It's going to be another banner year for the stock market, with about two weeks left in the calendar year and the S&P 500 posting gains of over 25%. That's more than double the historical average for the benchmark index.
Since its low point in March 2020, the benchmark index has gained about 110%. It took less than 18 months for it to double in value. Yet despite sitting at all-time highs, it's still possible to find bargains. You don't even need a lot of money. Most online brokerages eliminated trading commissions and even minimum deposit requirements, meaning you can put any amount of money you have available to work right away.
If you've kept some powder dry waiting for good stocks to pop up, these two tech stocks are cheap enough to buy in December.
There are only a few sure things in this world. Death and taxes are two certainties, as are hackers trying to break into personal data. This year is expected to break all kinds of records for data breaches, and so far, through the third quarter, 40 million people have had their data compromised.
That's why CrowdStrike (CRWD -2.23%) will have a never-ending stream of ready-made customers lining up for its cybersecurity services. It's not exactly a high-growth business, but a steady-state one that ought to generate reliable returns for CrowdStrike and investors.
What sets CrowdStrike apart is its Falcon platform, which uses sophisticated machine learning, artificial intelligence, and behavioral analysis to detect and thwart cybersecurity risks. It oversees approximately 6 trillion events each week, and as time progresses, it grows smarter and is able to recognize and respond to potential threats more quickly.
Because Falcon was built in the cloud, it's often a more effective and cheaper cybersecurity solution for businesses than on-premises security products. In less than five years, CrowdStrike's subscriber count has catapulted from 450 to almost 14,700, a 75% year-over-year increase.
It provides customers a level of personalization and customization to dial in just the sort of protection they seek so that customers who've purchased four, five, or six or more modules increased to 68%, 55%, and 32%, respectively, in the third quarter. They're obviously satisfied with the product -- 98% renew their subscriptions, with annual recurring revenue increasing 67% to $1.5 billion.
Analysts forecast Crowdstrike's revenue will grow at a compounded annual rate of 36% over the next five years, and operating losses today will transition to over $1 billion in profit by 2026. Earnings per share is expected to grow 71% annually over the next five years.
By traditional valuation metrics, CrowdStrike doesn't necessarily look cheap, but with shares down 30% off their 52-week high, this industry leader is worth the valuation premium you'd pay.
With the change in Square's name to Block (SQ -1.94%), the next phase of the company's growth is unfolding. While it made a name for itself developing point-of-sale devices for small- and medium-sized merchants, it has since expanded to larger, more complex sellers. Its mid-market seller gross payment volume (GPV) represented 37% of total seller GPV, compared to 28% two years ago.
Yet the merchant market has receded in importance for Block, as seller revenue represented only one-third of total third-quarter revenue, or $1.19 billion. It was still up 44% from last year, but Block's fast-growing peer-to-peer digital payments system CashApp is now the dominant portion of the business with $2.39 billion in quarterly revenue.
The number of monthly active users has risen five-fold over the three years ending at the end of 2020, while generating $55 in gross profit per user and only costing Block $5 to acquire new users. Cash App has become a cash cow, generating $512 million in gross profit, up 33% from last year.
Block is also acquiring Afterpay, a "buy now, pay later" (BNPL) outfit, for $29 billion in stock to enhance functionality for Cash App users that could draw young users to the platform.
However, as the name change suggests, cryptocurrencies built on blockchain technology will begin to play an outsized role in Block's future. Bitcoin trading contributed another $1.8 billion to revenue in the recent quarter. With CEO Jack Dorsey having resigned as CEO of Twitter, he'll now be able to fully engage his enthusiasm for crypto. But the integration is a double-edged sword, as cryptocurrencies pose a threat by potentially stealing away business -- and are part of the reason why Block's stock is down 40% from recent highs.
The plunge in the stock looks like a good opportunity to buy a very good business at a significant discount, though, as its diverse collection of innovative businesses should help it turn around. Wall Street thinks revenue will more than double over the next five years to $38 billion, while operating income should climb tenfold.
Block is another tech stock that doesn't look cheap by the usual measures, but with several key irons in the fire, and all of them growing, it is ready to capitalize on these fintech trends.