As an investor, I tend to look beyond the biggest and best-known companies. Sure, people may have made some money in past decades by buying these stocks… but what makes them so special in 2018?
And most importantly, what makes you think they will do well in 2019 or 2020?
My philosophy is that investors who only want broad exposure to established companies can simply buy an index fund. And those investors who want outperformance need to make tactical bets on the small up-and-coming stocks that are redefining success on Wall Street.
It’s these tactical trades that are the backbone of my MoneyWire newsletter, and my premium NexGen Investor service. The stocks I uncover always offer something new and innovative, and are disrupting the status quo of investing.
That’s exactly what these five small-cap stocks are doing. Each one of these picks, in their own way, has tossed out Wall Street's boring old rule book and is finding an exciting path to growth … delivering tremendous profits to investors as a result.
So let’s dive right in…
When most investors think e-commerce, they think Amazon (AMZN) or Alibaba (BABA) – and for good reason. But JD.com (JD) should not be overlooked. This smaller, up-and-coming merchant recently partnered with megastore Wal-Mart (WMT) and could be giving the big boys a run for their money!
Or even better, it could be a buyout target by WMT in the near future as a result.
The number two Chinese e-commerce company behind Alibaba, JD is no slouch and was picked by retail giant Wal-Mart for good reason. It has the scale to provide instant entry into this large market, as evidenced by more than 1,700 of Wal-Mart’s best-selling items on the JD platform right now.
Even if Wal-Mart doesn’t raise its ownership stake or acquire JD outright, the future is clearly bright for this lesser-known e-commerce company.
New Relic (NEWR) is a digital intelligence company that gives large businesses the ability to analyze data. And if you’ve ever heard the factoid that 90% of the world’s data has been generated in the last two years alone, you understand the crucial role that New Relic plays in the global economy.
As companies in every sector turn to data analysis in earnest, NEWR has plenty of runway for growth. It currently provides services to over 40% of Fortune 100 companies and the number seems to grow every day.
It’s worth noting that the company is still struggling to turn a consistent profit. However, losses have dropped substantially each and every year and NEWR should operate at a handy profit in a year or two. Furthermore, it’s common for a high-growth tech company like this to focus on market share and the top-line as it reinvests every penny in becoming bigger and better.
Revenue continues to increase at a high pace, which it did last quarter with a gain of 37% over last year, and this kind of rapid expansion could make NEWR a great buyout target in the near-term before it ever gets to the scale and profitability I expect in the long-term.
With the amount of data increasing every day, it is integral that companies have the ability to sift through what is important and what is not and from there what that data means to them. One way or another New Relic is going to be a big part of that in the future, so you’ll want to share in this company’s success.
Shopify Inc. (SHOP) is another play related to e-commerce. But again, it is not the typical Amazon or Alibaba investment most talking heads recommend without looking under the surface of online shopping trends.
I’m a big believer that one of the best ways to play the e-commerce boom is not by trying to identify which retailer will be the leader, but simply to look at the picks and shovels behind the booming sector. Shopify is a Canada-based company that provides the software for retailers to setup and manage their online storefronts. The company generates revenue from fees and subscriptions it charges the merchants when customers purchase items through their platform.
That means big things for Shopify lie ahead, no matter who wins the e-commerce war long-term or which small-tier specialty stores carve out a loyal following. Everyone who is looking to set up online retail operations is a potential Shopify customer, and the broader push online is a big tailwind for the company.
The company is forecast to be nicely profitable in 2018. That means now is the time to stake out a claim in this pick, before other investors crowd in as future earnings alert them to the opportunity.
When I look at new potential stocks, I screen them based on three strict criteria: fundamentals, technicals and intangibles. Aerovironment (AVAV) has experienced solid earnings growth that is expected to increase in the years ahead and the technicals are very impressive, too.
But what’s really attractive about AVAV is the intangibles, or the story/trend behind the story. After all, this company does business in two high-growth areas that are clearly going to be a major part of the future economy – namely, drones and electric vehicles.
AVAV drones are currently seeing demand from the military, and geopolitical unrest in North Korea, Syria and elsewhere will keep that demand strong. There’s also the important growth trend of consumer and agricultural drone use, which could really catapult this stock forward and open up new revenue streams.
The icing on the cake is that Aerovironment is a major player in charging stations for electric vehicles – and unlike Tesla, which has to win with consumers with its brand or on price, AVAV simply has to benefit from the secular growth in the space and the need for charging stations instead of gas stations in the future.
These trends, along with strong fundamentals and price momentum, all add up to an impressive story for this up-and-coming stock.
Trupanion (TRUP) may not sound like a NexGen stock at first glance, since it seems like just a boring old insurance company. What’s high growth or high tech about that?
However, Trupanion is not a typical insurance company because it is the largest provider of pet insurance in the country. Not only does this mean it is seeing bigger growth than traditional health insurers, it also means it’s insulated from the political uncertainty around U.S. healthcare legislation.
Another big plus is that pets are one of the few reliable growth centers within consumer spending trends. Total U.S. pet industry expenditures topped $69 billion in 2017, up almost 70% from just 10 years ago! Furthermore, the basic idea of health insurance for pets – how to service the policies, how to meet new customers and everything in between – is a relatively new and unknown territory that provides plenty of discovery and innovation for first-movers like Trupanion.
The numbers already show a healthy company right now, with the company expected to turn an annual profit next year. And as reliable growth pushes the top line even higher in the years ahead, you’ll want to be there with TRUP.
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