For more than a century, the stock market has been the go-to investing tool for top-tier returns. It may not top gold, oil, bonds, or housing every year, but no other investment vehicle has come close to matching its average annual return over the very long run.
But over the past decade, cryptocurrencies have been giving the broader market a run for its money. That's especially true of the so-called "people's currency," Dogecoin (DOGE -1.75%), which has rallied more than 45,000% since late December 2013.
The Shiba Inu dog breed served as inspiration for the creators of Dogecoin. Image source: Getty Images.
Dogecoin's gains will likely be a mirage
For Dogecoin enthusiasts, the lure is getting in on the ground floor before widespread adoption begins. Last week, AMC Entertainment (AMC) CEO Adam Aron conducted an informal Twitter poll to determine how many moviegoers would be interested in seeing the theater accept Dogecoin as a form of payment. An overwhelming 77% of more than 140,000 respondents were in favor of the idea in some capacity. Aron is now exploring the feasibility of accepting Dogecoin at AMC theaters.
Unfortunately, this potential win is an extreme rarity for Dogecoin. After eight years, only 1,600 or so mostly obscure businesses accept Dogecoin as a form of payment. This compares to 32 million businesses in the U.S. alone and over 500 million entrepreneurs worldwide. The data shows pretty conclusively that Dogecoin has virtually no utility off of cryptocurrency exchanges.
More importantly, Dogecoin lacks competitive advantages in every sense of the word. Its investors regularly tout its lower transaction fees, relative to the Big Two of crypto, Bitcoin and Ethereum, but they overlook that Dogecoin's transaction fees are notably higher than pretty much all other popular digital currencies. To boot, Dogecoin validates and settles transactions at a significantly slower pace than many of these alternative blockchain networks.
Another troubling aspect of Dogecoin is its daily transaction count. Throughout much of September, its blockchain has been handling only 15,000 to 20,000 daily transactions, which is a three-year low. By comparison, Visa can process up to 24,000 transactions per second. Dogecoin simply doesn't offer any standout qualities in the cryptocurrency space.
This stock trio should leave Dogecoin eating their dust
The good news is there are plenty of stocks with the capacity to run circles around Dogecoin in the years to come. The following trio of stocks can all handily outperform the people's currency by 2026.
Image source: Getty Images.
The first company that shouldn't have any issue outperforming Dogecoin is dominant social media player Facebook (META -10.56%). Unlike the people's currency, Facebook brings tangible competitive advantages to the table.
When the June quarter ended, Facebook had 2.9 billion people visiting its namesake site each month, along with 610 million unique users visiting Instagram and/or WhatsApp, which it also owns. That's more than 3.5 billion people, or 44% of the global population, interacting with an owned asset monthly. If we remove children too young to use social media from the equation, we're probably talking about more than half the world's adults utilizing a Facebook-owned asset each month. Advertisers understand that there isn't a social media platform on this planet that offers access to more eyeballs, which is precisely why Facebook has such exceptional ad pricing power.
As a shareholder, the thing I continue to find amazing about Facebook is that it's still not meaningfully monetizing half of its core assets. It'll more than likely generate north of $100 billion in ad revenue this year from the combination of Facebook and Instagram. However, Facebook Messenger and WhatsApp aren't yet meaningfully contributing to the company's annual sales. When these highly popular social sites are eventually monetized, it'll lead to another growth surge for Facebook.
And as my colleague Taylor Weldon points out, Facebook is looking to diversify its revenue stream into virtual reality. The company's Oculus devices have likely played a key role in pushing "Other" category sales up 85% through the first six months of 2021.
Even at a $1 trillion market cap, Facebook offers far more intriguing upside than Dogecoin.
Image source: Getty Images.
Cresco Labs
Even though marijuana stocks have been on a roller-coaster ride over the past couple of years, a maturing U.S. cannabis industry should allow multistate operator (MSO) Cresco Labs (CRLBF -5.34%) to run circles around Dogecoin by 2026.
The good news for U.S. pot stocks is that federal reform isn't necessary for them to be successful. Don't get me wrong, federal cannabis reform would make MSOs lives a lot easier. But with 36 states having legalized medical marijuana, and half of these states having laws on their books to allow (or eventually allow) the consumption or retail sale of recreational weed, companies like Cresco Labs have all the tools necessary to grow.
What stands out about Cresco Labs is its dual approach to growth. Like all major MSOs, Cresco has a budding retail presence. The company has 37 operating dispensaries and, based on its total licenses held, can ultimately operate nearly four dozen retail locations. Many of the states Cresco has dispensaries in are limited-license markets. In other words, regulators in these states are purposely limiting how many dispensaries can open, as well as how many stores a single company can operate. This minimizes Cresco's competition in a number of high-dollar markets.
The company's other growth channel is its industry-leading wholesale operations. Wholesale cannabis typically produces lower margins than the retail side of the equation, and is often overlooked by Wall Street. But with Cresco Labs holding a cannabis distribution license in California, the largest pot market in the world by annual sales, it can more than make up for lower margins with superior volume.
Image source: Getty Images.
Trupanion
A third high-growth stock with all the catalysts necessary to run circles around Dogecoin over the next five years is companion animal health insurance company Trupanion (TRUP -2.51%).
While there are no shortage of industries growing by a double-digit percentage, few if any are more recession-resistant than the pet industry. It's not the fastest growing, but data from the American Pet Products Association (APPA) shows that year-over-year pet expenditures in the U.S. haven't declined for at least a quarter of a century. Further, the number of households owning a pet has increased from 56% to 70% between 1988 and the 2021-2022 APPA National Pet Owners Survey. In sum, people will pay big bucks to ensure the health and happiness of their furry family member.
Trupanion has been providing health insurance at the clinical level for two decades. In the June-ended quarter, the company surpassed 1 million total enrolled pets. A majority of the company's enrolled pets are on a monthly subscription, which is important given that subscriptions provide transparent and predictable cash flow, and have a tendency to lock in customers for long periods of time.
The really interesting thing about Trupanion is that it's just scratching the surface, in terms of its reach. It's penetrated about 1% of the U.S. market. By comparison, about 1 in 4 pet owners in the U.K. have health insurance for their furry family member. If Trupanion can reach a similar penetration rate in the U.S., its addressable opportunity would top $32 billion.
The icing on the cake is that Trupanion provides software to veterinary clinics capable of handling payments at the time of service. That means less hassle for subscribers and its veterinary partners.
