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Danny Vena

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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.

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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.

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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.

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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.

IMAGE SOURCE: GETTY IMAGES.

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.

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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.

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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.

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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.

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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

The amount that U.S. shoppers spent online during the first two full months of the COVID-19 pandemic surpassed their online spending for the 2019 holiday shopping season.

The COVID-19 pandemic has had a profound impact on the way people live their lives. One of the most obvious changes is that it has accelerated our shift toward e-commerce, as many of us chose to forego in-person shopping at retail stores in order to lower our chances of contracting the coronavirus.

That’s a natural caution, but even in light of that, the size of the boost this trend has gotten has been staggering. In April and May alone, the amount of money spent on online purchases exceeded the amount shoppers spent online during the entire 2019 holiday shopping season, according to a recent report by Adobe Analytics. The May 2020 Digital Economy Index, which tracks the state of e-commerce, found that consumers spent over $153 billion online during those two months, 7% more than in November and December 2019. Spending in May alone surged 78% year over year.

This points to further gains for companies leading the online revolution. Here are three that will most likely benefit.

Amazon: The undisputed e-commerce leader

There’s no doubt that Amazon (NASDAQ:AMZN) is well-positioned to benefit from the accelerating adoption of e-commerce. During the first quarter, the company reported revenue of $75.5 billion, up 26% year over year, the fastest pace of growth the company has seen since the third quarter of 2018. Profits also got a boost, with operating income of more than $4 billion and profits of $2.5 billion.

Amazon plans to spend heavily on protecting its employees and customers from exposure to COVID-19, investing in personal protective equipment, enhanced cleaning procedures, and employee testing. These steps are expected to cost it $4 billion in the short term, but should allow Amazon to continue its frantic growth in the e-commerce market.

Shopify: Helping merchants make the move to online sales

Shopify (NYSE:SHOP) specializes in facilitating other companies’ expansion into e-commerce. Many small- and medium-sized businesses were caught off-guard when states implemented shutdowns of all but essential services in response to the rising pandemic. Companies that had long resisted selling their wares online were forced to set up digital shops in order to survive, and Shopify was there to answer their call.

The company helped thousands of new clients to move online, and by mid-April, Shopify was experiencing “Black Friday level traffic every day!” according to Chief Technology Officer Jean-Michel Lemieux. The strength of the company’s business was reaffirmed when Shopify reported its first-quarter results just three weeks later. Revenue grew 47% year over year, on pace with growth it achieved during the holiday quarter, while subscription jumped 34%. This resulted in adjusted net income that tripled year over year

There’s every reason to believe that Shopify’s strong results continued into the current quarter, and that it will benefit from this acceleration for years to come.

IMAGE SOURCE: GETTY IMAGES.

Target: Hitting the online shopping bullseye

Retail giant Target (NYSE:TGT) was particularly well-positioned to benefit from the shift to e-commerce due to its longtime omnichannel approach. In recent months, many shoppers have taken advantage of the company’s same-day services, which allow people to shop online and pick up their orders either in the stores or in their parking lots, or have them delivered to their homes.

Some of Target’s first-quarter metrics were truly astonishing. Total revenue grew 11% year over year, while comparable-store sales climbed 10.8%. When looking strictly at digital sales, comparable sales jumped 141%, while same-day sales soared 278%.

Target also said it saw market-share gains across all five of its core merchandise categories, which bodes well for its future.

More e-commerce winners are out there

This list is not meant to be exhaustive, but does illustrate some of the players that are best-positioned to continue to benefit from the move to e-commerce. John Copeland, Adobe’s VP of customer and marketing insights, said he believes the accelerated adoption of e-commerce will continue. “COVID-19 has changed business forever. We think that over the next couple of months we will see an even bigger focus on experience-driven e-commerce, as the competition heats up where consumers are now putting so much of their attention online,” he said.

Author: Danny Vena

Source: Fool: E-Commerce Sales Surged 78% in May: These 3 Stocks Could Be the Biggest Winners

The digital health management company is thriving while most investors are missing out.

Tucked away in the “undiscovered gems” corner of the stock market is a company that the vast majority of investors have never even heard of.

Livongo Health (NASDAQ:LVGO) went public in July 2019, but its initial public offering (IPO) likely slipped under most investors’ radar. In less than a year, the stock has returned a more than respectable 57%, compared to a 7% return for the S&P 500 — and that could just be the beginning.

While there have been a number of flashier debuts over the ensuing year, Livongo remains one of the most enigmatic companies to join the public markets and its unique approach to digital health management could make investors a small fortune in the years to come.

Let’s look at the market opportunity, what Livongo does, and why investors should care.

The silver tsunami

Aging baby boomers — those born between 1946 and 1964 — had long been the largest living adult generation, until that title was wrested from them by millennials in 2019. Still, at more than 73 million strong in the U.S., these older adults represent about 22% of the population.

Baby boomers have already begun the transition into retirement, beginning what some have dubbed “the silver tsunami,” and by 2030 the entire generation will have reached the age of 65. This also means that one of the largest cohorts of the U.S. population will bring with them a host of chronic conditions that will need to be managed.

The Livongo approach

Livongo reports that there are 147 million Americans that live with at least one chronic condition, while 40% deal with more than one — and it isn’t just among the elderly population. Diabetes, to cite just one example, can be managed with proper diet and exercise, but to put it bluntly — self-management is hard. Meanwhile, managing these chronic conditions costs the healthcare system hundreds of billions of dollars each year.

That’s where Livongo comes in. The company developed its Applied Health Signals platform that uses smart, connected devices to collect and aggregate information and apply artificial intelligence and other sophisticated algorithms to analyze the data. The system then uses the resulting conclusions to provide patients with feedback, coaching, and actionable insights, helping people to better manage their own health. Livongo’s connected technology includes remote monitoring that helps patients track important health metrics in order to better maintain their health.

While the company initially focused on diabetes management, it has successfully expanded into other areas, including hypertension, weight management, diabetes prevention, and behavioral health — including depression. This unique approach helps improve care, saves money, and puts patients in charge of their chronic conditions.

IMAGE SOURCE: LIVONGO.

Strong adoption

Because Livongo’s solution improves the quality of life of its users and saves money for the health systems that employ it, the company is experiencing rapid adoption. During the first quarter, Livongo added 380 new clients, up 44% year over year, bringing the total to 1,252. At the same time, the company ended the quarter with 328,000 Livongo for Diabetes members, up about 100%.

This strong adoption has energized the company’s already healthy financial results. Revenue of $68.8 million increased 115% year over year, while net losses improved dramatically to a loss per share of $0.06, from a loss per share of $0.79 in the prior year quarter. The estimated value of agreements grew to $89 million, up 85%, and about 35% of those contracts are expected to translate into revenue during the coming 12 months.

Existing clients that originally signed on for the company’s diabetes management tool have been so impressed with the results, they’re now signing up for additional solutions, with about 20% of Livongo’s client base now opting for multiple solutions for their patients.

The future’s so bright, Livongo’s gotta wear shades

Livongo raised its full-year guidance in light of the strong results in the first quarter, and now expects revenue in a range of $290 million to $303 million, which represents year-over-year growth of about 74% at the midpoint of its guidance.

Given that Livongo’s solutions tap into a large demographic, help improve the quality of life for those managing chronic conditions, and simultaneously reduce costs for healthcare providers, it’s the very definition of a win-win. Additionally, the company’s robust growth should be appealing to a broad cross-section of investors.

This approach and the associated technology looks like a game-changer, which is why I don’t understand why no one is talking Livongo Health.

Author: Danny Vena

Source: Fool: Why Is No One Talking About Livongo Health Stock?

While Amazon is the most obvious choice, there are other potentially more lucrative ways to play the online shopping boom around the globe.

There’s little doubt that the trend toward e-commerce had taken hold long before COVID-19 reared its ugly head, but there’s overwhelming evidence that the trend has experienced significant acceleration as the result of the pandemic. Digital sales reached unprecedented levels as a host of shoppers opted for the ease and convenience of making purchases with the click of a mouse.

Amazon.com (NASDAQ:AMZN) has been the most obvious beneficiary of the trend, hiring hundreds of thousands of additional workers and prioritizing shipments to meet the demand. Yet e-commerce adoption is accelerating around the world — not just in the U.S. — giving investors the opportunity to generate even more upside than they could potentially get from Amazon, by simply looking a little further afield.

MercadoLibre: A market twice the size of the U.S.

Investors given the opportunity to go back in time and pick up shares of Amazon a decade ago would no doubt avail themselves of the chance. With the market in Latin America about a decade behind its U.S. counterpart, that potential exists in e-commerce leader MercadoLibre (NASDAQ:MELI).

Online sales represent about 4% of total retail in the region, similar to the level of e-commerce penetration in the U.S. 10 years ago, effectively giving investors a second chance to play the online shopping revolution. And Latin America has a population of about 650 million people, nearly twice that of the U.S., making the market potentially more lucrative.

MercadoLibre not only provides merchants with a platform to peddle their wares, but developed MercadoPago — a payment system modeled after PayPal (NASDAQ:PYPL) — which has made the transition to brick-and-mortar retail. PayPal was so intrigued by the opportunity, it made a $750 million equity investment in MercadoLibre early last year.

The company’s recent results illustrate the potential. During the first quarter, revenue grew to $652 million, up 70% year over year in local currency, while gross merchandise volume (GMV) of $3.4 billion jumped 34%.

The payment business represents an even bigger opportunity. Total payment volume (TPV) soared to $8.1 billion, up 82% in local currencies, but off-platform payments grew 140%. Overall, the number of payment transactions clocked in at 291 million, up 102%.

With growth of that magnitude, the coming decade looks bright for investors in MercadoLibre.

IMAGE SOURCE: GETTY IMAGES.

Shopify: A chance to tap a worldwide opportunity

Rather than sell products itself, Canadian company Shopify (NYSE:SHOP) provides merchants with all the tools they need to become digital sellers. The e-commerce provider has dozens of ready-to-use templates and hundreds of apps to customize the experience for each business — but website building is just the beginning.

Shopify integrates with each of the major payment processors, as well as the third-party shipping companies, helping merchants handle all aspects of the checkout and delivery procedure. The company also has monthly subscription plans to meet any budget, from small mom-and-pop shops all the way to formidable enterprise-level businesses. Merchants have access to email, digital advertising, point-of-sale hardware, and even working capital loans, nearly everything they might need to succeed.

For the first quarter, Shopify’s revenue grew to $470 million, up 47% year over year, while subscription revenue grew 34% to $188 million. Monthly recurring revenue, which helps level out some of the peaks and valleys of its business, grew 25% and now accounts for about 12% of the company’s total revenue.

Shopify now empowers more than one million merchants in 175 countries worldwide to manage their online sales platforms, and its platform is now available in 20 languages. The majority of its business, however, still comes from North America, giving the company a long runway for international expansion. The number of sellers on Shopify’s platform could double or even triple in the years to come.

E-commerce adoption has accelerated as the result of the pandemic, and Shopify is perfectly positioned to help even more merchants make the move and become digital retailers.

IMAGE SOURCE: SEA LIMITED.

Sea Limited: E-commerce in Southeast Asia is just getting started

Sea Limited (NYSE:SE) isn’t a household name in the U.S., but you’d be hard-pressed to find consumers in Southeast Asia who aren’t using at least one of its services. The company began as a gaming platform and has evolved into a multi-faceted digital services company, driving its stock up more than 400% since its IPO in late 2017, but that could be just the beginning.

Its online sales portal — Shopee — is the leading e-commerce platform in the region (in terms of gross merchandise volume), serving a population of more than 585 million consumers in Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, amounting to 315 million internet users. Following a model that will be familiar to MercadoLibre investors, Sea developed its own payment system — SeaMoney — to serve a region where 300 million consumers don’t have a bank account and fewer than 20% have a credit card.

Even in the face of the pandemic, Sea continued to gain converts, with first-quarter revenue jumping 58% year over year to $914 million, but generating a net loss of $281, as it continues to expand its ecosystem. GMV for items sold on its e-commerce platform climbed 74% to $6.2 billion. Adjusted revenue for its digital entertainment business increased 30% to $512 million — accounting for half the company’s revenue — while quarterly active users grew to 402 million, up 48%, and paying subscribers jumped 73% to 36 million.

This one-stop ecosystem for e-commerce, digital payments, online gaming, and esports continues to attract and engage users, which gives Sea Limited a solid foundation to continue its stellar growth.

Author: Danny Vena

Source: Fool: 3 Top E-Commerce Stocks to Buy in June

Several ongoing consumer trends were accelerated by the long hours spent at home. This presents an opportunity for savvy investors.

There have been a number of unexpected consequences from the stay-at-home orders that have blanketed the globe. Many of them have been negative, but there’ve been some beneficiaries from the global lockdown. A small number of industries have reaped the lion’s share of the stock market gains over the past several months and will likely continue to benefit for months and years to come.

The companies that are leaders in each of these industries are perfectly positioned to benefit from the powerful societal shifts and demographic trends that were accelerated by the pandemic, and will likely flourish in the coming decade.

Assuming you have an emergency fund to fall back on and $3,000 (or less) in disposable cash you don’t need for immediate expenses, here are three industries that are perfectly positioned to harvest the benefits of the paradigm shift that has occurred and that could make you a small fortune over the next 10 years.

1. E-commerce is accelerating

There’s little doubt that e-commerce was already increasing in popularity; yet surprisingly, it still accounts for just 11% of retail sales in the U.S. to close out 2019. It’s also equally clear that online sales have exploded since the onset of the pandemic, as shoppers are staying home for fear of contracting the coronavirus. Two companies have benefited from the shift to e-commerce far more than the competition, with each enjoying unprecedented gains in their respective businesses: Amazon.com (NASDAQ:AMZN) and Shopify (NYSE:SHOP).

Amazon’s “everything store” became inundated with online shoppers over the past couple of months, with consumers turning out in record numbers to order food and other consumer staples, and have them shipped directly to their doorstep. Amazon initiated two waves of hiring, adding as many as 175,000 new workers in order to meet the unparalleled demand. Sales in the first quarter jumped 26% year over year, while operating income of $4 billion slipped 9%, the result of increased labor costs.

At the same time, merchants without online stores turned to Shopify in droves, driving significant increases to the online stores hosted on its platform. Chief Technology Officer Jean-Michel Lemieux said in mid-April it was experiencing “Black Friday level traffic every day” since consumers began to shutter in place. That translated to revenue that grew 47% year over year in the first quarter, while adjusted net income tripled.

E-commerce was already seeing significant growth, a factor that was only accelerated by the pandemic. Amazon and Shopify are uniquely positioned to gain from the continued adoption of online sales.

IMAGE SOURCE: GETTY IMAGES.

2. Videogames are generating record growth

Over the past decade, the popularity of video games has reached epic proportions, with Battle Royale and free-to-play games being the latest entrants to an already booming industry. Growth had paused over the past year but returned with a vengeance as consumers looked to augment their in-home entertainment options.

Video game sales have rocketed higher, as spending on digital titles hit a record $10 billion in March — the highest monthly total ever recorded — according to Nielsen-owned Superdata. Premium console revenue and PC revenue both soared between February and March, up 64% and 56%, respectively.

Two companies that are set to capitalize on this trend are Activision Blizzard (NASDAQ:ATVI) and Take-Two Interactive (NASDAQ:TTWO). Activision was well-represented with a number of titles in Nielsen’s top sellers list, including World of Warcraft, Call of Duty: Modern Warfare, and Candy Crush. Take-Two was also a winner, with titles including Grand Theft Auto V and NBA2K20 making the cut.

Take-Two has yet to report its quarterly results, but Activision exceeded expectations and raised its full-year guidance. The company was off to a slow start this year but got a significant boost in March from the stay-at-home population. That strong trend continued into the second quarter, signaling there are more gains to be had.

With new gamers joining the ranks, many will continue to be gaming aficionados once the stay-at-home orders are lifted.

IMAGE SOURCE: GETTY IMAGES.

3. The future will be streamed

One of the biggest beneficiaries of consumers exiled at home has been the already robust streaming video segment. Cord-cutting was already reaching epic levels, with the biggest pay TV providers losing more than 4.9 million customers in 2019, the largest single-year decline in cable TV history, according to Leichtman Research Group. Abandoning cable accelerated from losses of 2.87 million in 2018 and 1.49 million in 2017.

Consumers ditching pay TV aren’t giving up viewing, with the majority turning to streaming video for their entertainment fix. Both Netflix (NASDAQ:NFLX) and Roku (NASDAQ:ROKU) are in the catbird seat and stand to attract the majority of streaming eyeballs, with even more making the switch due to the pandemic.

Netflix released first-quarter results that were mind-boggling. The streaming giant added 15.8 million new subscribers, more than double the 7 million it forecast, and increasing 23% year over year. Subscribers in the company’s more mature North American market jumped as well, with paid net additions climbing by 23%, while these new customers pushed revenue nearly 28% higher.

Roku’s results were also energized, as active accounts grew 37% and streaming hours jumped 49%. Many thought revenue would be hard hit by slumping ad rates, though that didn’t come to pass. Advertising generates the majority of Roku’s revenue, and the company is still optimistic for the future. Overall revenue grew 55% year over year, while platform revenue — which is made up of advertising, The Roku Channel, and Roku smart TV operating system licensing — grew 73%.

IMAGE SOURCE: GETTY IMAGES.

Winners keep winning

Each of these industries — e-commerce, video games, and streaming video — has already produced significant gains over the past 10 years, but winners tend to keep winning. These strong societal and demographic shifts continue to play out and favor continued adoption of these trends in the coming years — even though each has gotten a boost from the consumers sheltering at home.

These companies hold a particularly strong position in their respective industries and — taken together — could make investors a small fortune in the decade to come.

Author: Danny Vena

Source: Fool: $3,000 Invested in These 3 Industries Could Make You a Fortune Over the Next 10 Years

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