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Welcome to 2020 — please leave all expectations at the front door.
For the investing world, it’s been a year like none before it. We’ve witnessed the fastest bear market correction in history, one of the strongest rallies from a bear market low, and even negative oil prices, all because of the coronavirus pandemic.
But opportunity has come knocking amid this record-breaking volatility. It’s allowed long-term investors to buy into high-growth companies at a perceived discount.
Furthermore, COVID-19 has coerced businesses to completely reimagine the office environment. This has accelerated a number of fast-growing trends and should lead to certain innovative industries being surefire winners this decade. Here are three to consider investing in.
One of the biggest changes you’ve probably noticed is the push of employees out of the traditional office and into remote locations. Though this won’t work for every business model, enterprises are quickly becoming more flexible in allowing access to company-sensitive information from outside the office. This has put some serious pep into the growth outlook for cloud computing.
While estimates vary wildly, a report from research firm MarketsandMarkets calls for the global cloud-computing market to grow from an estimated $371 billion in 2020 to more than $832 billion by 2025. For those of you keeping score at home, that’s a compound annual growth rate of a cool 17.5%. The thing is, we were already seeing automation growing and remote work increasing well before COVID-19. This pandemic has simply accelerated those existing trends and made the cloud (infrastructure, software, and platform) an unstoppable force.
Among building-block infrastructure players, Amazon (NASDAQ: AMZN) stands out. Amazon Web Services (AWS) has grown from 11% of the company’s total sales to end 2018 to 13.5% of total sales in the first quarter of 2020. AWS’ growth rate is about twice that of Amazon’s traditional e-commerce operations, and it generates substantially juicier margins than retail or ad-based revenue. This is just a fancy way of saying that Amazon’s cash flow could grow exponentially as AWS becomes a larger component of total sales.
Another great cloud company to consider buying is Shopify (NYSE: SHOP), which is a software-as-a-service player. Shopify’s point-of-sale platform is not only empowering small and medium-size merchants to grow their sales, but it’s also helping these businesses better understand their cash flow by providing supply-and-demand analytics. Shopify has signed up just a fraction of domestic and global merchants to its platform, giving the company a long runway with which to deliver double-digit sales growth.
Consider this a bit of an extension of cloud computing, but the cybersecurity industry should have no trouble growing like a weed throughout this decade.
As the move out of the traditional office environment accelerates, demand for security solutions to protect traditional and cloud networks should only grow. After all, no matter how well or poorly the economy is performing, hackers will always be out there. This means cybersecurity has become as much of a basic-need service to businesses as electricity and water are to our homes.
A report put out by Grand View Research in June 2020 calls for the global cybersecurity market to grow by 10% annually between 2020 and 2027. This should lead to a market worth more than $326 billion seven years from now.
One of my favorite companies in the cybersecurity space is Palo Alto Networks (NYSE: PANW). Palo Alto is in the midst of a business transformation that’s seeing it move away from lower-margin hardware and toward subscription-based services. This is good news considering that subscriptions usually lead to lower client churn and predictable cash flow. Plus, with Palo Alto Networks making regular bolt-on acquisitions, its cybersecurity moat keeps expanding. These high near-term costs should lead to a more robust long-term growth rate.
Investors might also consider buying into identity-services company Okta (NASDAQ: OKTA), which uses artificial intelligence and machine learning to keep unwanted people and robots out of enterprise networks. Okta’s solutions are constantly adapting to keep clouds safe, and can employ two-factor authentication, among other tactics, to decipher the identity of an individual.
But the best part about Okta is that it has a suite of cloud-based identity solution products. This isn’t just a one-size-fits-all product portfolio. Rather, it has a full complement of add-ons for its clients to grow into over time.
Finally, don’t slouch on the personalized medicine industry, which aims to take broad-based treatment options and tailor them to the needs of individual patients. Examples of personalized medicine include pharmaceuticals that target a very specific genetic marker, a telemedicine conference with your primary care physician (PCP) from your home, or a medical device that provides health-tracking data to your PCP.
According to an October report from ReportLinker last year, the global personalized medicine market is on track to hit $3.18 trillion in sales by 2025, representing a compound annual growth rate of 10.6% from 2019 to 2025. You’ll note the theme of all three of these industries is steady double-digit sales growth.
One personalized-medicine stock I’ve pounded the table on repeatedly this year is Livongo Health (NASDAQ: LVGO). Livongo aggregates mountains of patient data and uses artificial intelligence to send tips and nudges to people with chronic health conditions, with the goal being to induce lasting behavioral change. Since staying on top of their disease is half the battle for folks with a chronic illness, the subscription-based service that Livongo offers can make a big difference.
If you ask me, the most exciting thing about Livongo is that it hasn’t even signed up a full 1% of U.S. diabetes patients (34.2 million people), yet it’s already turning the corner to profitability. Imagine how much of a game-changer it’ll be when the company adds weight management and hypertension to its targeted indications.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Sean Williams owns shares of Amazon and Livongo Health Inc. The Motley Fool owns shares of and recommends Amazon, Livongo Health Inc, Okta, Palo Alto Networks, and Shopify and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.