We are halfway through 2021, and the stock market is off to a crazy start to the year. High-growth technology stocks soared in January, crashed in February, and continued to bounce back and forth through the spring and early summer. The coronavirus and its vaccines drove many of these wild swings, while others sprung from the market-busting tactics of Reddit's r/WallStreetBets channel.
The market feels as unsettled as ever in mid-July. Tech stocks could be due for another sharp surge, or the entire stock market might be headed for a dramatic downward correction, depending on how the just-started earnings season plays out.
Whether the market is going up or down in the near future, investors can lock in strong returns in the long term by picking up shares of high-quality businesses at reasonable prices. On that note, here are two tech stocks with strong growth engines and fantastic staying power that will serve you well for years to come, no matter where the market is going over the next few weeks.
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1. Spotify
The coronavirus health crisis lit a fire under media-streaming veteran Spotify (SPOT 2.77%). The music and podcast service boosted its monthly paying users (MAUs) by 27% in 2020, stopping at 345 million users at the end of the year.
Aiming to become "the world's No. 1 audio platform" in the long run, which would include beating traditional stalwarts such as terrestrial radio, Spotify is making massive investments in exclusive content and innovative media services.
That's a global ambition. The company launched a huge expansion campaign in February, adding more than 80 new geographic markets and 36 new languages to the Spotify platform. We are not talking about a plethora of small island nations, either. The service is now available in 9 of the 10 largest countries in the world, with the notable exception of China.
Spotify's massive promise has not translated into skyrocketing stock returns so far. The stock is trading 37% below February's all-time highs and 9% lower over the last 52 weeks. The task of finding a fair price for Spotify's shares is difficult because the company is reinvesting every spare penny in growth-boosting business ideas, resulting in negative earnings and barely positive cash flows.
That's not a problem for me, given Spotify's impressive user growth and promising monetization ideas. The company plans to widen its profit margins over time through a blend of subscription fees, ad-supported streams, and premium services for both content creators and consumers. In the meantime, the stock trades at just 4.7 times trailing sales.
This looks like a great time to pick up Spotify shares from Wall Street's bargain bin. Of course, market makers don't see it that way quite yet, but that's just business as usual for high-octane growth stocks.
Image source: Getty Images.
2. Coinbase
Digital currency exchange Coinbase Global (COIN -0.34%) entered the stock market near the recent peak of cryptocurrency prices and general investor interest in the space. Coinbase stock changed hands for as much as $346 per share on the first day, but prices started to drop right away. Today, you can pick up Coinbase shares for $225 per stub, 35% below the highs of the first day.
And I think that's a good idea, assuming that you have any interest in cryptocurrency investments at all.
Coinbase is not a pure-play bet on any particular digital currency. Instead, it's an investment in cryptocurrency having a strong future as a whole. The platform lets users trade and hold nearly 70 different cryptocurrencies today, ranging from established leaders like Ethereum and Bitcoin to a plethora of smaller and less famous alternatives.
Based on this broad trading service, Coinbase is expanding its market share even as the cryptocurrency market itself is eyeing explosive growth for many years to come. Coinbase held a 4.8% slice of a global crypto market worth $700 billion in 2018. Today, the company serves an 11.3% share of a $1.3 trillion market.
The company had $1.1 billion of cash equivalents on its balance sheet at the end of 2020, with no long-term debt to speak of. Its operations are profitable and generating positive cash flows.
Taken together, all of these attributes make Coinbase a low-risk investment vehicle in the high-risk world of cryptocurrency assets. If Bitcoin and Ethereum fall out of favor, replaced by better-designed alternatives that don't even exist yet, Coinbase will be there to serve traders and investors with interest in the new winners.
The stock is starting to look downright cheap at these lower prices.
