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Danny Vena

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There’s little question that one of the surest paths to wealth generation is investing in quality companies and holding them over the long term. If you have any doubts, consider this: Since its inception in the mid-1920s through 2019, the S&P 500 (originally just 90 stocks) has returned roughly 10% annually. Since expanding to 500 stocks in the mid-1950s, the index has returned roughly 8%.

This means that time is on the side of investors, and the sooner you get started, the better your chances are of retiring with a seven-figure nest egg.

Another way investors can increase their chances of building a life-changing portfolio is by investing in smaller companies with a disruptive, game-changing product. Let’s look at three companies that meet this criteria and see what else they have in common.

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1. Guardant Health: A game-changer in cancer detection

While cancer treatment has come a long way in recent years, one thing hasn’t changed: early detection is a key to survival. Unfortunately, many of the existing methods for determining if a patient has cancer are both costly and invasive. That’s where Guardant Health (NASDAQ:GH) comes in.

The company is a pioneer in the field of liquid biopsy, which can detect fragments of cancerous cells with a simple blood test. By identifying DNA and RNA fragments shed by cancerous tumors, Guardant is revolutionizing the future of cancer detection. That’s not all. By helping to determine what type of cancer is present, doctors can tailor a treatment plan much quicker than was previously possible.

During 2019, Guardant Health’s revenue soared by 137% year over year, though the company hadn’t yet generated a profit. The trend continued into early 2020, with first-quarter revenue up 84%. The onset of the pandemic crimped the company’s growth, however, as patients put off all but the most critical medical procedures and second-quarter revenue climbed just 23%. Management has since revealed that demand was returning levels it experienced pre-COVID, which should signal improvement for its upcoming quarter.

Finally, the Food and Drug Administration approved the company’s latest cancer screening tool, Guardant360 CDx, which will help accelerate wider adoption of this game-changing healthcare technology.

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2. Okta: Identify verification takes center stage

More people are working from home than ever before, which took many employees out from under the umbrella of their corporate IT department and forced them to access systems remotely. This increased the already formidable threat of unauthorized access and intrusion. Okta (NASDAQ:OKTA) was there to answer the call.

The company’s cloud-based identity management service was already the undisputed leader in identity and access management, handling the task of user authentication for employees, contractors, and customers, integrating with more than 6,500 business software applications to create a single, secure login. The company boasts more than 8,400 global organizations that rely on Okta to manage their access and authentication protocols. Okta was named the industry leader in access management for the third year running by research company Gartner, taking the top spot in its vaunted Magic Quadrant. Forrester Research awarded the company similar accolades, naming it the leading identity-as-a-service (IaaS) provider.

The proof, as they say, is in the pudding. For the first half of 2020, Okta’s revenue jumped 44% year over year. At the same time, its remaining performance obligation — which consists of future revenue that is under contract but has not yet been recognized — surged 56% year over year.

Management cited the adoption of cloud computing, the ongoing digital transformation, and the need for zero-trust security as significant tailwinds accelerating Okta’s already heady growth prospects, with no signs of slowing on the horizon.

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3. MongoDB: A new take on what a database can do

Let’s face it: Today’s data is messy. What once fit neatly into well-defined columns and rows is now made up of photos, video, audio, even entire documents. As a result of the changing nature of data analysis, the legacy database falls far short of requirements.

Enter MongoDB (NASDAQ:MDB). The company’s cutting-edge, cloud-based platform does away with the strict structure required by its predecessors and can handle a wide variety of data types pulled from multiple sources. That makes it the top choice of developers, empowering them and the apps they design. It’s MongoDB’s free community offering that entices customers to try it out, but it’s the company’s cloud-centric, fully managed database-as-a-service (DBaaS) product — Atlas — that’s the key to MongoDB’s stellar growth.

In the second quarter, MongoDB reported revenue that grew 39% year over year, while subscription revenue climbed 41%. It was Atlas that stole the show, however, climbing 66% and now representing 44% of the company’s total revenue. That’s an impressive performance for a product that’s less than four years old.

It was impressive underlying customer acquisition that drove the company’s strong growth. MongoDB’s total customer count climbed to 20,200, up roughly 35% year over year. Those gravitating to Atlas grew at an even quicker pace, up 42% to 18,800. Customers contributing annual recurring revenue (ARR) of $100,000 or more grew to 819, an increase of 32%.

Messy data is here to stay, giving this database disruptor a large and growing opportunity.

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You get what you pay for

Eagle-eyed investors will have detected several similarities between these future all-stars. First, they each have a relatively small market cap, with Guardant Health, MongoDB, and Okta coming in at $11 billion, $15 billion, and $32 billion, respectively. While a lower market cap typically results in higher volatility, it also provides each of these disruptors with a long runway for future growth.

Each company is also a high risk, high reward proposition, earning each a somewhat lofty sticker price and a valuation to match. MongoDB, Guardant Health, and Okta are currently selling at 28, 39, and 39 times forwards sales, respectively — when a good price-to-sales ratio is generally between 1 and 2. It’s also important to note that none of these companies is currently profitable, instead opting to spend their limited resources to secure future growth.

In each case, however, investors have thus far been willing to pay up for the impressive top-line growth and the potential for the explosive profits in the months and years to come.

Author: Danny Vena

Source: Fool: Investing in These 3 Stocks Now Could Make You a Millionaire Retiree

Sometimes the best place to look for a stock that could double is checking out the ones that already have.

There’s a certain satisfaction that happens when a stock doubles, giving investors confirmation that their hard work in finding the right stock has produced results. Yet it can be difficult to find those elusive double-baggers, unless, of course, you know where to look.

There are a number of criteria investors can use to gauge the potential that a stock can double. A company with groundbreaking healthcare technology, one tapping the tailwinds of changing consumer behavior, or one that provides easy and effective remote workplace tools might all be a good place to start. Another potential indicator can be a stock that has already doubled investors’ money, with no signs of slowing.

Here are three stocks that meet one of the aforementioned criteria, while also having doubled — or more — over the past three years.

1. Guardant Health: a groundbreaking approach to cancer detection

As anyone who has ever been in the position can attest, one of the most terrifying diagnoses any patient can receive is to be told he or she has cancer. The key to survival in many cases has been early detection and treatment.

Guardant Health’s (NASDAQ:GH) revolutionary liquid biopsy can detect cancer cells with a simple blood test that can recognize the DNA and RNA fragments shed by cancerous tumors. The results also help providers choose the most effective course of treatment. Guardant Health is currently developing next-generation tests that could detect cancer even sooner.

During 2019, Guardant Health grew revenue by a massive 137% year over year, though the company had yet to generate a profit. The impressive growth continued into early 2020, with first-quarter revenue up 84%.

However, as the pandemic struck, patients began foregoing all but the most critical visits to the doctor’s office or hospital, resulting in a significant decline in testing. This led to second-quarter revenue that grew just 23%, though management noted it has seen a recovery to pre-pandemic levels, which bodes well for the coming quarters.

Even in the face of challenges wrought by the pandemic, its vast potential for growth remains. Guardant Health estimates it has a market opportunity of more than $50 billion — and that’s in the U.S. alone. For context, Guardant Health generated revenue of just $214 million for all of 2019, which illustrates the massive opportunity that lies ahead.

It’s important to note that Guardant Health currently trades at more than 34 times forward sales, but investors have been willing to give its valuation a pass, likely due to the groundbreaking nature of its healthcare technology. With an opportunity of this magnitude, a double from here seems almost inevitable.

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2. Roku: the streaming pioneer remains the leader

Roku (NASDAQ:ROKU) pioneered the set-top streaming box, but has quickly evolved into much more. The company’s secret weapon is the connected-TV operating system (OS) it built from the ground up, unlike rival offerings that merely repurposed existing mobile apps. These made Roku the solution of choice for many smart TV manufacturers that license the Roku OS, rather than reinventing the wheel. In fact, Roku is the No. 1 selling smart TV OS in North America, accounting for 1-in-3 smart TVs sold in the U.S. and 1-in-4 in Canada in 2019.

While the company makes very little from the licensing deals themselves, the move has supercharged the number of viewers using the Roku platform. In the second quarter, active accounts grew 41% year over year to 43 million, while streaming hours surged 65% to 14.6 billion.

Roku makes the bulk of its revenue from advertising shown on its platform. In 2019, revenue grew 52% year over year, while platform revenue — which consists of advertising, The Roku Channel, and licensing of the Roku OS — grew 78%.

The onset of the pandemic resulted in many advertisers reining in marketing spending, temporarily denting Roku’s results. In the second quarter, total revenue increased 42% year over year, while platform revenue climbed 46%. That slower ad spending won’t last forever.

A recent analyst survey shows that Roku has retained its market leadership, with more than 43% of those with a connected TV owning a Roku device, beating out its chief rival Amazon’s Fire TV, which garnered 35%. The revelation drove Roku stock to a new all-time high.

Roku has embarked on an ambitious international expansion, and late last year acquired Dataxu in a move that will make its targeted advertising even more effective.

That’s not to say the stock is cheap, as it’s currently trading for nearly 14 times forward sales, but with its industry-leading position, strong secular tailwinds, and massive market opportunity, the question isn’t if Roku stock will double, but when — and it’s likely sooner than later.

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3. Atlassian: There’s no “I” in TEAM

With the outbreak of the pandemic and the pivot to remote work, tools that made it easier to collaborate with colleagues across town or on the other side of the world became essential in the newly decentralized world.

That’s where Atlassian (NASDAQ:TEAM) comes in. The company provides a platform that not only allows workers to communicate in real-time, but also helps them delegate tasks, collaborate on jobs, share content, create, and even manage projects. The software-as-a-service (SaaS) company also offers The Atlassian Marketplace, which provides developers with more than 4,000 third-party apps to help customize the experience. The platform recently surpassed more than $1 billion in lifetime sales, with $400 million in fiscal 2020 alone. For each sale, Atlassian gets a 25% cut.

The overall experience has been a hit with customers, and Atlassian boasts a who’s-who of some of the biggest names in business, including Adobe, Square, and Visa, among many others. Atlassian added 3,046 net new customers during its fiscal fourth quarter (ended June 30) and its customer base has climbed to more than 174,097, up 14% year over year.

Even more important is that existing customers are spending more. The number of customers spending $50,000 grew to 5,892, up 44% year over year, while those spending $500,000 jumped to 267, up 56%. Even more impressive is that customers spending more than $1 million grew to 104, up 76%.

For its just-completed fiscal year, revenue grew 33%, while net income also increased 33%. It’s important to note that Atlassian trades at more than 25 times forward sales, but the combination of strong top-line growth and solid cash flow has alleviated investor concerns about its frothy valuation.

With the move to remote work gaining steam, it’s easy to see that Atlassian has a clear path to double from here.

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Winners keep winning

If you have difficulty imagining any of these stocks doubling from here, consider this: each stock has doubled — or more — over the past three years. Winners tend to keep winning, so the path to double from here is easier than you might think. Each of these companies merely needs to continue doing what they have been, increasing investors’ money by 100% — or more.

Author: Danny Vena

Source: Fool: Got $3,000? Here Are 3 Stocks That Could Double Your Money — and Sooner Than You Might Think

While some of the most popular stocks among Robinhood traders are considered dicey, there are some top-tier investments to be found as well.

Financial services company Robinhood has enjoyed unprecedented success this year, partially as a result of its stock-trading app with an easy-to-use interface and no-fee trading options. According to Barron’s, the company has been responsible for half of all new online investment accounts opened during the first six months of 2020. Robinhood processed more than 4 million transactions a day during the month of June alone — more than any other online broker.

A significant portion of the online broker’s users are investing novices, enticed by the unprecedented market volatility of the past several months to try their hand at investing, and not always with the most promising results.

That said, not all the choices these particular traders make have been questionable. In fact, three stocks found near the top of the Robinhood charts (which list the most widely held stocks among users) have the potential to make investors rich. And you don’t need the resources of billionaires like Bill Gates or Warren Buffett to access them.

If you have as little as $1,500 that you don’t need to bulk up your emergency fund or for immediate expenses, putting it to work buying these three top stocks could make you a small fortune over time.

1. NVIDIA: Gaming and so much more

Several smart Robinhood investors have been adding NVIDIA (NASDAQ:NVDA) to their portfolio over the past 30 days. An impressive 18,656 of the platform’s users have bought shares of the graphics processing specialist over the past month, bringing the total to 157,881. NVIDIA has turned heads in 2020, with its stock more than doubling since the beginning of the year, no doubt putting the company on Robinhood users’ radar.

What pushed NVIDIA stock to trade so high? The implementation of stay-at-home orders surely played a part, driving up demand for the company’s graphics processing units (GPUs), as a large number of consumers sought refuge in video games.

That alone would have been enough to boost NVIDIA’s share price, but the good news didn’t stop there. The large-scale adoption of remote work and the big push toward cloud computing helped supercharge the company’s results, as NVIDIA’s GPUs are the workhorse of choice among data centers, cloud computing, and artificial intelligence systems, all of which is reflected in the stellar growth of company’s data center segment.

NVIDIA’s recent results tell the tale. In its fiscal first quarter (ended April 26), revenue grew 39% year over year, while earnings per share jumped 130%. Even more telling for the company’s future was the performance of its data center segment, up 80% compared to the year-ago quarter, and growing to account for 37% of NVIDIA’s total revenue. Some analysts suspect that the coming quarter will mark the first time data center revenue will eclipse the gaming segment, driven higher by the recent release of its line of Ampere data center chips.

Investors have thus far been willing to pay up for shares of the GPU maker and that can be seen in the stock now trading at a forward price-to-sales ratio of more than 20 (a ratio between 1 and 2 is reflects a stock trading at a fair price). However, with the rapid adoption of cloud computing and its next-gen gaming chips as drivers, that high valuation isn’t out of line and NVIDIA’s best days are still ahead, making it one of Robinhood investors’ smarter picks.

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2. Microsoft: Breathing new life into the old guard

One of the single most popular stocks among Robinhood investors over the past 30 days has been tech titan Microsoft (NASDAQ:MSFT). An immense 189,812 of the platform’s investors have added the tech giant to their accounts in the past month, bringing the total to 653,838. While there’s no way to know for sure what caught the eye of these investors, the controversy surrounding social media app TikTok likely played a role.

The Trump administration has labeled the short-form video platform a national security risk to the U.S. due to the personal data collected by TikTok and ByteDance, its parent company in China. Just last week, President Trump issued an executive order giving ByteDance 90 days to divest the popular platform, or face a ban in the U.S. Earlier this month, Microsoft confirmed rumors that it was in talks to buy the TikTok app.

While the ongoing saga was no doubt an attention-getter, there are myriad reasons investors should pony up for Microsoft stock. For starters, there’s the company’s burgeoning cloud computing business. Growth of its Azure cloud platform has been outpacing its biggest rival, Amazon Web Services (AWS). In the second calendar quarter of 2020, AWS grew 29% year over year, while Azure’s growth clocked in at 47%.

Each of Microsoft’s major segments contributed last quarter, helping the company boost its overall revenue by 13%, even as a few smaller segments surprised. Xbox content and services surged 65%, while sales of Xbox hardware jumped 49%. The successful quarter helped Microsoft generate $18.7 billion in operating cash flow and free cash flow of $13.9 billion, both up 16%.

This illustrates the ongoing and significant catalysts ahead for Microsoft, so it’s little wonder the tech giant is a favorite among Robinhood investors.

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3. Square: Expanding into every corner of the payments world

Another popular stock among Robinhood investors over the past month has been Square (NYSE:SQ). Another 9,736 of the platform’s investors bought shares of the payments specialist over the past 30 days, bringing the total to 118,574. Investors were likely intrigued by the company’s significant run so far this year, with the stock gaining more than 140% year to date.

While Square is known for its namesake payment dongle, the lingering COVID-19 pandemic has changed the way customers are transacting business. Many are switching to online purchases in lieu of physical retail, with the resultant increases in digital payments, which also plays right into Square’s wheelhouse.

The stock’s jump was impressive, but there were plenty of strong underlying financial fundamentals that fueled its meteoric rise. Revenue grew 64% year over year in the second quarter, accelerating from 44% growth in Q1. The company has also noted significant shifts in consumer behavior this year, sending use of its Cash App soaring. After achieving a monthly record of net new transacting customers in March, Square set a new watermark again in April, pushing Cash App into the top 10 on the iOS app store in mid-April. That helped the Cash App generate year-over-year gross profit increases of 115% and 167% in the first and second quarter, respectively.

That’s not all. The Cash App ecosystem continues to evolve, as transactions per customer increased to 15, on average, up nearly 50% year over year. More than 7 million customers used their Cash Card, up 100% from year-ago levels.

It’s worth noting that given the stock’s significant gains this year, Square isn’t cheap, with the fintech company sporting a forward price-to-sales ratio of 9. However, I would argue it’s still a steal, as analysts expect Square’s earnings to double between this year and next.

Author: Danny Vena

Source: Fool: $1,500 Invested in These 3 Top Robinhood Stocks Could Make You Rich

Many companies are capitalizing on the stay-at-home economy. These three tech stocks are tops.

One of the most obvious side effects of the COVID-19 pandemic has been the acceleration of trends that support consumers while they’re making the most of their time at home. E-commerce, gaming, and streaming music and video have all emerged as the clear winners of the stay-at-home economy.

Investors have avoided some of the biggest winners, though, concluding that they couldn’t possibly go any higher, only to find that these ongoing trends and the companies that enable them will likely continue to benefit for the foreseeable future. It only takes 30 days to change a habit, and with the lockdowns now crossing six months, many of the recently adopted behaviors will continue into the months and years ahead.

Here are three top-notch technology stocks that are still buys — even after their stunning successes so far in 2020.

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Amazon: So many ways to prosper

When Amazon.com (NASDAQ:AMZN) initially reported its first-quarter results to close out April, investors were taken aback by CEO Jeff Bezos’ pronouncement that the company would spend its entire $4 billion in expected second-quarter operating profit on COVID-related expenses — essentially concluding that there would be no profits for the quarter.

While that was certainly a logical conclusion to draw, Amazon has always played by a different set of rules. As I argued in early May, Bezos was “playing the long game,” a strategy that had served the company well.

Amazon surprised many investors late last month when it reported second-quarter net sales that soared 40% year over year, accelerating from 26% gains in Q1. Even more importantly, the company generated more than $5.2 billion in net income — even after spending “over $4 billion in incremental COVID-19-related costs.”

It isn’t just e-commerce that’s propelling Amazon higher. The company is the leader in cloud computing, which continues to get a boost from the adoption of remote work. Amazon Prime Video and Prime Music are entertaining families on lockdown, while its Twitch video game streaming platform is the industry leader.

With so many ways to win, Amazon is as close to a no-brainer stock as you can get when it comes to stay-at-home tech stocks.

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NVIDIA: The choice of serious gamers and cloud operators

Another industry that’s gotten a boost from the stay-at-home economy is that of gaming. While the video game publishers are certainly one way to play the trend, owning shares of NVIDIA (NASDAQ:NVDA) is a broader way to benefit.

When it comes to gaming, no other graphic processing unit (GPU) holds a candle to NVIDIA, which is still the top choice of serious — and even more casual — gamers everywhere.

Gaming still accounts for the majority of NVIDIA’s revenue (about 43% in the first quarter), but its GPUs are also the top choice in the world’s foremost data centers, cloud computing, and artificial intelligence operations. The data center segment (which contains all three) grew 80% year over year and now generates 37% of NVIDIA’s sales, up from 29% in the prior-year quarter.

It isn’t just gaming that’s received a boost from the pandemic, as cloud computing has been at the center of the trend toward remote work, another aspect of the stay-at-home economy. In fact, the shift to the cloud that’s occurring will be permanent, as the holdouts come to understand the true benefits of cloud computing, according to research company Gartner.

NVIDIA has an edge, as its GPUs currently serve each of the major cloud providers, including Amazon Web Services, Alphabet’s Google Cloud, and Microsoft’s Azure, just to name a few. With the potential to continue to benefit from remote work and reaccelerating lockdowns, NVIDIA should be near the top of every tech investor’s buy list.

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Netflix: The first name in streaming video

Netflix (NASDAQ:NFLX) may have started shipping movies-by-mail, but the “net” in its name was always intended to point to a future of internet delivery. The company has become synonymous with the streaming video it pioneered and has worlds left to conquer.

Over the years, there have been many prognostications that there would eventually be a Netflix killer, but the company that started the streaming revolution is still king of the hill. When people found themselves shuttered away at home, they turned to Netflix in droves to while away the hours.

Even after a record 15.8 million subscribers in the first quarter, Netflix continued to gain converts, adding a Q2 record of 10.1 million more, totaling 25.86 million so far in 2020. To give that number context, Netflix added just 27.83 million new subscribers for all of 2019. These stellar customer gains drove revenue to $6.1 billion in the second quarter, up 25% year over year, while net income surged 165%. In an unexpected turn of events, the company even turned cash flow positive.

The biggest growth engine for Netflix is its largely untapped international market, which has been growing by leaps and bounds during the pandemic. While subscriber growth in North America increased just 10% year over year, growth in Latin America jumped 29%, Europe, the Middle East, and Africa (EMEA) grew 39%, and Asia Pacific soared 74%.

This illustrates the worldwide opportunity that remains, particularly as the pandemic drags on and the stay-at-home economy thrives.

Author: Danny Vena

Source: Fool: 3 Stay-at-Home Tech Stocks to Buy Right Now

What they lack in yield, they make up for with massive growth.

This year has been historic for the stock market. The coronavirus pandemic has wrought drastic changes in consumer behavior that will likely continue long after it’s a distant memory. E-commerce has accelerated, streaming video and music are experiencing increased adoption, and video games have seen a resurgence.

It shouldn’t be a surprise, then, to learn that while the broader market has languished in 2020, technology stocks have been a hot commodity this year. The S&P 500 (SNPINDEX: ^GSPC) is near breakeven in 2020, but the tech-heavy Nasdaq (NASDAQINDEX: ^IXIC) has crushed the broader market, gaining about 18%.

Those looking to add income to their portfolio don’t need to sacrifice gains in order to ensure regular dividend payments, however. Here are three tech companies with a small but growing dividend that more than make up for a lower yield with impressive, market-beating growth.

Microsoft: A haven against the pandemic

Under the watchful eye of Satya Nadella, who took the helm at Microsoft (NASDAQ:MSFT) in early 2014, the company has enjoyed a striking renaissance. After languishing for more than a decade, the tech titan has come roaring back, becoming one of the most valuable companies in the process. The stock has gained more than 400% on his watch, with no signs of slowing.

The company has become a cloud leader in just a few short years and continues to give Amazon Web Services (AWS) a run for its money. Azure, Microsoft’s cloud computing operation, has been gaining ground on its archrival by continuing to grow at a faster pace. In the second calendar quarter of this year, revenue from AWS grew just 29% year over year, while Azure climbed 47%. It may not be an apples-to-apples comparison, but it does show that Microsoft is closing the gap on its industry-leading rival.

Microsoft has a rock-solid balance sheet, with more than $139 billion in cash and securities and just $63 billion in debt. The company continues to generate an impressive amount of cash, with operating cash flow of more than $18 billion in the most recent quarter, up nearly 16% year over year, helping fund its strong and growing dividend.

The payout has nearly quadrupled over the past decade, with Microsoft increasing its quarterly dividend from $0.13 in fiscal 2010 to $0.51 in fiscal 2020. The yield may seem paltry, currently sitting right at 1%, but given the stock’s impressive growth, that’s easy to understand. Microsoft uses just 34% of profits to fund the payout, giving the company plenty of leeway to expand the dividend.

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Apple: On the road to becoming a dividend powerhouse

Warren Buffett has become one of Apple’s (NASDAQ:AAPL) biggest cheerleaders in recent years, and investors looking to prosper could do worse than follow the example set by Berkshire Hathaway’s legendary CEO. Apple stock now makes up 43% of Buffett’s portfolio.

When Apple reported results for its fiscal third quarter (ended June 27) this week, the iPhone maker shattered expectations despite pandemic-driven headwinds. Revenue grew 11% year over year, while earnings per share climbed 18%. The iPhone, which generates the majority of Apple’s revenue, edged higher, eking out gains of 1.7%.

Other segments helped with the heavy lifting, as the wearables, home, and accessories segment climbed nearly 17%, while the services segment continued to trudge higher, gaining 15%. These two higher-growth, recurring-revenue streams now account for nearly 30% of Apple’s trailing-12-month revenue.

The company boasts one of the biggest cash piles of any enterprise, with more than $193 billion in cash and securities and $113 billion in debt. Apple’s stash grows with every passing quarter, with operating cash flow of more than $60 billion in its most recent quarter, up 21% year over year, leaving little doubt that its payout is secure and will be for the foreseeable future.

You might not know it based on its yield, but Apple is becoming a dividend powerhouse in its own right. Since resuming its payout in 2012, its dividend has climbed more than 116%, from a split-adjusted $0.38 eight years ago to $0.82. The company uses less than 25% of profits to fund the payout, giving Apple plenty of resources to ensure its future growth. Because of the stock’s growth spurt, the dividend yield has fallen below 1%. In its defense, Apple stock has risen nearly 400% since the resumption of its dividend, so we can probably cut it a little slack.

Apple just announced a 4-for-1 stock split, which might change the numbers, but not the underlying payout.

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NVIDIA: Early in its dividend journey

There’s little question that cloud computing was booming even before the pandemic, but the need to keep employees working remotely has given the trend an additional boost. Graphics processing units (GPUs) perform the complex mathematical calculations that are now a staple in artificial intelligence (AI), as well as in cloud computing and data centers. As the leading supplier of GPUs for these applications, NVIDIA (NASDAQ:NVDA) has seen a surge in demand for its products — even before the pandemic reared its ugly head.

That was evident when the company reported the results for the three months ended April 26. Revenue of more than $3 billion grew 39% year over year, with record data-center revenue climbing to $1.14 billion, up 80%. That drove profits through the roof, with EPS of $1.47 growing 130%.

NVIDIA’s balance sheet is solid, with $16.35 billion in cash and marketable securities, and about $7 billion in debt. The company continues to generate copious amounts of cash, with operating cash flow of $909 million in the most recent quarter, up 26% year over year, providing plenty of resources to fund the payout.

The payout has climbed 113% since NVIDIA began its dividend journey in 2012, growing from $0.075 to $0.16 this year. The yield is barely noticeable, currently sitting right at 0.15%, but NVIDIA’s stock has gained 3,000% since it began paying a dividend, so a little leeway on the yield is surely in order. NVIDIA uses less than 12% of profits to fund the payout, providing the company with resources to give the dividend a sizable boost at some point in the future.

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A bit of perspective

It’s important to note that while there are plenty of other stocks with higher yields, these tech giants more than make up for their smaller payouts with market-beating gains. Each company has easily outpaced both the tech-heavy Nasdaq and the broader S&P 500 so far this year. More importantly, each stock has solidly beaten the indexes over the past 1-, 3-, 5-, and 10-year periods.

Oh, and did I mention they also pay a dividend?

Author: Danny Vena

Source: Fool: 3 Dividend-Paying Tech Stocks to Buy in August

The need for remote work has accelerated the adoption of cloud computing, and Amazon isn’t the only way to profit.

The emergence of the COVID-19 pandemic earlier this year has changed everything, from how we live to how we work, and everything in between. Remote work and videoconferencing have combined to cause a notable acceleration in the adoption of cloud computing, a trend that was already well underway.

When the discussion turns to the cloud, Amazon (NASDAQ:AMZN), with its Amazon Web Services (AWS), invariably dominates the conversation as the pioneer and still leader in the space. There’s little doubt it remains a great place for investors to cut their teeth on the cloud computing revolution, as revenue from AWS grew more than 36% in 2019.

Yet the opportunities don’t stop there, as cloud computing refers to a whole range of software and services that can be provided remotely. And this massive multiyear digital transformation is just getting started.

Let’s look at three areas of the cloud, and identify one no-brainer stock opportunity from each.

1. Twilio: a platform-as-a-service dynamo

In its simplest terms, a platform-as-a-service company provides a cloud-based framework for developers, giving them all the resources they need to build applications. This includes servers, storage, and networking that can be managed remotely.

As stay-at-home and remote work became the order of the day, it also became more important than ever for companies to be able to communicate with their customers, particularly those using apps — from food delivery to ride-hailing, from password resets to customer service, and everything in between.

That’s where Twilio (NYSE:TWLO) comes in. The company provides the building blocks that allow developers to include the company’s communication technology in their apps, allowing them to seamlessly embed messaging systems — all of which can be accomplished in a matter of hours, where it previously took weeks.

The company has a network of 29 cloud data centers in nine geographic regions that serve developers in 180 countries. Twilio’s growing list of customers, which numbered more than 190,000 at last count, grew by 23% in the first quarter and continued to expand beyond our borders. And 28% of its revenue now comes from international markets, increasing from 24% in 2018.

The proof is in the pudding. Twilio’s revenue grew by 57% year over year in the first quarter, while its dollar-based net expansion rate of 143% (its highest level since late 2018) shows that once customers are on board, they not only stick around, but tend to expand their spending over time.

As the need for in-app communication continues to grow, this will no doubt continue to expand the demand for Twilio’s services.

IMAGE SOURCE: GETTY IMAGES.

2. Microsoft: a leader in infrastructure as a service

Infrastructure as a service is the industry Amazon pioneered, making data-center services (like storage, networking, computing, and security) available on an as-needed basis.

Microsoft (NASDAQ:MSFT) has long trailed AWS in the space, but its Azure cloud computing offering has been closing the gap by growing at a must faster rate. As an example, in the first calendar quarter of 2020, revenue from AWS grew 33%, while Azure grew 59%.

But that’s not the only tool in Microsoft’s bag of tricks. The company also provides a host of other services via the cloud, like Microsoft 365, Teams videoconferencing software, Windows Virtual Desktop, and Dynamics accounting software, to name a few.

The diversity of Microsoft’s business also makes it attractive. It has exposure to consumer markets and enterprise products (like Xbox gaming and its LinkedIn professional network) in addition to its business and personal software and fast-growing cloud segments.

That strength was on full display in Microsoft’s fiscal fourth quarter, ended June 30. Even in the face of the pandemic, revenue grew 13% year over year, with each of its business segments contributing to the better-than-expected performance. Azure grew 47% while Xbox jumped 65%, both boosted by the remote-work and stay-at-home economy.

This wide assortment of businesses and its high-growth cloud segment make Microsoft an attractive addition to any portfolio.

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3. Adobe: one of the original software-as-a-service providers

As the name implies, software as a service allows businesses and consumers to rent software rather than buy it, and access it via the cloud. While the concept is commonplace today, that wasn’t so in 2012 when Adobe (NASDAQ:ADBE) made the then-radical decision to switch from shrink-wrapped physical software discs to making its suite of creative software tools available via a cloud-based subscription model.

The rest, as they say, is history. No longer content to offer just its creative software, Adobe has a wide range of products including marketing services, customer relationship management, and analytics tools. Over the past couple of years, the company has made several major acquisitions, pushing it further into marketing and even e-commerce.

Adobe has produced record revenue that has grown in each of the past 21 consecutive quarters. In the second quarter, revenue grew 14% year over year, a deceleration from its recent growth, but impressive nonetheless considering the economic environment wrought by the pandemic. The bottom line grew at an even faster pace, with operating income increasing by 35%.

The rapid transition to remote work put several of Adobe’s businesses front and center. The demand for digital documents surged, with the use of Adobe PDF services climbing 40% sequentially, while the number of documents shares in Acrobat jumped 50% year over year. The company also experienced accelerating adoption for Adobe Sign, its e-signature solution, which has soared 175% so far this year. Installations of Adobe Reader increased 43%, while those of Adobe Scan climbed 66%.

This illustrates the broad reach of Adobe’s cloud-based offerings, and strong demand should continue as the need for remote work remains.

DATA BY YCHARTS.

The global cloud computing market is expected to grow at a compound annual rate of nearly 19% over the next several years, reaching $761 billion by 2027, according to a report by Fortune Business Insights. Each of these companies is a leader in its respective category, giving investors an outstanding opportunity to profit from the accelerating shift to the cloud.

If you’re looking for evidence of the market-beating potential of these cloud innovators, look no further than the results so far this year. Each company has beaten both the S&P 500 and the NASDAQ Composite and beaten them by a wide margin.

Author: Danny Vena

Source: Fool: Got $3,000 to Invest? Here Are 3 No-Brainer Stocks to Buy in Cloud Computing

Even after trouncing the broader market so far this year, each of these companies has a killer advantage that will drive long-term growth.

With the year more than half over, the coronavirus continues to dominate the never-ending news cycle. Yet in the face of high unemployment and an uncertain future, Wall Street continues to press on, with the major indexes shaking off the bad news and climbing higher with each passing day.

While bargains abounded several months ago, the recent run-up has left many investors wondering where to put their hard-earned dollars, as the low-hanging fruit has already been plucked. Fortunately, good buys remain if investors just know where to look.

If you have $1,500 in spare cash that you don’t need for immediate expenses or to beef up your emergency fund, putting it to work in these three top stocks will look like a brilliant move years from now.

IMAGE SOURCE: GETTY IMAGES.

Pinterest: The anti-social media

When it comes to social media, most people will immediately think Facebook, and while it’s certainly become synonymous with the space, it isn’t the only game in town. Investors looking for a stock with additional upside should consider Pinterest (NYSE:PINS), the anti-social media platform.

The app allows users to “pin” pictures from a variety of online sources to their personal “board,” with the goal of motivating and inspiring them to travel, start a project, or try a new recipe, among many other activities. And while Facebook’s user growth has slowed considerably from its early days, Pinterest is just getting started.

In the first quarter, Pinterest’s monthly active users (MAUs) grew by 76 million, up 26% year over year, bringing the total to 367 million, driven by new all-time highs in both the U.S. and in international markets.

It’s the opportunity outside our borders that should have investors most excited, as international MAUs grew 34%. The average revenue per user (ARPU) is considerably lower overseas than it is in the U.S., clocking in at $0.13 and $2.66, respectively, giving Pinterest an impressive runway for future growth.

Not only that, but as the result of the pandemic, the platform has experienced record levels of user engagement, in terms of impressions, searches, board creation, and visitation.

It isn’t just Pinterest’s user growth that has outpaced Facebook so far this year. Pinterest’s stock is up nearly 40%, more than double Facebook’s returns.

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Teladoc: The doctor will see you now

One of the crucial changes in patient behavior resulting from the COVID-19 pandemic is undoubtedly the accelerating adoption of telehealth as a way to keep people from congregating in waiting rooms. And as the leader in the fast-growing field of telemedicine, no company has had more to gain than Teladoc Health (NYSE:TDOC).

In the first quarter alone, the company delivered more than 2 million medical visits to users around the world, without them ever having to set foot in a doctor’s office or clinic. This resulted in revenue that grew 41% year over year. At the same time, total digital office visits climbed a massive 92%. This came not only from an increase in paid subscription visits, which grew 77%, but from fee-only appointments, which soared 263%.

Those results weren’t a one-off either. For 2020, Teladoc has forecast revenue growth of 47% at the midpoint of its guidance, accelerating from its 32% growth in 2019. The company is also planning to expand its non-GAAP (adjusted) profits this year.

This could be just the beginning. Many patients are trying out a telehealth appointment for the first time and once they discover the ease and convenience of a virtual doctor visit, many will continue to choose this option in the future. Additionally, as coronavirus cases continue to spike anew in the U.S. and lockdowns return, telehealth will likely gain even more converts.

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NVIDIA: GPU of the (AI) stars

While many investors will associate NVIDIA (NASDAQ:NVDA) with its top-tier graphics processing units (GPUs) that enable the depiction of realistic images in video games, the use of the GPUs has grown beyond its humble roots.

While the use of GPUs by gamers still generates the lion’s share of NVIDIA’s revenue (about 51% last year), the company’s current and future growth is increasingly the result of its use in data centers, cloud computing, and artificial intelligence (AI). In fact, its data center segment (which lumps all three use cases together) grew revenue by 80% year over year in the first quarter, and represented 37% of NVIDIA’s overall sales — and the majority of its growth.

NVIDIA CEO Jensen Huang saw the writing on the wall several years ago, foresaw the ability of GPUs — with their number crunching acumen — to facilitate advances in AI, and pivoted the company to take advantage of this growing opportunity. NVIDIA is now reaping the rewards of that decision, and its GPUs are used by nearly all the major cloud providers, including Amazon Web Services, Alphabet’s Google Cloud, and Microsoft’s Azure, just to name a few.

This could just be the beginning. The global AI chip market is expected to grow from $6.6 billion in 2018 to $91.2 billion by 2025, with a compound annual growth rate (CAGR) of 45%, according to a report by Allied Market Research. As the leader in the space, this illustrates the magnitude of the opportunity ahead for NVIDIA.

DATA BY YCHARTS

Winners keep winning

Those with at least a passing interest in science may recall Newton’s first law of motion: An object in motion tends to stay in motion unless acted upon by an outside force. Sometimes that’s how it works in investing as well.

Each of these companies has beat the broader market so far this year and given the solid upward trajectory and tailwinds to keep them moving, it’s entirely possible that the success they generated so far in 2020 will continue in the years, and perhaps decades, to come.

Author: Danny Vena

Source: Fool: Investing $1,500 in These 3 Top Stocks Would Be a Brilliant Move

Investors looking to boost their long-term returns should consider this new breed of companies finding new answers to old problems.

This is an unprecedented time in human history and a challenging time for investors. After taking part in the longest bull market run in history, investors were whipsawed into the fastest bear market decline on record. From its peak on Feb. 18, the S&P 500 plunged 27% in just 23 days, before ultimately shedding 34% of its value. This quick reversal of fortunes left investors dazed and confused, and while the market has regained much of those losses, the future is still uncertain. There’s even the potential for additional lockdowns as we continue to battle the COVID-19 pandemic.

It’s important to remember that, despite these challenges, investing in the stock market remains the clearest path to accumulating wealth over time, even in the face of historic volatility.

Assuming you have an adequate emergency fund and $3,000 (or less) in disposable cash you don’t need for at least the next three to five years, here are three companies that could make you a small fortune over the coming decade.

IMAGE SOURCE: GETTY IMAGES.

Datadog: Identifying problems before they become critical

One of the paradigm shifts that occurred as the result of the pandemic is the shuttering of office spaces and having employees work from home. Companies are relying on their cloud-based systems now more than ever, but that new reality brings with it the potential for problems. IT departments are now decentralized, and system downtime can be costly.

That’s where Datadog (NASDAQ:DDOG) comes in. The cloud native platform-as-a-service provider keeps a close watch on its customers’ cloud activity, sending out the alarm when a problem or issue arises that might result in downtime. It goes even further, providing useful feedback and analytics that can both prevent these issues from happening in the future and improve cloud-computing operations.

The groundswell in remote work has resulted in a surge of additional business for Datadog. The company’s first-quarter revenue grew 87% year over year, accelerating slightly from its 85% growth in Q4. While Datadog’s total customer count grew 40%, large enterprise customers — those contributing annual recurring revenue of $100,000 or more — grew at an even faster clip, up 89%. This helped the company turn profitable for the first time.

There could be much more to come. Datadog’s revenue last year totaled about $363 million, but management estimates its market opportunity at about $35 billion, leaving plenty of runway for future growth.

By identifying and addressing problems before they become critical, Datadog has carved out a large and growing niche, and the need for remote work has accelerated the demand for its services.

IMAGE SOURCE: DOCUSIGN.

DocuSign: The future of contracts is now

Another by-product of the pandemic has been the need for social distancing, seriously curtailing the ability to sign documents in person. DocuSign (NASDAQ:DOCU) already controlled about 70% of the e-signature market, but the migration to digitally signed documents accelerated in light of recent events.

DocuSign’s revenue grew by 39% in the first quarter, keeping pace with its growth rate in 2019 and accelerating from the 35% gains the year before. More importantly, nearly 95% of its revenue came from subscriptions, providing a solid base of recurring revenue that’s unlikely to decline materially. At the same time, adjusted profits soared 71%.

What investors may have failed to notice, however, is that DocuSign is no longer just about signatures. Last year, the company launched the DocuSign Agreement Cloud, a suite of products and integrations that help businesses automate the entire life cycle of contracts, which includes preparing, signing, acting on, and managing them.

Management believes DocuSign has just scratched the surface of the e-signature market, which it estimates at about $25 billion, while the addition of the Agreement Cloud could potentially double its total addressable market to $50 billion. DocuSign generated just $974 million in revenue last year, showing the magnitude of the opportunity.

This gives investors plenty of incentive to sign up with DocuSign.

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Okta: Identity verification is more important than ever

With remote work becoming the rule rather than the exception, many businesses have entered uncharted waters. The majority of employees are now signing into workplace systems remotely, ratcheting up the potential for unauthorized access.

Okta (NASDAQ:OKTA) is the clear leader in identity and access management, and businesses turned to the company in droves to verify the identity of internet users accessing their systems. The company offers a wide variety of technology solutions geared to ensuring that only authorized users gain access to workplace applications. These permissions include the ability to use a single sign-on to gain access to multiple systems, more complex multifactor authentications, and everything in between.

Business is booming. Okta’s first-quarter revenue grew 46% year over year, while subscription revenue grew more quickly at 48%. The company isn’t yet profitable, but its losses appear to be manageable. Its customer count grew 28% year over year, but those spending more than $100,000 annually jumped 38%. Existing customers are spending more, as evidenced by Okta’s dollar-based net retention rate of 121%. The combination of new customers and higher spending from existing clients pushed the company’s calculated billings up 42% and its remaining performance obligation (read contract backlog) up 57% to $1.24 billion.

This could just be the beginning. Okta’s revenue of $586 million in 2019 pales in comparison to its total addressable market, which management estimates at about $55 billion.

The need to verify the identity of internet users will only increase from here, playing right into Okta’s wheelhouse.

Author: Danny Vena

Source: Fool: Got $3,000 to Invest? These 3 Stocks Could Make You Rich

The pandemic highlighted the strengths of these three stocks, which are notching all-time highs and likely still have room to run.

Many customers and businesses alike are celebrating the reopening of the U.S. economy. While the timeline varied, the earliest states began implementing stay-at-home orders in mid-March, while others followed suit as late as early April. After two months or more stuck at home, consumers are eager to return to life as usual.

Yet reports of new COVID-19 cases and hospitalizations have some health officials wondering whether another lockdown may be necessary to slow the renewed spread of the virus.

Investors looking for a hedge against the possibility of additional stay-at-home orders should consider businesses that brushed off the pandemic to reach new all-time highs.

If you’ve got $3,000 that you don’t need for immediate expenses or your emergency fund, consider putting it to work in these rock-solid businesses — even as their stocks hit new highs.

IMAGE SOURCE: GETTY IMAGES.

Teladoc brings virtual healthcare to the mainstream

The ability to seek advice from a healthcare professional without leaving the comfort of your home is having a moment. Even before fear of contracting the novel coronavirus sent patients looking for another option, telemedicine was already coming into its own. Teladoc (NYSE:TDOC) is the leader in the quickly growing field of telehealth, which allows any patient with a desktop or mobile device to have a video conference with a doctor or nurse.

In 2019, Teladoc’s full-year revenue grew 32%, but its patient visits increased at an even faster pace, up 57% compared to 2018. During the first quarter — with the pandemic in full swing — Teladoc’s numbers accelerated. Revenue increased 41% year over year, while total patients soared 92%.

While some believe the patients flocking to telemedicine are transitory, recent research suggests that new users aren’t going anywhere. In a survey of 1,800 patients, 50% of respondents said they had used telehealth during the previous three months, 71% said they are willing to use it again today, and 83% said they plan to continue using telemedicine in the future.

This illustrates why investors should buy Teladoc stock — even as it hits new all-time highs — whether new lockdowns are announced or not.

IMAGE SOURCE: GETTY IMAGES.

International markets are a massive opportunity for Netflix

Netflix (NASDAQ:NFLX) is another example of a market-leading company that got an added boost from the stay-at-home orders, but the best may be yet to come for the streaming pioneer.

Netflix ended 2019 with 167 million subscribers, up 20% year over year, while revenue grew an even more impressive 30% during the same period. In the first quarter — which is historically the slowest for growth — streaming customers soared to nearly 183 million, up 23% year over year, while revenue grew 28%.

Netflix is guiding for even higher subscriber growth in Q2, forecasting 7.5 million paid memberships. That would put the total at more than 190 million and represent a 26% climb. Some analysts feel that number is too conservative. SunTrust Robinson Humphrey analyst Matthew Thornton researched search data, app downloads, and specific regional data that suggest Netflix is likely to add between 9 million and 12 million net new subscribers.

After seeing the wealth of programming available on the streaming video technology platform, consumers will likely be loath to go back to their old viewing habits. That makes a strong case for buying Netflix before any additional stay-at-home orders are issued.

IMAGE SOURCE: GETTY IMAGES.

Shopify powers the e-commerce revolution

The most obvious impact of the pandemic was that it accelerated the shift to e-commerce. Consumers began shopping online in lieu of trekking to retail stores. Far too many merchants were ill-prepared for the sudden change in consumer behavior and the groundswell toward online shopping. Luckily for them, Shopify (NYSE:SHOP) was there to answer the call.

Many brick-and-mortar retailers with no online presence were forced to add a digital component to their business on the fly if they wanted to survive. Shopify saw unprecedented demand for its services, which include helping merchants set up and manage e-commerce operations. The company also provides access to other critical business services, including inventory management, payment processing, and discounted shipping and fulfillment.

Shopify was already in an enviable position. Total revenue for 2019 grew 47% year over year, driven by more than 1 million merchants. Fast forward to Q1 and Shopify maintained its impressive growth rate at 47%, even in what has historically been a slower quarter. New stores created on its platform grew 62% between March 13, 2020, and April 24, 2020, compared to the prior six-week period, as merchants scrambled to offer their goods online.

It’s unlikely that the majority of retailers will forego these new revenue streams as the momentum from these additional sales carries into the coming quarters. This gives investors a sneak preview into Shopify’s future, lockdown or not.

The fine print

It’s important to note that additional stay-at-home orders aren’t a foregone conclusion. Many consumers and businesses are lobbying for a permanent reopening of the economy. That said, each of these companies was already firing on all cylinders before the pandemic, which suggests that even if additional lockdowns never come, these stocks could continue to win.

Author: Danny Vena

Source: Fool: Got $3,000? Buy These 3 Stocks Before the Next Lockdown Starts

By focusing on dividends alone, investors may be leaving money on the table.

When planning for retirement, many investors stock their portfolio with companies that offer a growing and generous dividend yield, but whose growth prospects fall somewhere between slim and none at all. People are living longer, increasing the threat that investors will outlast their retirement savings.

In recent years, in fact, life expectancy has made a sizable leap forward, increasing by 5.5 years between 2000 and 2016, the fastest increase since the 1960s, according to the World Health Organization (WHO).

As a result, what was once a perfectly acceptable investing approach may no longer be enough to fund your golden years. To offset the prospects of living longer and potentially running out of money, it’s not a bad idea to layer an element of growth into your portfolio, helping to ensure that your nest egg will last as long as you do.

With that in mind, investors would do well to consider adding these three stocks to help bankroll their retirement.

Microsoft: A dividend and much more

Funds invested in Microsoft (NASDAQ:MSFT) were pretty much dead money for the 15 years leading up to early 2014. But the company has enjoyed something of a renaissance under the leadership of Satya Nadella, who took the reins in February of that year. Microsoft went from laughingstock to one of the world’s most valuable companies in a period of just a few years, with its stock gaining more than 400% in the process. There’s even speculation that Microsoft is in the running to become one of the first companies to achieve a market cap of $2 trillion, about 35% higher than its current level.

The catalysts that powered the company’s remarkable turnaround are also the same reasons that those looking to fund their retirement should consider buying Microsoft stock. Nadella’s decision to focus on forward-looking technologies like cloud computing and artificial intelligence has paid huge dividends. Microsoft’s intelligent cloud segment generated $39 billion in fiscal 2019, accounting for nearly 31% of the company’s revenue. Additionally, Azure Cloud is widely considered the fastest growing among the cloud leaders, with revenue that grew 59% year over year in the most recent quarter.

The company also generates a generous amount of recurring cash from its Office and Dynamics products. This helps fund its solid dividend, which currently yields about 1%. With a payout ratio of just 32%, Microsoft has plenty of room for future dividend increases.

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Apple: Growth and one of the safest dividends around

There’s no denying that Apple (NASDAQ:AAPL) has been one of the most remarkable success stories in recent memory. The debut of the iPod in 2001 started the company on the road to riches, but it was the launch of the iPhone in 2007 that cemented Apple’s place in history.

Apple is also a favorite of legendary investor and Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) CEO Warren Buffett. While it was one of his portfolio managers who first purchased Apple stock, it so peaked Buffet’s interest that he was soon adding shares hand over fist. Even though it represents Berkshire’s largest holding, owning more than 5% of Apple shares, Buffett famously said, “I’d love to own 100% of it.”

While the iPhone has historically accounted for the bulk of Apple’s revenue, the company has made a dramatic shift in recent years, turning its gaze to the vast potential of its services segment, a move that now seems prescient. Over the trailing-12-month period, services have generated more than $50 billion in revenue for Apple, accounting for nearly 19% of the company’s total sales, up from just 12% three years prior.

Apple generates an enviable amount of cash, with operating cash flow of more than $13 billion in the most recent quarter, up nearly 20% year over year, helping fund a strong and growing dividend. Apple has more than doubled its payout since resuming its dividend in 2012, with a yield currently just below 1%. The company uses less than 25% of profits to fund the payout, giving Apple plenty of resources to ensure its future growth.

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MercadoLibre: Pausing the dividend to focus on growth

While it isn’t a household name in the U.S., Latin American powerhouse MercadoLibre (NASDAQ:MELI) is at the forefront of two of the biggest trends in technology: e-commerce and digital payments. About half of consumers in the region are unbanked or underbanked, meaning they don’t have a bank account or credit card, stunting the massive potential growth of online retail.

To counter this challenge, MercadoLibre developed Mercado Pago, a payment system that allowed consumers in the largely cash-based society to add money to their account at a network of convenience stores and other locations. While it served to increase the adoption of e-commerce on MercadoLibre’s platform, a curious thing happened. Other e-commerce providers rushed to add Mercado Pago as a payment option, a move that was quickly followed by a growing list of brick-and-mortar stores.

As a result, use of Mercado Pago soared, and with it, MercadoLibre’s fortunes. Even in the face of the coronavirus pandemic, revenue grew 70% year over year in local currencies in the first quarter — but that only tells part of the story. While gross merchandise volume (GMV) from e-commerce grew 34%, total payment volume (TPV) surged 82% in local currencies, and the number of payment transactions increased 102%. Off-platform TPV had the most robust growth, up 140% in local currencies, while the number of transactions soared 146%.

MercadoLibre previously paid a modest dividend, but suspended the payout in early 2018 to focus on scooping up market share and accelerating its growth. The company has yet to resume its payout, but in the little more than two years since the company suspended its dividend, its shares have gained 158%, more than making up for the missing income.

Author: Danny Vena

Source: Fool: 3 Stocks to Bankroll Your Retirement

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