There are hundreds of publicly-traded companies on the market, and sometimes, it's hard to know which ones are worth your hard-earned money. Thankfully, there are clues that can help you make sound investment decisions. Here's one thing you can bet on: Investing in companies at the forefront of growing industries and that possess a competitive edge will pay rich dividends down the road.
Let's look at two companies that closely fit this description: Abbott Laboratories (ABT -0.03%) and Adyen N.V. (ADYE.Y -15.43%). Here's why both of these stocks are excellent choices for investors.
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1. Abbott Laboratories
Abbott Laboratories is best known as a medical devices specialist -- and it is one of the most established leaders in this field. The company boasts a vast portfolio of products that are protected by patents. Abbott Laboratories' patents combined with its industry know-how in a highly regulated industry -- not to mention the name recognition it has earned throughout the years -- confer it a solid competitive edge.
But there is more to the story. Abbott Laboratories' business is highly diversified. It has three other operational segments: Nutritional products, diagnostics products, and established pharmaceuticals (which sells generic pharmaceuticals in emerging markets). In 2020, the company showed how much of an asset its diversified business is.
Even as its medical devices unit took a hit due to the coronavirus outbreak, Abbott Laboratories developed and marketed several COVID-19 diagnostic tests, which helped the healthcare giant smooth out the losses it experienced from decreased medical devices revenue. A recent surge in COVID-19 cases also led to increased sales of Abbott Laboratories' coronavirus diagnostics test.
In the third quarter, Abbott Laboratories' diagnostics segment's sales soared by 48.2% year over year to $3.9 billion, largely thanks to its coronavirus-related products. If the recent rise in COVID-19 cases continues, Abbott Laboratories will manage the storm just fine, as it did in 2020.
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The medical devices industry hasn't peaked. According to some estimates, the sector will expand at a compound annual growth rate (CAGR) of 5.2% through 2027. And there are several exciting opportunities Abbott Laboratories is looking to tap into.
Within its diabetes care segment, Abbott Laboratories' continuous glucose monitoring (CGM) device, the FreeStyle Libre, continues to make headway. During the third quarter, sales of the company's diabetes unit soared by 33% year over year to $1.1 billion. Sales of the FreeStyle Libre clocked in at almost $1 billion, and the company added 200,000 users during the period, bringing its total to over 3.5 million consumers worldwide.
The company's structural heart unit -- where it sells minimally invasive devices to treat various structural heart conditions -- is also growing. This segment's sales increased by 11% year over year to $392 million in the third quarter, led by such products as the MitraClip, the leading device for the treatment of mitral regurgitation, and others. For the third quarter, Abbott Laboratories' total sales came in at $10.9 billion, 23.4% higher than the year-ago period. The company's adjusted earnings per share grew by 43% year over year to $1.40.
Abbott Laboratories' ability to consistently deliver solid financial results thanks to its strong standing in the medical devices space is what makes it a no-brainer stock.
2. Adyen
Adyen is a fintech company based in the Netherlands that helps simplify the way merchants process payments. How useful are Adyen's services in a crowded playing field? When a customer wants to pay for goods or services using a credit card, be it online or in a traditional brick-and-mortar store, the transaction goes through several intermediaries -- a payment processor, a credit card network, and a risk management system -- before eventually making its way to the card issuer, typically a bank.
This multi-level system is complex enough. But for companies that do business and accept payments worldwide, it can become a clunky, fragmented mess that costs more than it should, since they have to work with multiple third parties depending on geographical area and the type of payments processed.
Adyen provides payment gateways, payment processing, risk management, and other services within a single platform. The company charges processing and settlement fees -- two segments that make up the bulk of the company's revenue.
Adyen's business benefits from high switching costs. For large multinational corporations, jumping ship from one payment platform to another can be very costly and result in severe business disruptions. This powerful competitive advantage helps explain why Adyen consistently keeps most of its customers.
Image source: Getty Images.
Financial results are booming for the company as well. In the first half of 2021, its revenue soared by 46% year over year to 445 million euros ($505.6 million), while its processed volume -- the total value of transactions processed through its platform -- jumped by 67% year over year to 216 billion euros ($245.4 billion).
Furthermore, Adyen's net income of 204.8 million euros ($232.7 million) slightly more than doubled compared to the year-ago period.
What's next for Adyen? The fintech industry's growth will be a powerful tailwind for the company. This market will clock in a CAGR of 13.7% through 2026. Adyen itself sees expansion into new geographical areas (it currently generates most of its revenue from Europe, followed by North America) as a potential avenue for growth.
Adding new customers to its portfolio while expanding the range of the services it offers existing clients, combined with the increase in online payment transactions, will all help Adyen solidify its spot as a fintech leader for many years to come.
