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Whether you’re an investment professional of many decades or you’ve just purchased your first stock within the past six months, there’s nothing that could have prepared investors for what the coronavirus disease 2019 (COVID-19) pandemic has done to equities in 2020. In a span of a few months, investors of all ages have experienced about a decade’s worth of volatility.
But amid the chaos is good news. You see, periods of panic and heightened volatility have, historically, always been a buy signal for long-term investors. That’s because game-changing businesses can be purchased during periods of panic at a discounted price. And, in case you’d forgotten, every single stock market correction in history (save for the ongoing COVID-19 correction) has eventually been erased by a bull market rally.
Perhaps the best aspect of investing in stocks is that you don’t need to start with a fortune to make one. If you have even $1,000 that you can devote to long-term investing, which won’t be needed to pay bills or cover emergencies, you have more than enough to buy the following trio of game-changing stocks right now.
Among the many trends that’ve been expedited by the COVID-19 pandemic is the push to move workers out of the office. We were already seeing demand for remote work picking up well before the coronavirus struck. However, with little certainty on the availability of a vaccine, workspaces have increasing gone remote, placing even more importance on shared clouds and protecting sensitive data. That’s where a game-changer like Okta (NASDAQ: OKTA) is going to come into play.
On a broad-level basis, the stars are aligned perfectly for cybersecurity stocks. Aside from more enterprises shifting into remote work environments, data security isn’t something that’s optional, regardless of business size. No matter how well or poorly the U.S. economy is performing, there’s a constant need for network protection, which provides a level of cash flow security that few high-growth industries can provide.
More specific to Okta, the company is making a name for itself through its reliance on artificial intelligence and machine learning. The company’s identity security solutions can identify situations where deploying extra security precautions, such as multifactor authentication, makes sense in order to keep unwanted individuals and/or robots out of company-sensitive clouds.
What’s more, Okta doesn’t offer a one-size-fits-all security solution. Rather, the company has a suite of more than a dozen customizable security solutions that can be added on as a company grows to suit their needs. This means Okta isn’t just landing new clients. In many cases it’s forging long-term relationships that groom its clients to add on new services in the future.
And did I mention that this is a subscription-based business model? In the March-ended quarter, $173.8 million of the company’s $182.9 million in sales was derived from subscriptions. That’s excellent news considering that churn rate tends to be low, and cash-flow predictability very clear, with subscription-based models.
To let the elephant out of the bag early, Square isn’t a cheap stock, and I’m not certain it ever will be. This is a company valued at 125 times Wall Street’s forecast earnings per share for 2021, which is an exceptionally high multiple to pay for a financial sector stock. But if we’ve learned anything about Square over the past half-decade and during the pandemic, it’s that it isn’t your typical financial.
For years, Square has made a living as a point-of-sale platform for small and medium-sized businesses. Last year, more than $106 billion in gross payment volume (GPV) traversed its network. But what’s been of interest recently is the shift toward larger merchants using its seller ecosystem. The company pointed out during its first-quarter operating results press release that large businesses (defined as those with an annualized GPV of at least $125,000) now make up 52% of all purchasing volume on its network. This suggests Square is making inroads with bigger merchants, which bodes well for its fee-based revenue generation.
But the more intriguing growth story here is peer-to-peer payment platform Cash App. The company notes that enrollment in Cash App hit monthly records in March and April, with Americans stuck in their homes by COVID-19. This comes after monthly active user count more than tripled from 7 million to end 2017 to 24 million by the end of 2019. The war on cash is encouraging more users than ever to utilize mobile banking solutions, and Cash App could well become a dominant option.
Also, don’t forget that Cash App allows users to do more than simply transfer money to and from a bank account. Users can invest directly from their app, exchange fiat currency for bitcoin (which is where a lot of Cash App’s profits are derived), and link their Cash App account to Cash Card for a more traditional buying experience.
Square could easily double its sales every four years for a long time to come.
Sometimes, game-changing stocks are mature (yet, still high-growth) companies hiding in plain sight, like surgical systems developer Intuitive Surgical (NASDAQ: ISRG).
For the past 20 years, Intuitive Surgical has been developing and installing its da Vinci surgical system around the world. As of June, 5,764 of these systems had been installed worldwide, which is far more than all of the company’s competitors combined. Further, recent delays for competing surgical systems from Johnson & Johnson suggest that Intuitive Surgical’s monstrous lead is expected to grow even more.
Beyond just having the dominant assistive platform in the operating room, Intuitive Surgical’s da Vinci system has barely touched the tip of the iceberg when it comes to soft tissue applications. Though Intuitive Surgical’s core innovation is the dominant system used for gynecology and urology procedures, it has an incredibly long runway to expand its share in thoracic, colorectal, and general soft tissue surgeries.
What’s more, Intuitive Surgical is built on the razor-and-blades business model. The pricey ($0.5 million to $2.5 million) da Vinci system serves as the “razor” that hooks a client to the brand. For Intuitive Surgical, the da Vinci system only offers mediocre margins, primarily because these are intricate and costly systems to build. The “blades” are the instruments sold with each procedure, as well as the servicing performed on installed systems. Thus, as the company’s installed base increases, the percentage of sales tied to these higher-margin blades will grow.
As the push toward personalized medicine continues to evolve, look for robotic-assisted surgery to play an increased role. That’s great news for Intuitive Surgical’s long-term stakeholders.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
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Sean Williams owns shares of Intuitive Surgical and Square. The Motley Fool owns shares of and recommends Intuitive Surgical, Okta, and Square. The Motley Fool recommends Johnson & Johnson and recommends the following options: short September 2020 $70 puts on Square, long January 2022 $580 calls on Intuitive Surgical, and short January 2022 $600 calls on Intuitive Surgical. The Motley Fool has a disclosure policy.