin to handle the same number of transactions Visa and Mastercard deal with daily on a combined basis.
- Only around 1,300 businesses worldwide accept it as a form of payment.
- Roughly 100 addresses hold two-thirds of all Dogecoin, which throws the de-centralization aspect of crypto out the window.
And don't even get me started on Elon Musk's tweets and memes being able to create and destroy billions in market value in the crypto space.
The stark reality is that Dogecoin is a poor investment and almost certainly a pump-and-dump scheme in action.
Unlike Dogecoin, these stocks can make you filthy rich
Instead of putting your money to work in this ticking time bomb, my suggestion would be to forget about Dogecoin altogether and invest in great companies that can make you a millionaire. The following trio of stocks fits the bill perfectly.
Image source: Getty Images.
Redfin
First up is technology-focused real estate company Redfin (RDFN +0.00%), which has all the tools needed to make millionaires out of its shareholders.
The real estate industry is stodgy, and Redfin is looking to shake things up in two ways. To begin with, it's aiming to save its customers a boatload of money. Traditional real estate firms take up to a 3% commission/listing fee when you buy or sell a home. Redfin's listing fees range between 1% and 1.5%, depending on how much business you've done with the company. Considering how home prices are soaring in the wake of historically low lending rates, the amount of money Redfin can save buyers and sellers is being magnified with each passing day.
Aside from cost-savings, Redfin is also aiming to disrupt the real estate industry by personalizing and/or simplifying the buying and selling process as much as possible. For instance, it's introduced the RedfinNow service in a handful of cities. RedfinNow allows the company to purchase homes from sellers for cash, which removes the hassles homeowners typically deal with when selling their property.
There's also Redfin Concierge, which can cost up to 2.5% of a home's selling price. Concierge works with sellers to stage homes or tackle upgrades that'll yield top-dollar from buyers.
This combination of cost-savings and personalization has helped Redfin nearly triple its share of U.S. existing home sales since the end of 2015 (0.44% in Q4 2015 to 1.14% in Q2 2021). This is likely just the tip of the iceberg.
Image source: Getty Images.
The Original BARK Company
Another millionaire-maker stock is The Original BARK Company (BARK +2.44%), which you might know best as dog-focused products and services company BarkBox. BARK officially completed its merger with special purpose acquisition company (SPAC) Northern Star Acquisition earlier this month.
Let's start by stating the obvious: never... ever... bet against the companion animal industry. Since 1988, the percentage of U.S. households that owns a pet rose from 56% to 67%. What's more, year-over-year spending on U.S. pet expenditures hasn't declined in well over a quarter of a century. This year alone, almost $110 billion will be spent on our furry friends, according to estimates from the American Pet Products Association. Translation: People love their pets, and they'll pay big bucks to ensure their well-being and happiness.
BARK provides that happiness via monthly subscriptions. The company's core offering delivers toys and treats each month to owners. As of the latest quarter, BarkBox had approximately 1.2 million subscribers (up 91% year-over-year), and the S-1 from last year noted a record-high retention rate among these subscribers. Keep in mind that since this is a subscription-driven model, BARK is basking in gross margin of around 60%.
Similar to Redfin, innovation is also a key driver. Last year, BarkBox introduced Bark Home and Bark Eats. The former provides basic-need accessories like leashes, beds, and collars, whereas the latter works with owners to develop and deliver a high-quality dry food plan.
Despite company expectations that sales will nearly double by 2023, BARK remains one of the cheapest pet stocks relative to its sales. This discount likely won't last much longer.
Image source: Getty Images.
Skillz
A third stock that offers greater long-term prospects than Dogecoin and can make investors millionaires is Esports and gaming company Skillz (SKLZ 4.96%).
Why Skillz? Instead of going head-to-head with big-name gaming developers, Skillz chose the highly profitable middleman route. It's developed a platform that allows gaming enthusiasts to compete against one another for cash prizes. In turn, Skillz and the developer(s) of the games being played keep a cut of the cash prize. Since it's a lot easier to maintain a gaming medium than to develop new games, Skillz boasts an impressive gross margin of 95%.
Even though Skillz is still losing quite a bit of money as it ramps up marketing for its platform and its headcount, the initial gaming data is highly favorable. At the end of March, 17% of its gamers (467,000 people) were paying to play. That's at least eightfold higher than the industry average of 1.6% to 2% of gamers who pay to play.
Investors will also want to keep a close eye on the multiyear agreement Skillz signed with the National Football League (NFL) in early February. Football is the unquestioned most-popular sport in the United States. If developers can find the end zone even a couple of times with NFL-themed games, this partnership with the NFL could really put Skillz on the map.
