These innovative companies should run circles around Reddit darling AMC.
Over the past two months, Wall Street has watched a new phenomenon take shape:the Reddit frenzy.
Retail investors on Reddit's WallStreetBets (WSB) chat room have essentially banded together to buy shares andout-of-the-money call optionson stocks with high levels of short interest. The goal of the WSB community is to create a short squeeze that sends heavily shorted stocks rocketing higher. Since the vast majority of short-sellers are institutional investors and hedge funds, these retail investors view their actions as a way of getting back at the so-called "big money."
AMC is an extremely popular (and incredibly dangerous) investment
AlthoughGameStopis the unquestioned king of all Reddit stocks, movie theater chainAMC Entertainment Holdings(NYSE:AMC)easily slots in as the second-most-popular. AMC was one of the market's most short-sold stocks in late January, and its penny-stock share price acted as an insatiable lure for young investors.
Beyond the Reddit frenzy, optimists are also encouraged by the reopening of the U.S. economy. Movie theaters in New York City and Los Angeles are beginning to reopen, and 21% of the U.S. population has received at least one dose of a coronavirus vaccine. A return to normal appears to be in sight, and investors are betting big on AMC to take advantage of this pent-up demand.
Unfortunately, the "buy AMC" thesisis flawed. The reopening catalyst assumes that there'll be no setbacks in major markets, which is unlikely. It's not yet clear if enough Americans will get the vaccine, which suggests that herd immunity could be pushed further down the road. Coronavirus variants also threaten to diminish the effectiveness of vaccines authorized for emergency use.
Even more concerning, AMCnarrowly avoided filing for bankruptcy protectionearlier this year. It was forced to sell close to 165 million shares of stock and issued more than $400 million in debt capital to step back from the bankruptcy ledge. If capacity limits don't ease somewhat quickly in key markets, I'm not certain AMC will have enough capital to survive the year -- especially if there are pandemic setbacks.
But worst of all, AMC's core operating model is now threatened. With consumers stuck in their homes for roughly a year, select streaming services have become competitors.AT&T subsidiary WarnerMedia isreleasing all of its movies in 2021 on HBO Maxthe same day they'll hit theaters.Walt Disney plans to do something similar with a couple of movies on its Disney+ streaming platform.
Forget AMC: These innovative stocks can make you rich
The point being that AMC is a dangerous investment that's liable to lose folks a lot of money. Instead of buying a company that's hanging on by a thread, I'd encourage you to consider purchasing the following three game-changing stocks, all of which have the tools to make you rich.
Ping Identity
Though there are a number of trends that offer double-digit growth potential this decade,cybersecurity might be the safest of the bunch. As more businesses push online and move their data (and that of their customers) onto the cloud, the onus of protecting this data is increasingly going to fall on third-party providers. That's wherePing Identity Holding(NYSE:PING)comes in.
Whereas most security companies excelled during the pandemic, identity verification specialist Ping Identitystruggled a bit. Full-year sales were essentially flat, with a number of clients opting for one-year subscriptions instead of multiyear plans. But there's plenty of reason to believe that this weakness was pandemic-related and only temporary.
Even though total sales were flat, the company's focus on subscription services helped boost annual recurring revenue (ARR) by 15% to $259.1 million. Ping also ended the year with 51 customers generating in excess of $1 million in ARR, which is up from 38 clients at the end of 2019. The company is clearly capable of scaling up its services with larger clients, and touts that its services are protecting 60% of Fortune 100 companies.
What's more, 92% of its fourth-quarter sales were derived from subscriptions, and its subscription gross margin stood at 86% in that quarter of 2020. Even if its ARR growth were to motor along at, say, 15% for the next half-decade, it'd be pretty hard to overlook the cash flow potential when the company's subscriptions are generating 86% gross margin.
Ping Identity is alsovery reasonably priced. Whereas most cybersecurity stocks are valued at 20 times sales or higher, Ping can be scooped up for around 7 times forecast sales in 2021. It just might be the best value among cybersecurity stocks.
Cresco Labs
Marijuana stocksshould be big-time winners throughout the decade, regardless of what happens with cannabis' classification in Washington. Operating in the most lucrative market in the world, the U.S., multistate operator (MSO)Cresco Labs(OTC:CRLBF)has the potential to make investors rich.
As with most MSOs, Cresco's success will depend somewhat on its retail presence. The company entered the year with only 20 open dispensaries, but has been leaning on acquisitions to expand. Closing the Verdant Creations deal maximized its presence in Ohio, while the pendingBluma Wellnessbuyout will give the company a healthy presence in medical-marijuana-legal Florida.
Yet what's interesting about Cresco Labs is that its retail game planmostly revolves around limited-license states. In particular, over 60% of its open locations are in states where the number of retail licenses is capped by regulators. Pushing into states with caps on dispensary licenses is a smart way for Cresco to build up its brand while facing minimal competition.
However, thebigger growth driver for the companyis likely to be its wholesale operations. Even though wholesale cannabis offers lower margins than retail, Cresco has more than enough volume to overlook any margin differences. That's because it holds one of the highly coveted cannabis distribution licenses in California, which allows the company to place proprietary and third-party products into more than 575 dispensaries throughout the Golden State.
With Cresco's projected growth surpassing many of its peers, it has a good chance to put some serious green into the pockets of its shareholders.
Intuitive Surgical
Lastly, investors should forget all about AMC Entertainment andbuy into a real game-changerin the healthcare sector,Intuitive Surgical(NASDAQ:ISRG).
Intuitive Surgical is best known for its robotic-assisted surgical system, the da Vinci, which allows surgeons to make precise incisions that can reduce scarring and shorten hospital stays. For insurers, it can lead to higher up-front costs, but reduce extended hospital stays that can prove even costlier.
The da Vinci system is the unquestioned leader in robotic-assisted surgery. Intuitive has placed close to 6,000 of its machines worldwide since 2000, which is more than all of the company's competitors combined. The company has been able to build priceless rapport with surgeons in hospitals and surgical centers, which makes ithighly unlikelythat we'll see its clients switch to a competing system.
But it's not just the company's overwhelming competitive edge that makes it such an attractive stock. Its operating model isdesigned to grow more efficient over time. As more da Vinci systems are installed, a higher percentage of sales will be derived from segments with juicier margins, such as instruments and accessories sold with each procedure, as well as system servicing.
Intuitive Surgical is just beginning to realize its opportunity with its innovative soft-tissue surgical solutions. Expect the da Vinci to pick up significant market share in thoracic, colorectal, and general soft-tissue procedures throughout the decade.