The coronavirus pandemic trashed the stock market a year ago. The introduction of at least three safe and effective SARS-CoV-2 vaccines triggered an exuberant rebound, driving the major benchmarks to new highs. The Dow Jones Industrial Average (DJINDICES:^DJI) has now gained 14% since the start of 2020, while the S&P 500 (SNPINDEX:^GSPC) posted a 21% return.
Every adult American should now be eligible for the coronavirus vaccines by early May, but the path back to a complete economic recovery remains unclear. Many investors hesitate to put money into this surging market, because another sharp correction might be in the cards. At the same time, the fundamental power of putting your money to work hasn’t changed. Buying quality stocks to hold over several years or decades is still the most reliable way to generate wealth over the long haul, and there are still stocks worth buying even while the markets are reaching new all-time highs.
As long as you have ample emergency funds built up and up to $10,000 that you shouldn’t need over the next five to 10 years, you should consider investing in these three companies that are poised to flourish for many years to come.
Teladoc: The virtual doctor is in
Virtual healthcare services leader Teladoc (NYSE:TDOC) is trading 37% below February’s all-time highs. The stock is sliding as investors retreat from high-flying market darlings in general and stay-at-home stocks in particular. That doesn’t change Teladoc’s market-defining position in telehealth, a concept that is disrupting the massive healthcare market. Domestic healthcare spending reached $3.8 trillion in 2019, or $11,582 per person. That’s nearly 18% of America’s gross domestic product.
Teladoc’s trailing revenue stands at $1.1 billion today. That sounds like a lot, but it’s less than 0.03% of our annual healthcare spending. That’s not a typo but a vanishingly small fraction of 1%. Nobody expects telehealth to completely take over addressing the healthcare needs of every citizen, but it doesn’t take much of a market share to make a game-changing difference to Teladoc’s revenue and its shareholders’ stock returns.
The stock isn’t cheap at 29 times trailing sales, but you get what you pay for. Incredible revenue growth is the lifeblood of any high-growth investment, and Teladoc most certainly falls in that category:
Long-term investors should take advantage of the recent pullback on Teladoc’s generally skyrocketing share prices. This is a game-changing healthcare stock for the ages.
Netflix: Still an exciting long-term winner
Video-streaming veteran Netflix (NASDAQ:NFLX) is turning the global entertainment market inside out. The real revolution started in 2013, when the company ordered House of Cards as the first Netflix original show. These days, originals make up the majority of the Netflix catalog and the company is spending billions of dollars on content production every year.
Netflix critics like to argue that the original production spending is out of hand and that a plethora of new competitors are crowding the video-streaming market. I disagree on both points.
First and foremost, content production is the lifeblood of Netflix’s growth-oriented business plan. The company is spending money now in order to generate subscriber growth and word-of-mouth marketing for the long haul. The negative cash flows of the early going will flip to torrential cash generation once the global subscriber count passes the tipping point. The plan was working out nicely, and then the coronavirus health crisis came along to accelerate it some more.
Regarding the explosion of rival video-streaming services, Netflix co-CEO Reed Hastings would be the first to tell you that this was expected and arguably a good thing for Netflix. What’s really going on here is a wholesale disruption of the entertainment market, where consumers around the world are canceling their cable TV services in favor of digital streaming options. Recent additions such as Disney+, Peacock, and HBO Max have intensified the streaming sector’s appeal to the global consumer, and there is plenty of room for several thriving rivals.
The stock has treated us long-term investors to life-changing returns, but Netflix’s market performance was less impressive over the last three years as media veterans started to launch their own streaming services:
Netflix has room to run much higher as the company continues to define and dominate the digital video market. Caught up in the marketwide retreat from stay-at-home stocks, Netflix shares are trading more than 13% below January’s all-time highs. The stock may very well never be this affordable again.
Lemonade: When life give you lemons…
Insurance technology expert Lemonade (NYSE:LMND) is the youngest name on my list of no-brainer buys today. The company entered the stock market last summer and immediately started turning heads with its customer-friendly model of homeowner, renter, and pet health insurance policies. Sign-ups for Lemonade plans are handled by chatbots and artificial intelligence (AI) in cloud-based web sites and smartphone apps. The company also manages its risk assessment and claims with the help of AI systems. This keeps Lemonade’s back-end costs low and reduces the frustration many people experience when they file and process a claim.
The radical thinking doesn’t stop there. Lemonade is a registered public benefit corporation, capping its gross profits at 25% and setting the remaining 75% aside to pay for claims and buy reinsurance. Unclaimed insurance premiums are donated to charity on an annual basis and customers get to nominate their favorite nonprofit causes. As the mission statement puts it, Lemonade wants to “transform insurance from a necessary evil into a social good.”
This is just the beginning of a game-changing growth story. Lemonade may eventually force the rest of the insurance industry to copy some of its new ideas, much like Netflix and Teladoc are doing in the entertainment and healthcare sectors. For now, Lemonade’s trailing sales stop at just $94.4 million and the American insurance industry is worth more than $1 trillion a year. The company will not only continue to steal market share from traditional insurance firms, but is also exploring additional markets such as auto insurance, term life, and more. And why stop there? It’s a great big world and Lemonade should look at expanding overseas in the long run.
As you can see, Lemonade’s growth opportunity is mind-bogglingly huge. Stop me if you’ve heard this before, but the stock is trading 45% below January’s highs for the usual reasons. You should consider grabbing some Lemonade shares while the post-coronavirus discount lasts. The marketwide thirst for safety and value stocks won’t last forever.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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