For well over a century, the stock market has been one of the world's greatest wealth creators. Stocks may not top housing, gold, oil, or bonds in the return column every year, but the average annual return of equities far outpaces the average annualized return of other investment vehicles over the long run.
But over the past couple of years, the supremacy of stocks has been challenged by the rise of cryptocurrencies. In particular, the "people's currency,'" Dogecoin (DOGE -1.58%), gained as much as 27,000% in a six-month stretch between early November and early May. That outpaces the total return, including dividends, for the benchmark S&P 500 between 1965 and 2020.
Dogecoin doesn't do anything particularly well
Peruse social media and you'll have no trouble finding support for Dogecoin from retail investors. They appreciate the growing community support, the recent interest in Dogecoin's underlying blockchain by Tesla Motors' CEO Elon Musk, and the prospect of getting in before broad-based retail adoption.
Unfortunately, the bull thesis has one major flaw: Dogecoin doesn't do anything particularly well.
For example, even though Dogecoin's transaction fees are lower than the Big Two in crypto, Bitcoin and Ethereum, its fees are actually leaps and bounds higher than at least a dozen other popular cryptocurrencies.
Dogecoin isn't a particularly fast or efficient network, either. Quite a few popular digital currencies, such as Nano and Stellar, can validate and settle cross-border transactions in mere seconds. As for Dogecoin, it can reportedly handle up to 40 transactions per second, but has only seen enough demand on its network to account for one transaction every four seconds, of late. Payment processing giant Visa can handle in one second (about 24,000 payments per second) the number of transactions Dogecoin's blockchain has validated and settled in a day over the past month.
The icing on the cake is that Dogecoin isn't accepted by many merchants. It's taken eight years just for 1,400 mostly obscure online retailers to accept it as payment.
In other words, Dogecoin is being supported by impassioned investors for the time being, but has no competitive advantages. This would suggest Dogecoin is going to eventually head substantially lower.
This high-growth trio can leave Dogecoin in the dust
Although Dogecoin has outperformed equities through the first half of 2021, the following trio of growth stocks is a much better bet to run circles around the people's currency and make investors rich over time.
At virtually no point in Mastercard's (MA 3.87%) 15 years as a publicly traded company has there been a bad time to buy shares. If the digitization of financial services has you intrigued, forget all about Dogecoin and take a closer look at Mastercard.
The beauty of the Mastercard operating model is that it's heavily favored to benefit optimists. You see, even though recessions are an inevitable part of the economic cycle, the U.S. and global economy spend a considerably longer period of time expanding than they do contracting. This means Mastercard navigates its way through recessions for a few quarters, but tends to enjoy multiyear periods of spending expansion. If investors are simply patient, they have a very good chance of being rewarded by Mastercard as U.S. and global gross domestic product expand.
To add, Mastercard is No. 2 in the U.S. and globally in terms of credit card network purchase volume. The U.S. is the world's leading consumer, and a majority of the world's transactions are still being conducted with cash. Put another way, Mastercard is generating significant cash flow from the U.S., but has a sustainable growth runway in emerging markets.
Something else to note about Mastercard is its avoidance of lending. While it could probably rake in interest income and fees, lending also comes with the prospect of being hit with credit delinquencies during inevitable economic contractions and recessions. Since Mastercard doesn't lend, it won't have to set aside capital to cover credit/loan losses during a recession. This is a big reason why it bounces back so much faster than other financial service companies after recessions.
I know what you might be thinking, but no, the federal legalization of cannabis isn't necessary for U.S. multistate operators like Columbia Care to thrive. As long as the Justice Department allows individual states to regulate their pot industries, the 36 states to have legalized weed in some capacity (thus far) will provide more than enough growth potential for pot stocks. And remember, the U.S. is the unquestioned global leader in legal cannabis revenue.
There are two things that make Columbia Care such an intriguing stock to own. First, there's management's aggressive use of acquisitions to expand its reach. Just since December, we've witnessed Columbia Care bolster its mid-Atlantic presence with the $240 million buyout of Green Leaf, beef up its share in Ohio with the CannAscend deal, and gobble up the vertically integrated Project Cannabis in California. Though these deals could weigh on Columbia Care's bottom line in the very short-term, it should help the company become a leading cannabis retailer by 2022, and beyond.
Secondly, Columbia Care has predominantly focused on states where license issuance is intentionally limited. With the company's competition being purposefully reined in, it's allowing Columbia Care the opportunity to build up its brands and develop a loyal following.
Columbia Care is projected to be one of the fastest-growing pot stocks for the foreseeable future.
A third growth stock that shouldn't have any problem running circles around Dogecoin over the long-term is telehealth services giant Teladoc Health (TDOC 5.09%).
Some investors might be leery about Teladoc's growth potential in the near-term considering that it benefited immensely from the coronavirus pandemic in 2020. With physicians wanting to keep patients out of their offices as much as possible, virtual visits on Teladoc's platform soared to 10.59 million from 4.14 million in 2019. Though this incredible virtual visit growth trajectory is certainly unsustainable, telehealth isn't going away. In fact, it's arguably more important than ever.
Telemedicine services make life substantially more convenient for patients, and should allow doctors to keep better track of vital data for chronically ill patients. This ease of access is expected to translate to improved patient outcomes and less money out of the pockets of insurance companies. All-in-all, we're talking about a more personalized and effective healthcare experience.
What's more, Teladoc acquired leading applied health signals company Livongo Health during the fourth quarter to further differentiate itself. Livongo uses artificial intelligence to send tips to its enrolled members (currently people with diabetes) to help them lead healthier lives. Prior to being acquired, Livongo had already turned the corner to profitability despite only penetrating about 1.5% of the U.S. diabetes market.
Whereas Dogecoin is nothing special, Teladoc represents true innovation.