Most cryptocurrencies crashed over the past two years as inflation, rising interest rates, and macro headwinds drove investors toward more conservative investments. The failures of several high-profile crypto tokens and exchanges, along with intensifying regulatory headwinds, exacerbated that pain and brought on a new crypto winter.
The crypto market might eventually stabilize, but investors could be better off sticking with reliable, high-growth tech stocks in this wobbly market. I believe these three stocks -- Pinduoduo (PDD 2.80%), Polestar (PSNY 0.85%), and The Trade Desk (TTD 1.67%) -- should outperform most cryptocurrencies for the foreseeable future.
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1. Pinduoduo (PDD)
Pinduoduo is China's third-largest e-commerce company after Alibaba (BABA 0.59%) and JD.com (JD 6.12%). It's also growing at a much faster rate than both of those market leaders. Between 2019 and 2022, its revenue grew at a compound annual growth rate (CAGR) of 64% in USD terms.
That explosive growth was driven by three catalysts: the popularity of its discount marketplace across China's lower-tier cities, the expansion of its online agricultural platform, which enabled farmers to directly sell their fresh produce to shoppers, and the Chinese government's antitrust crackdown on Alibaba's e-commerce business. Pinduoduo's decision to phase out its lower-margin first-party marketplace, along with other cost-cutting measures, enabled it to turn profitable on a generally accepted accounting principles (GAAP) basis in 2021. Its net profit nearly quadrupled the following year.
As Pinduoduo's profits rose, it ramped up its investments in local agricultural programs to tether more farmers to its marketplace, expanded overseas with a cross-border marketplace called Temu, and partnered with higher-end brands to challenge Alibaba and JD across China's top-tier cities. For 2023, analysts expect its revenue and adjusted earnings to grow 50% and 29%, respectively, as those tailwinds kick in.
Those growth rates are impressive, yet Pinduoduo's stock still looks surprisingly cheap at just 15 times forward earnings -- presumably because many American investors aren't willing to touch Chinese stocks until the trade tensions and delisting threats are finally resolved. But if you believe those headwinds will eventually dissipate, adding a few shares of Pinduoduo to your portfolio while the bulls are looking the other way could be a very smart move.
2. Polestar
At first glance, Polestar might seem like just another electric vehicle (EV) maker that failed to impress investors after making its public debut by merging with a special purpose acquisition company (SPAC).
But unlike many of those SPAC-backed companies that are struggling to ramp up their production, Polestar has already shipped tens of thousands of vehicles. It's also backed by Geely's Volvo, which previously ran Polestar as a high-performance brand before spinning it out as a stand-alone EV maker in 2017.
Polestar's first vehicle, the Polestar 1 sports car, was only sold in limited quantities and discontinued earlier this year. Its second vehicle, the Polestar 2 electric sedan, accounts for all of its current shipments. Its third vehicle, the Polestar 3 SUV, will arrive in early 2024.
Polestar delivered 28,677 vehicles in 2021 and 51,491 vehicles in 2022, and it expects to produce 60,000 to 70,000 vehicles this year. That growth rate seems stable, but Polestar's habit of overpromising and underdelivering (it once said it could ship 65,000 vehicles in 2022 and produce 80,000 vehicles in 2023) repeatedly disappointed the bulls.
Nevertheless, analysts still expect Polestar's sales to rise 23% to $3.04 billion this year. With an enterprise value of $7.8 billion, Polestar looks cheap at just 2.6 times that estimate. Its losses are still widening, but that bleeding could eventually stop as the macro headwinds dissipate and economies of scale reduce its operating expenses.
3. The Trade Desk
The Trade Desk is the world's largest independent demand-side platform (DSP) for digital ads. DSPs enable advertisers to automatically place bids for ad space across desktop, mobile, and connected TV (CTV) platforms. They usually work in tandem with supply-side platforms (SSPs), which help publishers sell their own ad inventories.
Digital advertising giants like Alphabet's Google and Meta Platforms bundle together DSPs, SSPs, and other marketing tools, but they both tend to lock advertisers into their own walled gardens. Therefore, companies that want to sell their ads across the "open internet" outside of those ecosystems tend to work with independent DSPs like The Trade Desk.
The market's demand for The Trade Desk's services is booming. From 2016 to 2022, its annual revenue grew at a CAGR of 41% as its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose at a CAGR of 47%. It attributes a lot of its recent growth to the CTV market's shift toward ad-supported streaming services.
The Trade Desk is also continuously expanding its advertising ecosystem. Its new platform, Solimar, uses AI algorithms to gather more first-party data for targeted ads, its Unified ID 2.0 format eliminates the need for third-party cookies, and its OpenPath platform completely bypasses SSPs by directly connecting advertisers to publishers.
Analysts expect its revenue and adjusted EBITDA to rise 23% and 15%, respectively, this year. It isn't cheap at 20 times this year's sales and 52 times its adjusted EBITDA -- its long-term growth potential justifies that premium valuation.
