Back in March, I wrote about 10 stocks of disruptor companies to buy that would benefit from the novel coronavirus. My selections were grabbed from the top holdings of the Ark Innovation ETF (NYSEARCA:ARKK), the fast-growing ETF from New York-based innovation investor, Catherine Wood.
Despite trimming her holdings, Tesla (NASDAQ:TSLA) remains the ETFs largest position with an 11.36% weighting as of June 16. It’s hard not to agree with most of her top 10. Alas, I can’t keep going back to this well for inspiration.
So for today’s 10 innovative stock ideas, I’ll head north of the border to Canada, where I’ll recommend ten names from the 47 holdings of the Evolve Innovation Index Fund (TSX:EDGE), a passively-managed ETF that tracks the performance of the Solactive Global Innovation Index.
- DocuSign (NASDAQ:DOCU)
- Splunk (NASDAQ:SPLK)
- Nvidia (NASDAQ:NVDA)
- Pinterest (NYSE:PINS)
- Intuitive Surgical (NASDAQ:ISRG)
- Intuit (NASDAQ:INTU)
- Salesforce.com (NYSE:CRM)
- Workday (NASDAQ:WDAY)
- Tesla (NASDAQ:TSLA)
- Okta (NASDAQ:OKTA)
The ETF got its start on May 2, 2018, so it’s a little more than two years old. Since inception, it has generated an annualized total return of 8.71%. While its performance can’t compare with Wood’s record, EDGE’s management expense ratio of 0.40% is 35 basis points cheaper than ARKK.
Without further ado, here are my latest disruptor stocks to buy.
Docusign reported strong earnings June 4 that included growing its total customers by 30% year over year to nearly 661,000. It was and is a major beneficiary of the move to working remotely during the pandemic, and most likely, after it.
On the bottom line, it had a first quarter non-GAAP profit of 12 cents a share, 2 cents higher than the consensus estimate.
“We added more than 10,000 net new direct customers and almost 58,000 self-service customers, bringing our global total of paying customers to nearly 661,000. And our operating margins and cash flow remain strong, even as we made key investments to address this heightened demand,” CEO Dan Springer stated in Q1 2020 conference call.
Who knew that something as simple as a digital signature could become so important to organizations. Docusign’s eSignature product is the first step its customers take in the digital transportation process.
This product buy-in bodes well for future growth in sales and profits.
The last time I wrote about Splunk was way back in September of last year, when I compared the data analytics company to Wayfair (NYSE:W). With both losing money on a GAAP basis, I considered which was the better buy.
I went with Splunk because I felt its new pricing made its pathway to profitability far clearer to me than Wayfair, which continues to spend boatloads on advertising. In the eight months since, both stocks are up 46%. How coincidental is that?
Anyway, not much has changed in my opinion of Splunk. I still believe it’s a much better buy over the long haul than Wayfair.
My InvestorPlace colleague, Matt McCall, said it best when he wrote:
Splunk is one of the best ‘Big Data’ plays out there. Its business analytics offering, importantly, creates actionable insights for companies to understand why marketing campaigns are working (or not) or how to improve customer service. Once customers have access to that knowledge, there’s simply no going back. And with megatrends like 5G wireless and artificial intelligence driving increasingly massive amounts of data, the value of Splunk’s platform will only increase.
Amen to that.
I’ve been a fan of Nvidia’s for a long time because of its free cash flow generation. The company reported 27% year-over-year FCF growth in the first quarter. CEO and founder Jensen Huang was very happy with its results despite all of the uncertainty caused by Covid-19.
“We raised the bar for AI computing with the launch and shipment of our Ampere GPU. And our digital GTC conference attracted a record number of developers, highlighting the accelerating adoption of NVIDIA GPU computing,” Huang stated May 21.
“Our Data Center business achieved a record and its first $1 billion quarter. NVIDIA is well positioned to advance the most powerful technology forces of our time – cloud computing and AI.”
Compared to the fourth quarter, Nvidia clearly experienced a slowdown in its business. Nonetheless, it still managed to avoid a big decline in sequential sales and operating income in the first quarter.
“Over the past 15 years, Nvidia’s delivered an annualized total return to its shareholders of 28%. I think there’s a good chance it will do that again over the next 15 years,” I wrote on April 27.
The company’s first-quarter results tell me I wasn’t wrong to feel this way. It’s got a bright future.
During this time of reflection about our treatment of minorities, Pinterest strikes me as the social media app that’s the least offensive and most enjoyable for anyone looking for a little diversion from a rough and tumble world.
Like many stocks, Pinterest has had a topsy-turvy year. While it’s up 16.7% year to date, it has traded as high as $27.25 in February and as low as $10.10 in March. It opened at $22 on June 16.
Where to next? I believe it will head higher, but only if the economy cooperates.
In the past, I’ve had a lot of good things to say about the social media platform’s focus on the visual. Last September, I said that visually, PINS stock was a perfect 10. It had everything to do with Pinterest’s Lens feature, which can identify large numbers of objects and turn them into shoppable pins.
The result: an advertising bonanza.
During the pandemic, Pinterest has brought out a second version of its Story Pins that’s meant to inspire and lift the spirits of users coping with Covid-19 and the protests over police brutality.
Once again, it’s taken the high road, something I continue to believe corporations are going to flock to in the years ahead.
It remains my favorite of the social media disruptor stocks.
Intuitive Surgical (ISRG)
Given the innovation focus during the pandemic, I’m surprised that more InvestorPlace readers aren’t clamoring for content about Intuitive Surgical, the people behind the da Vinci robotic surgical system used by thousands of doctors around the world.
In 2013, I recommended readers buy ISRG.
“Warren Buffett loves to see his favorite holdings drop in price because it allows him to pick up more. Intuitive Surgical is a great company that is growing free cash flow at a significant rate. If you own shares already, I’d applaud any pullbacks in its stock. If you don’t own any shares, buy some now and then some later if it drops some more,” I wrote on March 7, 2013.
“If you don’t, you’ll be kicking yourself in five years when it’s a $1,000 stock.”
At the time, it was trading at $172 ($516 before 3-for-1 split in October 2017). It hit a split-adjusted $333 in September 2017, seven month before my five-year prediction. Since then, it’s gained another 68% over 32 months.
For those who bought ISRG in March at its 52-week low of $360.50, you are to be commended for following Buffett’s philosophy.
Looking ahead, I continue to believe this long-time innovator is worth owning for the next 50 years.
I’ve been using TurboTax for more than a decade to file my taxes. Because I tend to invest in ETFs to keep my life simple, I don’t own INTU stock. But if I did move away from ETFs to individual disruptor stocks, Intuit would likely be at the top of my list.
Years ago, I developed an investing philosophy called “Everyday Investing,” that copied Peter Lynch’s idea of investing in what you know. What could be more familiar than doing my taxes? It’s one of the few things I know will happen every year whether I like it or not.
Needless to say, Intuit and I have a yearly date. And it’s one I will never forget. That’s why I called it the unsung hero of fintech in September 2019.
“TurboTax continues to benefit from the consumer’s desire to do their taxes at home rather than schlepping a box of receipts down to the local H&R Block office. In 2019, 68% of Americans said they would file their taxes online, up from 53% a decade earlier,” I wrote.
What Intuit does isn’t glamorous. That said, it is helping people make and save money, two critical components of any good business.
Does it have gobs of competition? You bet. However, it’s proven it can stand the heat in the kitchen. Until someone can deliver a product that’s visibly better, I have no plans to switch.
I’m what you’d call a sticky customer. And there are plenty of them.
When it comes to CEOs, Salesforce’s Marc Benioff is one of the good guys.
In a recent video interview with the Washington Post, Benioff reiterated his belief that a universal basic income will become a part of the American way of life.
“I think that basic income will be part of our future, we can see the need for that right now, there will be other needs for that as well, and we can learn from this. This is a major test we’re running in our own country,” Benioff said on June 10.
What does this have to do with customer relationship management software, an industry Salesforce practically created? Plenty.
The most successful companies in America are those with the most talent. There are people out there living in poverty who could be the next great software engineers if they could just find the time to educate themselves rather than working dead-end jobs to keep a roof over their heads.
We’re already seeing how work will change as a result of Covid-19. Jobs will be permanently lost. And President Donald Trump won’t be replacing them with manufacturing jobs. I can guarantee you that.
Cloud Wars contributor Bob Evans spoke very highly about Benioff in late May after it announced blowout earnings.
“These achievements [30% revenue growth]—and the dreams, passion, and unrelenting will behind them—are a continuation of Benioff’s evolution into one of the great leaders of not only the tech world but the global stage as well,” Evans wrote on May 29.
Imagine what Benioff and Elon Musk could produce together? The possibilities are infinite.
As it happens, Workday recently announced a partnership with Salesforce’s Work.com, a suite of applications and resources to help businesses reopen safely.
“The companies will offer integrated solutions between Workday, the source of truth for real-time worker information and skills insights for today’s dynamic workforce, and Salesforce’s Work.com, an all-new suite of applications and advisory resources to help business and community leaders around the world reopen safely,” stated the May 29 press release.
It has been a tough year for the provider of human capital management and financial management software. Down as low as $108 in March, WDAY stock battled back and is now in positive territory for the year.
Heading into the rest of fiscal 2021, while the company expects subscription revenue for the year to be slightly lower than its guidance from the end of January, it expects its operating margins to be 16%, 150 basis points higher than a year earlier.
As long as companies continue to focus on making the employee experience as enjoyable as possible, companies such as Workday will continue to grow their businesses.
That’s why I recommended WDAY stock at the end of May. Long-term, it’s a winner.
What’s a list of disruptor companies without Tesla? Elon Musk achieved his boyhood dream on May 30 when SpaceX and NASA successfully launched two astronauts into space, the first time in more than a decade.
If there was any doubt Elon Musk is an innovator, watching the two astronauts hurdle into space toward the International Space Station left no doubt. The man gets things done.
Which is why he also got a $770 million payday recently for meeting operational goals set out in his compensation plan two years ago. The 1.7 million options are the first of what could be millions more. Options that could put him in competition with Jeff Bezos as the world’s wealthiest person.
As I’ve said on many occasions, as long as Musk continues to innovate, good things are bound to happen for Tesla shareholders. In the meantime, its performance in 2020 speaks for itself.
Last December, I said that Okta stock remains an interesting stock to follow as we head into 2020. Year-to-date, Okta’s stock is up 60% compared to a total return of -6.5% for the entire U.S. markets.
There’s an easy reason why. It’s growing sales at breakneck speed — up 46% in the first quarter ended April 30 — and moving closer to non-GAAP profitability.
InvestorPlace’s Louis Navellier discussed Okta’s relevance in a February article about the company.
“As I see it, Okta already secured the pole position in cloud-based identity-authentication architecture; now, it’s quickly earning a sizable market share in zero-trust security applications. Hence, it’s a no-brainer to assign Okta a ‘B’ rating,” Navellier wrote on February 27.
“Even if we can’t always trust our associates, at least we can trust in the growth of this company.”
Since then, Navellier has moved OKTA up to an “A” rating and a strong buy. I couldn’t agree more.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.