This year, even one that was historically wild and crazy, we have seen some stocks flash huge upside. In fact, we have seen stocks evolve from speculative ventures to productive powerhouse corporations that will stand the test of time.
So, thinking about this radical time in which we live, we must ask: what makes an up and coming stock? In our minds, hyper-growth, and value. We are looking for companies with innovative ideas and visionary concepts that seem both inspirational and substantial.
Obviously, technology will be an important component of this list. The sector has come to rule the stock market and to define American industry over the last few years.
But its where technology is intermingling with other legacy systems. Or it is disrupting other sectors like healthcare, logistics, and even consumer retail. That is where we find companies that are really, really exciting.
So, this leads us into our first idea, how do you qualify and find an up and coming stock?
Characteristics of an Up and Coming Stock
When we are researching stocks and looking for the next “big thing,” here are some boxes we want to be checked:
- A simple but powerful story – When we are investing, we want to make sure we understand how the company makes money. And how they make money should be easily understood. But more than that, we look for ideas and concepts that are inspiring or require some level of wonder. Obviously, not every company will check this box. But if you look at some of the stocks we now value highly, well, you had to suspend some disbelief. I mean we all take Netflix for granted now. But when you were waiting in line for Die Hard at Blockbuster video, could you imagine a $9 service where you could watch as many movies and TV shows as you possibly could want?
- Dominant competitive advantage – Competitors are fine and even rivals are OK. But we are looking for companies with a product that is a clear leader in the field. In addition, we would like to make sure the intellectual property portfolio is strong and there is a smaller percentage chance that revenues will be undercut.
- Future feels – I am being tongue-in-cheek with that header, but the company should not be manufacturing Beanie Babies. We are looking for companies that have an eye toward the future and have borderline disruptive technology. Or it is working in a sector that is completely disruptive. For example, at this moment in time, 5G technology will be disruptive when it launches and companies that are gatekeepers in the supply chain or the actual technology delivery would qualify as “up and coming.”
- Varied revenue stream – We like to see companies that are executing on multiple fronts. This is a testament to the team behind the name and also that management is forward-thinking, well-planned, and that the stock is not a one-trick pony.
All of these things and a favorable valuation per share…You know, we are looking for the works.
Best Up and Coming Stocks
Ok, so, without further ado, here are our up and coming stocks.
These are the stocks we are watching daily and think have the highest potential to hit it big.
CrowdStrike Holdings, Inc. (CRWD)
CRWD is a cybersecurity company built to stop data breaches. The company’s Falcon Platform is an antivirus, endpoint protection system that is cloud-managed and lightweight.
The company’s platform can hunt threats, respond to threats, or provide insights on network safety and weak points.
Right now, CrowdStrike is already a must-own stock. More than 90% of revenues come from recurring customers and revenue growth rates have increased 95% on average over the last three fiscal quarters.
And the company has some prestigious customers, see below.
But, what makes CrowdStrike an up and coming stock is that many companies are still moving much of their workforce online and specifically to the cloud.
CRWD owns this space. The company’s endpoint protection system is by far an industry leader and CrowdStrike’s system being on the cloud itself enables it to be agile and cost-efficient.
And it is this latter point that makes me very bullish on continued future revenue growth for the company—CrowdStrike is saving companies money. Its cloud-based platform is consolidating technologies and stealing customers away from Symantec and other legacy companies in this space. Here is CFO Burt Podbere on this very issue:
“Simplicity, efficacy, cost all those things really come into our wheelhouse. And so unless you were born in the cloud, you have that one single agent and you have that dynamic technology at the endpoint then you’re already behind the eight ball. And so for us, I think that’s a huge part of why you’re seeing us put the numbers on the board that you’re seeing.”
Furthermore, with the amount of cash CRWD has on-hand, we expect the company to make some attractive acquisitions between now and this time in 2021. In short, we think Crowdstrike gets bigger as more companies expand their networks and we think they steal customers from traditional cybersecurity firms. And, at the moment, we think CrowdStrike is a steal per share.
Top Up and Coming Stocks
Livongo Health, Inc. (LVGO) and Teladoc Health, Inc. (TDOC)
Admittedly, we were on the Livongo Train before the recent acquisition of Teladoc…So, after the acquisition, we are buying as much of LVGO as we can…
We believe the acquisition for Teladoc was one of the most underappreciated and most synergistic deals of 2020. Let’s back up though, if you are not familiar, Livongo offers data-driven healthcare solutions for diabetes, weight management, behavioral health, and hypertension. The company does all of this through remote monitoring and engaging self-service.
Without the Teladoc merger, which I know some shareholders were not happy about, recent Revenue for LVGO grew 125% year-over-year to $92 million, with EPS hitting $0.11, while top-line growth increased a robust 115% YoY. This is a great performance on its own…But now you combine what is an undeniable leader in virtual healthcare.
First, let’s address the elephant in the room. Sure, Livongo would have been just fine without this merger and many shareholders were looking at Teladoc like the second steak sandwich they didn’t order (Fletch reference anyone?), but, we believe this deal cements the combined entity as both the leading digital healthcare marketplace and the leading provider of care, and we truly think that this will offer people healthcare in a new way.
Here is what Teladoc said at the time of the deal, “Livongo’s very consumer-friendly product, technology forward, consumer engagement and behavior change, their underlying data science complements Teladoc’s scalable global virtual care platform and the ability to bring that physician network to bear across all clinical specialties and conditions.”
This move will make the combined business a more holistic and whole healthcare apparatus, which it was not before. Essentially, we think there is much more to come. After this merger closes, we see nothing but innovation coming from the intermingling of these two companies.
Virgin Galactic Holdings, Inc. (SPCE)
Ok, we know what you are thinking…Is he for real? Hear me out.
SPCE has first-mover advantage in a field that has rare air, to say the least, and, yes, sure, it is a bit of speculation black hole…But, space tourism is for real. Now, you may not have the cash for it, but there are plenty of people who do.
Virgin Galactic is at the “vanguard of a new industry” and an exciting opportunity in a space where public investment is scarce. Credit Suisse summarized the investment thesis as a “classic tech-driven, high demand, low supply story with high barriers to entry” and as “the ultimate joyride.”
Of course, Virgin Galactic does not have profits to speak of…But, as soon as its first commercial plane takes off, those losses will be forgotten. If it makes readers feel any better, Virgin Galactic’s first year of commercial flights are already booked solid. I mean read their 8-K:
We intend to offer our customers, also referred to as Future Astronauts, a unique, multi-day experience culminating in a spaceflight that includes several minutes of weightlessness and views of Earth from space.
Of course, much of SPCE’s success with shareholders will depend on meeting production timelines (which have already been pushed back), keeping pace with construction milestones, and passing safety tests by the FAA.
We still expect Virgin Galactic to beat Blue Origin and SpaceX by a wide margin…And if you think you had FOMO on some recent tech IPOs, how are you going to feel when you see stewardesses floating weightless in a commercial cabin and Richard Branson smiling and guffawing on CNBC?
Sure, don’t bet the farm on SPCE but the bull proposition for space tourism is there. And if you are looking for an up and coming stock, why not go to the final frontier?
New Up and Coming Stocks
Here are some names that have popped over the last three months. We advise keeping a close eye on them.
Chegg, Inc. (CHGG)
The world seemed to break in CHGG’s favor, and there is no turning back. Chegg offers digital-first textbook solutions for college students, but it recently unveiled a new content platform that is going to be the real moneymaker.
Chegg Study is going to be a money-printing machine. The year-over-year increase in subscribers is up more than 25% and revenues have grown at a 39% CAGR over the last five years.
Ok, think about this in context: every student from elementary to college is at home right now learning, and plenty of studies have shown that remote learning is highly flawed, and what is the flaw? Being able to ask for help and get study solutions?
Chegg Study fills this gap with content and then some. The site has so many resources and content solutions for students that Chegg is already reaping the benefits. We think this moment in time and the revenue growth will let the company scale to more international student communities.
Fastly, Inc. (FSLY)
Across the stock market, FSLY is mostly known for the company that is handling the delivery platform for Tik Tok. But, its work with the popular (and controversial) social media app has just been a test run for the company.
Fastly works to speed up apps and increase content delivery speeds across servers. The addressable market for FSLY is huge, over $30 billion, and the more companies and institutions move to the cloud, the larger that number will get.
Furthermore, FSLY caters to speeding up content over edge devices. In short, FSLY works as a bridge between the cloud and the end-user by reducing latency. Meaning, when you click on that link on your insurance provider’s website, Fastly improves the speed and this quick response time aids businesses by lowering the bounce rate and increasing customer loyalty along with the overall user experience. FSLY does this through point-of-presence networks.
Of course, how the Tik Tok drama plays out will have a short-term impact in FSLY, but long-term this company looks like a focal point for companies that want immediate content delivery. Customer spend has increased 11% over the last quarter and when this company comes out of its growth cycle we expect it to be a true one-stop-shop for many companies that have migrated to the cloud. For these reasons, we think Fastly is one of the best up and coming stocks.
I think it goes without saying that our list of the best up and coming stocks is not immutable and circumstances could certainly change for any of these companies in a New York minute.
Earnings growth for each of these companies (besides SPCE) has been nothing short of phenomenal, but eventually, these numbers will level off with the current product offering, but I selected these companies because I think they understand their industry and will make a move or an acquisition to stay on top.
I think there are some names not on this list I like a whole lot: DataDog, NetEase, Nio, and Snowflake. What are some that you think I missed? Let me know in the comments.