It’s been a bumpy ride for Wall Street in 2022. Since the widely followed Dow Jones Industrial Average and broad-based S&P500 reached their respective all-time closing highs in early January, both fell into correction territory (i.e. a decline of at least 10%). As for the technology Nasdaq Compoundit has lost more than a quarter of its value in less than seven months, putting it in a bear market.
While there’s no doubt that steep declines in the stock market can be disconcerting, history has repeatedly shown that these declines are the perfect time for long-term investors to pounce. Not only are corrections often short-lived, but every notable dip in history has eventually been erased by a bullish rally.
For investors who have cash on hand and time on their side, this could be the perfect opportunity to buy stakes in innovative companies that have the potential to generate life-changing wealth. Here are three stocks with the tools to do so over the next 20 years.
The first unique company that can help long-term investors build generational wealth over the next two decades is the e-commerce platform Etsy (ETSY -8.70%).
Right now, there’s probably no dirtier six-letter word than “retail.” Retailers have been beset by a large inventory build-up, supply chain challenges related to the COVID-19 pandemic as well as the war in Ukraine, and historically high inflation, which is hurting consumers’ purchasing power low income. These headwinds are likely to persist throughout 2022, and even into 2023.
But when looking at Etsy’s long-term potential, these short-term headwinds are most likely just minor speed bumps.
The main reason to buy shares of Etsy is because of its ability to differentiate itself in the highly competitive field of online retail. While most online retail platforms are built for volume, Etsy’s e-commerce platform is built for customer engagement. This is because most Etsy merchants are small businesses that create unique or personalized products for shoppers. There is no e-commerce platform with greater customization at scale than Etsy, which is a tangible and lasting competitive advantage.
Another reason for Etsy’s success is their willingness to reinvest in their platform. The company increased its marketing spend, improved the analytics and tools sellers use on the platform to manage their orders and connect with shoppers, and introduced video listings, designed to boost seller engagement. buyers.
Etsy has also done an incredibly good job of turning occasional buyers into repeat buyers. According to Etsy, a “regular buyer” is someone who makes at least six purchases during the 12-month period, with those cumulative purchases totaling north of $200. Between the end of 2019 (i.e. before the start of the pandemic) and the end of 2021, the number of repeat buyers increased by 224%. Perhaps this number, more than any other, is the company’s key to charging merchants higher fees.
Having carved out a niche for itself in the ever-growing online retail space, Etsy can be a serious source of income for patient investors.
A second highly innovative growth stock that can generate life-changing wealth over the next two decades is the pet health insurance provider Trupanion (TRUP -8.00%).
The big knock against Trupanion is that it is an unprofitable company at a time when valuations are coming back into focus. With inflation and rising interest rates, investors want to put their money to work in companies that have a proven track record. Trupanion does not yet have the recurring profitability which places it on the same level as proven insurers.
However, these short-term losses should not scare opportunistic investors away from a company with many competitive advantages in its sails.
For starters, the pet industry is arguably one of the most recession-proof industries on the planet. Last year, $123.6 billion was spent on pets in the United States, according to data from the American Pet Products Association (APPA). Not only has it been more than a quarter century since spending on pets in the United States has declined year over year, but the number of pet-owning households has reached an all-time high of 70% in the APPA 2021-2022 survey. Owners treat their pets like family, and this data shows that they will open their wallets in any economic environment to ensure their well-being.
Taking out health insurance for a cat or a dog is a logical extension of this desire of owners to ensure the well-being of their pets. According to an April presentation by Trupanion, only 2% of the US and Canadian pet market has been covered by health insurance coverage. If the US achieved a penetration rate of 25%, which mirrors the UK pet insurance rate, Trupanion’s total addressable market would be $38.3 billion. For additional context, pet medical insurance spending has increased by a compound annual rate of 23% between 2015 and 2020.
Although pet insurance is a competitive segment, Trupanion can draw on the more than two decades of relationships it has built with veterinarians and their staff at the clinic level. Among the major pet insurers, it also happens to be the only one to provide software to veterinary clinics that supports payment at the time of services rendered. This means less hassle for pet owners and the clinic.
Trupanion offers sustainable double-digit growth potential in an industry that has proven its ability to weather economic downturns.
A third growth stock that can generate life-changing wealth in 20 years is the Singapore-based conglomerate Sea Limited (SE -7.18%).
Similar to Trupanion, Sea is facing a near-term run-up due to significant operating losses. As tech stocks take a beating, companies like Sea have suffered a substantial multiple price-to-sales contraction. Then again, Sea wouldn’t be on this list if it didn’t have something special to offer long-term investors.
Sea’s (say, three times faster) secret sauce is that it has three fast-growing, yet independent, operating segments.
Currently, the company’s gaming division, known as Garena, is its only segment generating positive earnings before interest, taxes, depreciation and amortization (EBITDA). The company’s hit mobile game Free fire is primarily responsible for the growth of Garena. What’s particularly notable is that 10% of quarterly active gamers pay to play, which is far higher than the industry average pay-to-play conversion rate for mobile games.
Sea’s digital financial services segment should be another source of long-term outperformance. Consumers in some of the emerging markets in which Sea operates do not have access to basic financial services. SeaMoney aims to solve this problem by providing digital wallet access and services.
But the operational segment that gets the most attention is the Shopee e-commerce platform. Shopee has made great strides in Brazil and is the most downloaded shopping app in Southeast Asia. In 2018, $10 billion in gross market value (GMV) passed through Shopee’s platform. Now, Shopee has an annual GMV run rate of nearly $70 billion.
Although it may still take a few years for Sea Limited to turn the tide of recurring profitability, it has a base in place that should prove quite fruitful for long-term investors.