If there's a lesson Wall Street is always willing to teach, it's the importance of patience. Time is investors' greatest ally, as demonstrated by the benchmark S&P 500 rallying to nearly six-dozen all-time closing highs last year.
But no matter how high the widely followed S&P 500 heads, patient investors can always find a good deal. This year, four stocks stand out as no-brainer buys that have the potential to make investors richer.
Image source: Getty Images.
Block
Many of the leading growth stocks during the pandemic have recently gone on sale due to fears over rising interest rates. This includes fintech stock Block (SQ -1.68%), the company previously known as Square. But these worries appear largely overblown, which makes Block one heck of a bargain for investors in 2022 (and well beyond).
Dating back more than a decade, Block has leaned on steady growth from its seller ecosystem. The company provides point-of-sale tools, data analytics, and even loans to help merchants succeed. In the seven years leading up to the pandemic, the gross payment volume (GPV) traversing Block's network grew by an annual average of 49%.
What's noteworthy is that the seller ecosystem doesn't just cater to small merchants anymore. According to the company's operating results for the September-ended quarter, two-thirds of all GPV came from merchants with annualized GPV of at least $125,000. Since merchant fees make up most of the revenue Block brings in from the seller ecosystem, bigger merchants will mean more gross profit for the company.
But what investors are really focused on is digital peer-to-peer payment platform Cash App. Cash App allows Block to generate revenue from numerous channels, including merchant fees, bank transfers, and investments. In a three-year stretch between the end of 2017 and the end of 2020, Cash App's monthly active transacting user count more than quintupled to 36 million.
Block should also be closing its $29 billion acquisition of "buy now, pay later" giant Afterpay this year. This deal will provide a bridge between the seller ecosystem and Cash App. In other words, Block is still in the early innings of its growth.
Image source: Getty Images.
Lovesac
Stocks that are no-brainer buys typically offer competitive advantages and differentiation. One such company that's probably not on your radar but fits this definition is furniture seller Lovesac (LOVE -2.59%).
Most furniture companies operate similarly. They rely on foot traffic to brick-and-mortar locations, and they purchase goods from a small handful of wholesalers. Lovesac differentiates itself in two key ways: its furniture and its omnichannel sales platform.
Although Lovesac first made a name for itself with its beanbag chairs, known as "sacs," approximately 85% of its sales now derive from its modular couches, known as "sactionals." Sactionals can be arranged dozens of ways to fit nearly every living space and accommodate small or large groups of people. They also come with roughly 200 different cover choices, meaning they'll match whatever color or theme a home has to offer. Plus, the yarn that's used in these covers is made entirely from plastic water bottles. Put this all together, and you can see why sactionals are a big hit with millennials. They're functional, eco-friendly, and provide plenty of choice for consumers.
Lovesac's ability to alter how it sells its products is also an advantage. Whereas most furniture stores were clobbered by a decline in foot traffic during the pandemic, Lovesac shifted close to half of its sales online. It was also able to operate pop-up showrooms and partner with a few brand-name companies. The point is this: Lovesac doesn't rely on stodgy brick-and-mortar locations, which has helped reduce its overhead costs. In fact, this online shift during the pandemic pushed it to recurring profitability two years ahead of Wall Street's forecast.
Furniture stocks may not be exciting, but this innovator in the furniture space is a no-brainer buy.
An immersion station at the Planet 13 Las Vegas Superstore. Image source: Planet 13.
Planet 13 Holdings
Another no-brainer stock that can make patient investors richer in 2022 is marijuana stock Planet 13 Holdings (PLNH.F -2.66%).
Like most pot stocks, Planet 13 has been a buzzkill for the past 11 months. The expectation had been that President Joe Biden and a Democrat-led Congress would enact cannabis reforms at the federal level. Yet none of these prognostications have come to pass.
But that doesn't mean cannabis stocks can't succeed. To date, 36 states have legalized marijuana in some capacity, and the federal government is maintaining a hands-off approach. That's a formula for multi-state operators (MSOs) like Planet 13 to thrive.
What makes Planet 13 different from other MSOs is that it focuses on the experience and nostalgia as much as it does on making a sale. The company only has two operating locations, but they're doozies. The Las Vegas SuperStore, just west of the Strip, spans 112,000 square feet and features an events center, consumer-facing processing center, and restaurant. Meanwhile, the Orange County SuperStore is 55,000 square feet, with 16,500 square feet devoted to selling. There simply aren't cannabis dispensaries in the country that offer the selection or experience provided by Planet 13.
Having visited the flagship Las Vegas location a few years back, I was impressed by its inclusion of technology (e.g., self-pay kiosks), the personalization of the experience (offering individual budtenders to guide consumers throughout the store), and the floor layout, which coerced consumers toward higher margin derivatives, such as edibles, oils, and beverages.
The next step for the company is to set up dispensaries in Chicago, Orlando, and Miami (i.e., popular tourist markets). With Planet 13 eyeing recurring profitability in 2022, it looks like a good bet to show shareholders the green.
The all-electric EC6 crossover hit showrooms in 2020. Image source: Nio.
Nio
A fourth and final no-brainer buy that could make investors richer in 2022 is electric vehicle (EV) manufacturer Nio (NIO -0.48%).
I wasn't a fan of Nio at this time last year. The company had delivered fewer than 44,000 EVs in 2020, yet was being anointed with a valuation that topped $90 billion. It made little sense. But a year later, I've watched in awe as management continues to execute and innovate with precision, even as supply chain issues wreak havoc on auto stocks.
With semiconductor chip shortages waning, Nio delivered close to 10,900 EVs in November and nearly 10,500 EVs in December. On an annualized basis, we're talking about roughly 130,000 EV deliveries. But the company won't end 2022 anywhere close to an annual run rate of 130,000 EVs. Between organic growth from existing models and the introduction of three new EVs this year, management anticipates hitting 50,000 monthly deliveries by year's end. That would represent a 600,000 EV annual run rate.
Aside from the fact that virtually all major economies globally are pushing EVs as a way to combat climate change (making the industry a no-brainer growth story), Nio's innovation is also important. In August 2020, the company introduced its battery-as-a-service (BaaS) solution. With BaaS, buyers can charge, swap, or upgrade their batteries, as well as receive a discount on the initial purchase price of their EV. In return, they pay a monthly fee to Nio. In other words, the company is wisely trading near-term revenue for sustainable and high-margin subscription fees that'll ultimately keep buyers loyal to the brand.
Nio could well be one of the fastest-growing companies of the decade, and it's located in the largest auto market in the world, China.
