The stock market is constantly in flux, meaning plenty of innovative and disruptive companies continue to perform in a volatile fashion. For the three disruptors I'm highlighting today, this is certainly the case. And while 2023 has proven to be a much better year thus far for these three stocks, on a year-over-year basis, investors have certainly felt the pain of an uncertain macroeconomic outlook.
That said, for those with a multiyear (or multidecade) investing time horizon, such stocks can provide significantly higher upside than their value counterparts. Here are three stocks atop my buy list right now.
1. Zoom Video Communications
Zoom Video Communications (ZM 0.05%) is a company that finds itself among the most beaten-down names in the tech sector (and that's saying something). With a one-year decline of 52% at the time of writing, this is a growth stock many investors have simply lost faith in.
That said, there are a number of catalysts with Zoom I think are worth considering. The company's upcoming earnings report on Feb. 27 should be a big deal for investors. That's primarily because its most recent Q3 results left little for investors to cheer.
This past quarter, Zoom reported deterioration on a number of key metrics, with earnings declining 3% year over year and the company's forward outlook providing little for investors to be excited about. That said, at its Zoomtopia event, founder and CEO Eric Yuan unveiled several innovations, including and Zoom Calendar, as well as strategic partnerships that are set to revolutionize the modern workplace.
The company's renewed focus on growth via enterprise solutions is something I think could set the stage for both top- and bottom-line improvements in the upcoming quarter and moving forward. While many of the growth tailwinds that supported Zoom's rise in recent years (mainly stemming from the pandemic) have dissipated, it's also clear that hybrid work solutions are more important than ever. Thus, if Zoom is able to grow its market share in the enterprise communications segment, this is a profitable business (emphasis on profitable) that's significantly overlooked as a disruptor in this market right now.
2. Teladoc Health
Teladoc Health (TDOC -0.07%) is certainly a company many would include in the "disruptor" bucket, given the company's focus on reshaping the way healthcare services are performed. However, like the other names on this list, Teladoc stock remains well off its highs, down 63% over the past 12 months.
This poor performance has been reflected in recent results, which left much to be desired. Yes, revenue did rise 17% year over year, with the company suggesting investors focus on metrics such as access fee growth of 20% as a reason for optimism. However, Teladoc's adjusted EBITDA loss expanded by 24%, making the company's net loss, which did narrow, less palatable.
That said, like Zoom, Teladoc's year-over-year comps have been difficult to beat. Moving forward, this should be less of a concern, and I expect to see better year-over-year numbers on the horizon, given the company's strong management team and growth outlook.
It's also worth noting that stock-based compensation plays a big role in the net loss numbers figures, as well as the amortization of intangible assets on the company's books. Teladoc's free-cash-flow growth has picked up, and interest in this stock from Cathie Wood and others has kept it on investors' radar. If the company can strategically cut costs and improve EBITDA growth in the coming quarters, this is a disruptor with some fundamental potential (at least on a cash-flow basis).
3. Block
Block (SQ -1.57%) will announce its financial results for Q4 and the entire year of 2022 on Feb. 23, after market close. The company will also hold a conference call and webcast at 5 p.m. ET on the same day to discuss the results. The question many investors have is whether this is a stock worth owning heading into earnings.
Block, formerly known as Square, is a global technology company specializing in financial services such as Square, Cash App, Spiral, TIDAL, and TBD. The company's goal is to develop tools that enable more individuals to participate in the economy. Square provides merchants with an array of commerce solutions, business software, and banking services to help them run and expand their businesses.
Cash App has been the key innovative driver many investors have focused in on lately. Whether that's because of this app's potential to disrupt traditional payment networks via its ties to crypto, or its low-fee banking model aimed at lower-income consumers, there's an argument to be made that Block is changing the way many users think about banking.
I think Block is onto something when it comes to its focus on shifting the mindset of its users away from the way things have always been done to how Block envisions the future. Whether this translates into consistent earnings growth over time is where the debate is right now with the stock. Indeed, the company's recent results, which showed significant top-line growth that beat expectations by a wide margin, but bottom-line numbers that only met consensus estimates, suggests this company isn't yet the earnings machine many long-term investors are hopeful it can turn into.
That said, I see the company as the likely winner in the fintech market share race right now. That makes this stock a holding worth considering for those with a very long-term investing time horizon.
Bottom line on these industry disruptors
Recent results for each of these companies certainly paint a rather mixed picture for their respective outlooks moving forward. Disruptive or not, these businesses haven't been delivering on their fundamentals, at least the way many investors expect. And in this market, fundamentals reign supreme.
Over time, I think each of these disruptors can certainly grow into their valuations. Perhaps the 2022 sell-off was necessary. After all, the valuations these companies held at their peaks appear in hindsight to be unsustainable.
The best predictor of an investor's future returns is the price they bought a given security at. For those who believe the future is bright for these three innovative companies, now may be the time to start building a position.
