For well over a century, the stock market has been one of the world's greatest wealth creators. It's not going to outpace investment vehicles like bonds, gold, or housing every year, but when examined over the long run, it has handily outpaced the average annual return of other assets.
But since the rise of cryptocurrencies roughly a decade ago, digital currencies have run circles around the broader market. In particular, retail investors have flocked to the so-called "people's currency," Dogecoin (DOGE -1.00%).
Dogecoin has been on a tear in 2021, but it has a fatal flaw
In early May, when Dogecoin hit an all-time high of nearly $0.74 a token, its value had risen more than 27,000% in a trailing-six-month stretch. For context, the benchmark S&P 500 rose by 23,454%, including dividends, in a 56-year period ending on Dec. 31, 2020. That's how insane the gains in Dogecoin were in such a short time frame.
If you were to ask Dogecoin's "hodlers" (a purposeful typo meant to describe holders of the token) why they bought into the people's currency, they'd probably tell you it's because of the community, the perception of getting in near the ground floor in terms of retail adoption, and the fact that billionaires Elon Musk and Mark Cuban support Dogecoin. But there's one big problem with every prevailing bull argument: It offers zero competitive advantages.
As I've previously touched on, Dogecoin doesn't do anything particularly well. For instance, its transaction fees are notably higher than many other popular digital currencies. Its blockchain doesn't settle or validate transactions quickly compared to other crypto networks, either. And when examined for usage, only around 1,400 mostly obscure businesses accept Dogecoin as payment. In eight years, you'd think it would have gathered more momentum.
In other words, Dogecoin has all the hallmarks of being a fad without any true staying power. With no barrier to entry in the cryptocurrency space and no attributes that make it special, it's easily avoidable as an investment.
These beaten-down stocks are much smarter buys than Dogecoin
Instead of buying Dogecoin, I'd much rather put my money to work in the following trio of beaten-down stocks. These are companies down significantly from their 52-week highs that I don't already own. But I'd buy them in a heartbeat if I had to choose between Dogecoin and these stocks.
The first bludgeoned stock I'd buy in a heartbeat over Dogecoin is China-based internet search giant Baidu (BIDU -1.59%). Shares of the company have retraced 56% since hitting an all-time high in mid-February, with the prospect of regulatory crackdowns in China weighing heavily on its (and its peers') valuation. While brand-name companies like Alibaba have been hit with record antitrust fines, I don't anticipate that being the case for Baidu.
The foundational selling point for Baidu has long been the dominance of its internet search platform. Although Alphabet's Google controls the lion's share of global search, Baidu is the kingpin within China. According to GlobalStats, it's maintained a 66.9% to 79.9% share of internet search in China over the trailing 12 months. As long as the Chinese economy is growing (it's often growing much faster than the U.S. economy), advertisers will pay big bucks to get their message in front of users.
Investors will also appreciate the investments Baidu is making in artificial intelligence (AI) and cloud services. While its search revenue rose 18% in the June-ended quarter, its AI and cloud-focused ancillary segment delivered revenue growth of 80%. Keep in mind that AI and cloud services produce juicier margins than its marketing segment. This makes Baidu a sneaky growth and value play.
Even though marijuana stocks could be one of the top investment opportunities of the decade, U.S. pot stocks have performed miserably since hitting their all-time highs earlier this year. With Cresco Labs (CRLBF 5.45%) now 45% below its all-time intraday high, I'd buy it at the snap of a finger over Dogecoin.
Like most multi-state operators (MSOs), Cresco is working on building up its brand and creating a profitable retail presence. It has 34 operating dispensaries and enough retail licenses in its back pocket to have around four dozen cannabis stores. Many of its existing dispensaries are in high-dollar markets (Florida) or limited-license states (Illinois and Ohio). Targeting limited-license states is a particularly smart strategy. With regulators purposefully reining in competition, Cresco has a greater chance of building up its brands and garnering a loyal following.
However, the true differentiating factor for Cresco, relative to other MSOs, is its massive wholesale presence. In the June-ended quarter, 52% of its $210 million in sales were derived from its wholesale operations.
Typically, wholesale gets a bad rap because of its lower margins relative to the retail side of the equation. But holding a highly lucrative cannabis distribution license in California, the top market for marijuana in the world, allows Cresco Labs to place third-party and proprietary pot products into more than 575 dispensaries. In short, Cresco will have long-term investors seeing green.
A third stock I'd buy in a heartbeat instead of Dogecoin is technology-driven real estate company Redfin (RDFN 10.76%). Shares of the company have effectively been halved since hitting an all-time high in mid-February.
There's little question that historically low mortgage rates have lifted demand for real estate providers. But what Redfin brings to the table via cost savings and personalization helps separate it from the competition.
For example, most traditional real estate companies charge a listing or commission fee ranging from 2.5% to 3%. By comparison, Redfin charges a fee ranging between 1% and 1.5%, which is dependent on how much business a buyer or seller has previously done with the company. With the average sale price of new homes sold totaling $446,000 in July, according to the U.S. Census Bureau and U.S. Department of Housing and Urban Development, an up to 2-percentage-point reduction in a listing fee could save the average seller close to $9,000. Perhaps it's no surprise that Redfin's share of existing-home sales has catapulted from 0.44% at the end of 2015 to 1.18% by the midpoint of 2021.
Redfin's personalization is driving business as well. During the pandemic, the company ramped up the use of 3D and virtual tours. It's also been expanding its RedfinNow service, which purchases homes for cash to remove the hassles and haggling that come with selling a home.
Redfin is changing a stodgy industry before our eyes, which is more than I can say for Dogecoin.