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10 STOCKS FºR 2021
Inside THIS REPORT
Click an article to read more:
Thank You & 3 What 2020 Taught Me New Tool: 10 Favorites From
Wishes for 2021 About the Future The Allocator Across the Fool
Tom Gardner Morgan Housel Amanda Kish Rich Greifner
Appian Cloudflare Fiverr Fulgent Genetics
Nasdaq: APPN NYSE: NET NYSE: FVRR Nasdaq: FLGT
Lemonade MercadoLibre Okta Pinterest
Nasdaq: LMND Nasdaq: MELI Nasdaq: OKTA NYSE: PINS
Shopify Zoom Video
NYSE: SHOP Communications
Nasdaq: ZM
WELCOME:
THANK YOU & 3
WISHES FOR 2021
Hello, Fools, and Happy New Year! results, not the investor who’s ignoring all
Thank you for being a part of everything of the stakeholders in an organization and
that we brought to the world together. hoping that their position as a shareholder
As you know, 2020 was a survival year, will be the primary focus of a company.
and now we head into one of the greatest Instead, we are all stakeholders and
rebuilding opportunities in our lifetime, cer- long-term thinkers hoping we can find great
TOM GARDNER
tainly in the 27-year history of The Motley companies that are going to make a dif-
Fool — the opportunity to be supportive of ference in the world and profit from being
entrepreneurs and innovators, to invest our time and associated with them. So I hope for you and for all of
our capital in solving the most important problems. us that we continue to look at the data that shows that
I’m happy that we get to do it together. really all the wealth of the public markets ends up in
Our mission is to make the world smarter, happier, the hands and in the pockets and the digital accounts of
and richer in all of our Foolish experiences together. So long-term, business-focused investors.
I have three wishes I’d love to share with you for the And my third wish for you, and in the year ahead, is
new year. that we do everything we can to make the lives of the
First, we take even more pleasure and find even people around us smarter, happier, and richer — and
more success in identifying the great organizations of that we do so for ourselves as well. We want to do
our time. How they’re priced in the short term really is everything we can to make 2021 the unforgettable year
a secondary or tertiary concern. It’s much more about that it deserves to be and that we all hope for.
where they’re going, what they’re trying to solve, and Thank you for being a part of The Motley Fool in
how much they care about all the stakeholders, all the 2020. So many of you have been with us since 2015,
partners, everyone connected to that organization. 2010, 2000, 1993. We debuted in the spring of 1993, and
The great companies are going to build a pathway some of you are still hanging out in Fooldom with us
to prosperity over the next 25 years. They’re going and investing for the long term.
to be innovating, they’re going to be organizing and Thank you so much for being a part of our mission,
prioritizing their work to make sure that they’re doing helping to lead our mission and co-owning our brand
something of consequence. Those are the businesses with us as we try to help as many people as we can
that we want to support here at The Motley Fool, and make better decisions in their financial and their
I wish that for you and for me and for all of us that we professional lives. So thank you.
continue to do a better and better job of locating them Best of good health and happiness for you and your
and preparing to invest in them for the long term. family, and let’s go make 2021 a year that we’ll never
That’s my second wish. As the days and weeks pass, forget.
I want to demonstrate even more that the Motley Fool Fool on!
community is dedicated to being the investor that great
organizations deserve — and that is not the short-term
thinker. Not the investor who’s using leverage to juice
10 STOCKS FOR 2021 1
LOOKING AHEAD:
WHAT 2020
TAUGHT ME ABOUT
THE FUTURE
This was the year that felt like a decade. Entrepreneur Derrik Sivers once
That’s probably the most common wrote:
thing you’ll hear about 2020: the feeling “ People only really learn when they’re
that time slowed down. The early days surprised. If they’re not surprised, then
of spring, when COVID-19 first entered what you told them just fits in with what
MORGAN HOUSEL our lives, felt like it lasted an eternity. they already know. No minds were
February feels like a different lifetime ago. changed. No new perspective. Just
The leading theory for why time more information. ”
occasionally feels like it slows is that
time perception is driven by the number As we head into a new year — a
of memories formed in a period, and vaccine in hand, light seemingly at the
memories are created by experiences end of the tunnel despite a virus still
that are new and surprising. It’s why the raging — I’ve been thinking about what
monotony of commuting to work on the I’ve learned from this surprising year and
same road for 20 years passes without what it means for 2021 and beyond.
leaving a mark, but summer break seems Three things come to mind.
to last forever for a child experiencing her
first summer camp. 1. Risk is what you don’t see,
Time seems to have slowed in 2020 aren’t talking about, and
because for the first time since childhood aren’t prepared for.
many of us have been bombarded with
new and surprising experiences. The investment industry spent the better
We learned how to work from home. part of the last decade debating what
How to use new technologies. the biggest risk to the stock market and
How powerful exponential growth economy was.
can be. We wondered: Was it budget deficits?
We learned that the economy can stop The Federal Reserve printing money?
overnight. Trade wars? High valuations? Profit
And that isolation is exhausting, even margins? Interest rate hikes? Tax hikes?
for introverts. An incredible amount of energy was
2 10 STOCKS FOR 2021spent on these topics. shake your beliefs about how you does not rely on knowing when
But in hindsight, we know none assume the world works in ways the next recession will come, what
of those things were the biggest risk. that leave you paranoid, pessimistic, the market will do next quarter, or
The biggest risk by far was a and overestimating the odds of the whether the biggest economic risk
virus no one was talking about until recent surprise occurring again. is an interest rate hike, a change to
this year, because no one knew it Paying attention to known risks the tax code, or a pandemic. And
existed before this year. is smart. But we should acknowl- good thing, too — because I don’t
This year was a blunt-force edge that what we can’t see and think anyone can forecast those
reminder that the biggest economic aren’t talking about will likely be things.
and investing risk is what no one’s more consequential than all the
talking about, because if no one’s known risks combined. 2. Innovation and progress
talking about it, no one’s prepared That’s usually how it works don’t tend to happen when
for it, and if no one’s prepared for every year. I doubt 2021 will be everyone is calm, happy,
it, its damage will be amplified much different. and safe. They happen
when it arrives. Nobel-prize winning psycholo- when there’s a shock to the
Think about the four biggest gist Daniel Kahneman once said: system and problems are
economic and investing risks of the “ Whenever we are surprised by solved out of necessity.
last century. They were, I’d argue: something, even if we admit
the Great Depression, Pearl Harbor, that we made a mistake, we say, In some ways, 2020 is what tech-
September 11, and COVID-19. ‘Oh I’ll never make that mistake nologists in 1995 assumed the world
The common denominator of again.’ But, in fact, what you would look like in 2000.
these events is how surprising they should learn when you make a At the beginning of the dot-com
were to virtually everyone when mistake because you did not boom in the early 1990s, the vision
they occurred. anticipate something is that the was that the internet would create
Sure, some people warned the world is difficult to anticipate. a world where you could work from
economy was getting overheated in That’s the correct lesson to learn anywhere, buy everything online,
the late 1920s, and epidemiologists from surprises: that the world is and do most of your socialization
have been warning about a viral surprising. ” online instead of in person.
pandemic for years. But a Great But fast forward to, say, 2019,
Depression? Or an economic shut- The solution isn’t to become a and that vision hadn’t really
down requiring trillions of dollars fatalist. It’s to value room for error, played out — at least not to its full
in government stimulus? It just and expect that things like reces- potential.
wasn’t on people’s radar. sions and bear markets can occur at Physical offices were packed,
Surprise wreaks economic havoc any moment, rather than relying on and if your company was based in
for two reasons. specific forecasts of when they will Chicago, you probably had to live
One, people aren’t prepared occur. in Chicago. Grocery stores were
financially. The amount of debt The Foolish investing approach packed. Airlines had their best
they hold, the size of their emer- is, in many ways, centered around year ever as business travel was in
gency funds, and their annual long-term optimism and an accep- record demand.
budget forecasts can break under tance that market volatility does Then 2020 hit.
the pressure of an event they never not prevent a company from inno- In April, Microsoft CEO Satya
anticipated. vating and creating value over the Nadella said, “We’ve seen two years’
Two, people aren’t prepared long run. Buying good companies worth of digital transformation in
psychologically. Surprises can and holding them for a long time two months.”
10 STOCKS FOR 2021 3He’s not exaggerating. Consider
this chart from investment firm
Alger:
U.S. business investment
55%
Digital
50%
45% Physical
2015 2016 2017 2018 2019 2020
When technology was nice widespread adoption of assembly “ Innovations usually begin life
to have, companies embraced it lines. with an attempt to solve a
warmly. When it was essential to It’s true in 2020, too. And I think specific problem, but once they
survival, they bet the farm on it it bodes well for 2021 and beyond. get into circulation, they end up
virtually overnight. The hardest thing about triggering other changes that
A lot of the history of innovation stress-induced innovation is would have been extremely
difficult to predict. … An inno-
works that way. reconciling that positive long-term
vation, or cluster of innovations,
The biggest innovations rarely trends can be born when people
in one field ends up triggering
occur when everyone’s happy and are suffering the most. It makes changes that seem to belong to
safe, or when the future looks bright. the topic difficult to even discuss a different domain altogether. ”
They happen when people are a without looking insensitive.
little panicked and worried, and But think about what’s hap- That, I believe, is happening
when the consequences of not act- pened in the past year. in medicine as we speak. There’s
ing quickly are too painful to bear. The first documented case of currently so much experimentation,
That was true during World COVID-19 was December 1, 2019. with stakes so high, that you know
War II and the Cold War, when Twelve months and two weeks we’re going to look back in the
everything from penicillin to jets to later, tens of millions of vials of future — maybe next year, maybe
rockets to atomic energy, interstate a 95%-effective vaccine are being next decade — and recognize
highways, synthetic rubber, micro- shipped around the world. That is the incredible developments that
processors, GPS, radar, and digital the fastest vaccine development happened that wouldn’t have been
photography were created. in history, by far. And we’ve done possible without the frenzied rush
It was true in the 1930s during it with a technology — mRNA — to find a cure for COVID-19 in 2020.
the Great Depression, which, that’s not only the first of its kind This doesn’t end with medicine.
according to economist Alexander but has the potential to teach us New business applications for all
Field, was the most productive things useful in treating other industries surged 77% in the third
decade the U.S. economy has ever diseases, most notably cancer. quarter. More people than ever are
seen. For all the suffering and Nicole Lurie of the Coalition striking out on their own, starting
unemployment, surviving busi- for Epidemic Preparedness something new, trying something
nesses were forced — not nudged, Innovations recently said: “I don’t different.
but forced — to find new efficien- think the world of vaccine develop- Or think about entire cities. If
cies and new ways to sell products ment will ever be the same again.” just a handful of big tech compa-
to consumers who had less money Things tend to move quickly nies allow their employees to work
and patience. That gave rise to the from there. In his book How We Got remotely, one of the biggest social
supermarket, laundromats, and the to Now, Steven Johnson writes: problems of the last generation
4 10 STOCKS FOR 2021— affordable housing — suddenly You can call this hypocritical, accurately. But as we sit here in
moves in the right direction. but I think it’s just an acknowledg- December 2020, you can imagine
Having so much economic ment of how the economy turned a world where widespread vacci-
potential clustered in a few neigh- so bad, so fast, creating a business nation allows businesses to reopen
borhoods in California and New catastrophe potentially more in the coming months, and tens of
York created $2 million starter severe than the Great Depression. millions of Americans who have
homes in cities with good jobs and Things were bad. They’re still been cooped up for a year are
cheap homes in cities with poor bad. desperate to go on vacation, eat at a
economic prospects. Even a small And yet. restaurant, and travel to see family.
shift to permanent remote work The S&P 500 looks like it’ll fin- The amount of pent-up demand
could make cities more livable, with ish the year up about 12% — pretty that could be unleashed in the
less traffic and more affordable close to its historic average annual coming months could be extraordi-
homes, and rural areas more pros- return. nary, especially given the amount of
perous with good, high-paying jobs. The Nasdaq will finish the year stimulus money circulating around
It’s a rebalancing of geographic up something close to 40%. That’s the economy.
advantages that wouldn’t have been the kind of thing you might expect Perhaps the market saw that
possible without COVID-19. to see during the strongest econ- coming in March. Perhaps that’s
As we look ahead to 2021, the omy in history, not the weakest in a why the market has been surging
focus is mostly on recovery from century. since then.
the damage inflicted in 2020. That’s The bull market that began in That wasn’t obvious to many
how it should be: some 10 million late March caught many by surprise. people in March, because we live
fewer Americans have jobs today It didn’t seem to make any sense our lives day to day, in the moment,
than did a year ago, and the top given how bad things were on the when job losses and the constant
priority should be getting them ground. threat of infection dominated our
back to work. It was easy to view the dis- view of the world. The market,
But beyond recovery, we should connect between Wall Street and though, wasn’t that concerned with
also recognize that we are — right Main Street as a sign of a bubble, what was happening then. It was
now — in what is probably the perhaps propped up by the Federal looking six to 12 months ahead.
greatest period of stress-induced, Reserve’s easy-money policies. Doing well as a Foolish investor
necessity-is-the-mother-of-inven- And maybe it is. This story isn’t requires long-term optimism. But
tion periods we’ve seen in perhaps over yet. optimism has an important nuance
80 years. But there’s a long history of that was reinforced in 2020: It does
I’m always a long-term optimist. the stock market rebounding well not mean you think that everything
But I think there’s good reason to ahead of the economy, leaving many will go right and there will only be
believe the future of innovation is confused investors in its wake. good news. Optimism means things
brighter today than it was a year ago. It happened during the last will likely work out in the long run,
recession, when the stock market even if the short run is filled with
3. Optimism begins bottomed and began surging higher bad news, setback, decline, disap-
well before it’s obvious. in March 2009 even though the pointment, and damage. That’s why
economy kept shedding jobs for the stock market can grow even
On February 24, Warren Buffett another year, and there wasn’t a when the economy is a mess.
went on CNBC and said “We decent level of sustained economic Buffett summarized this
certainly won’t be selling” stocks growth for another three years. perfectly in 2008 when he wrote:
during the decline. I’m not big on economic “If you wait for the robins, spring
A few weeks later he sold billions forecasting, both because it’s not will be over.”
of dollars of airline stocks, exiting important to how I invest and So it goes in 2020. And may we
his entire position in the industry. because I think so few can do it await the robins in 2021. S
10 STOCKS FOR 2021 5NEW TOOL:
THE ALLOCATOR
As we flip the calendar to 2021, many First, taking an allocation-level view
investors are grappling with uncertainty. helps investors avoid missing out on any
And while the new year is a time when significant investment opportunities
many of us dust off resolutions to eat around the globe. An investor can build
better or get more exercise, there is one a portfolio consisting solely of solid U.S.
AMANDA KISH, task that we think every investor should large-cap companies, but that means they
CFA, CFP check off their to-do list early in the year could be missing out on all the returns
— reviewing their portfolio’s asset alloca- from small-cap stocks or overseas emerg-
tion. Getting asset allocation right at the ing market stocks. Investors who have a
outset can help mitigate quite a bit of the target allocation to all major asset classes
uncertainty surrounding us now and may can add an important layer of diversifica-
also help keep investors on track no mat- tion to their portfolio while still ensuring
ter what surprises 2021 throws our way. that they can devote the most shelf space
While our primary focus as Fools will to those companies and corners of the
always be on identifying stocks we think market that have the greatest return
will outpace the market over the long potential.
run, we believe asset allocation is a vital Second, asset allocation helps inves-
part of building a successful investment tors manage risk and potentially avoid
portfolio. Just owning excellent stocks catastrophic mistakes that could endanger
isn’t enough — we consider how those their hard-earned wealth. Every investor
stocks interact with each other and what has their own unique set of life circum-
the portfolio looks like as a whole. stances and financial goals, so it makes
Asset allocation addresses the question sense that everyone’s portfolio will look a
of what an investment portfolio looks like little bit different.
on a top-down basis. In other words, how Depending on an investor’s age and
much have you invested in asset classes investment time horizon, they might
such as large-cap stocks, small-cap stocks, want to be heavily invested in stocks —
international stocks, bonds, and cash? We or it may be more prudent to balance
think looking at a portfolio through the their allocation more evenly between
lens of asset allocation is important for stocks and cash or bonds. Likewise,
two primary reasons. investors who are more risk tolerant
6 10 STOCKS FOR 2021and not bothered by short-term of several model allocations that
market drops can invest more might be interesting to them.
aggressively, which means more Allocator uses the factors of risk
exposure to stocks. Folks who are tolerance and potential investing
more cautious and who may lose time horizon to show you model
sleep at night when the market falls allocations.
probably want a more conservative And when it comes to identi-
allocation, which means a lighter fying specific investments to fill
allocation to stocks. those asset class roles, Allocator
People generally don’t get screens the stocks in members’
excited about investing in safety Foolish services that might fit into
assets such as cash and bonds, but those specific allocation criteria.
they are one of the best investment Our model allocations also include
vehicles for protecting capital an ETF allocation, so if you want
and reducing volatility within a to see which ETFs we recommend,
portfolio. Homing in on the right make sure you check out those
asset allocation can help investors models in Allocator!
not only maximize returns but also We know that as soon as 2021
minimize risk, so we think it’s not a kicks off, life will get busy for all of
step that should be skipped! us. But don’t let the year get away
Fortunately, The Motley Fool from you before you get a chance
has a handy new tool that can help to sit down and review your current
members consider allocations that asset allocation and consider what
may be of interest when assess- changes you might want to consider
ing their portfolio. If you haven’t making. Check out Allocator today,
checked it out already, we strongly and make sure your portfolio is set
encourage you to head over to our up as we face a new year of chal-
Allocator tool. This tool aims to lenges and opportunities!
point members in the direction See you in the New Year, Fool! S
Please note, this tool is not personalized guidance (we are not an investment adviser
and cannot offer personalized financial advice) but rather a framework you can use
when reviewing your current portfolio. Every portfolio is different. Houses offer model
portfolios based on risk tolerances and time horizons to understand different ways a
portfolio can be constructed. Please see our Tools Terms of Service.
10 STOCKS FOR 2021 7THE STOCKS:
10 FAVORITES
FROM ACROSS
THE MOTLEY FOOL
Greetings, Fools, and welcome to our 1. Opportunity Knocks
10 Stocks for 2021 report! This is a diver-
sified collection of 10 of our favorite The companies in this report are young
opportunities from across the Foolish and dynamic, with savvy management
investing spectrum. We have Best Buys teams and growth-oriented cultures.
RICH GREIFNER Now from Stock Advisor and Rule Breakers, When the world shut down amid the
promising small caps from Discovery: COVID-19 pandemic this spring, these
Rising Stars 2020, high-growth companies businesses were able to quickly adapt,
from Extreme Opportunities: Platinum and innovate, and capture market share from
Next-Gen Supercycle, and some well-run, their less nimble competitors. Think of
founder-led businesses from Discovery: Shopify, which developed new features
The Ownership Portfolio. such as curbside pickup and cash
You’ll likely find a few familiar names advances to help its small and mid-sized
in this report. Shopify [NYSE: SHOP], merchant customer base. Or Appian,
Zoom Video Communications [NASDAQ: which launched two new solutions to help
ZM], and Appian [NASDAQ: APPN] are companies and schools track the health of
among the most widely owned Foolish their people and safely reopen their facili-
recommendations and have generated ties. Or Zoom, which scaled to accommo-
multi-bagger returns for many of our date an exponential surge in demand with
members. Hopefully you’ll also discover minimal service disruption.
some new investing ideas from recent These businesses were always going
recommendations such as Fulgent to win. The world was already moving in
Genetics [NASDAQ: FLGT], Lemonade their direction. But COVID-19 has dramat-
[NASDAQ: LMND], and Cloudflare [NYSE: ically accelerated that shift and helped
NET]. these companies realize years of progress
We’ve provided a wide variety of in a matter of months.
opportunities in this report, spanning a
range of investment approaches, indus-
tries, geographies, and market caps. But
while these companies are diversified by
design, they tend to share several
common characteristics:
8 10 STOCKS FOR 20212. Winners Keep Winning 3. Great Minds Think Alike As 2020 has shown us, life — and
the stock market — can be unpre-
This progress has not been lost on Finally, it’s important to note that dictable. A portfolio with just 10
investors, as many of the compa- all but one of these companies have stocks could be extremely volatile.
nies in this report have seen their been recommended by multiple And while we clearly think highly of
share prices surge in recent months. Foolish services. We love when these companies, there are plenty
When faced with a big gain in a analysts with different backgrounds, of other promising Foolish recom-
short time period, many investors world views, and investing styles mendations that could grow into
feel the urge to sell shares to “lock independently arrive at the same tomorrow’s biggest winners.
in” a profit. But while we under- conclusion: These are exceptional That’s why we recommend that
stand that impulse, we think such a businesses that we want to own for you build a diversified portfolio
move would be a mistake. the long haul. of at least 25 Motley Fool recom-
These stocks are up for a reason: mendations and commit to holding
because their businesses are How to Use This Report them for at least five years. We
performing exceptionally well. And hope you’ll consider investing in
one of the core principles of Foolish We’re sure you’re eager to get to the these stocks as part of your Foolish
investing is that winners tend to stocks, so we’ll keep this introduc- portfolio, and we look forward to
keep winning. These wonderful tion brief. This report contains 10 watching these businesses grow
businesses all still have long growth of our favorite opportunities from ever stronger in the years to come.
runways ahead and plenty of oppor- all corners of the Foolish investing Here’s to a smarter, happier, and
tunity to boost profitability thanks universe. These dynamic businesses richer New Year! S
to their recurring revenue bases have enjoyed tremendous success
and asset-light operating structures. in 2020, and we think they are well
We think these businesses are only positioned to build on that momen-
going to be bigger and better five, 10, tum for years to come.
and 20 years down the road — and We’re excited about the returns
instead of selling and collecting these 10 companies can generate
profits, long-term-oriented inves- over the next 10 years. But simply
tors should consider buying today. buying these stocks isn’t enough.
10 STOCKS FOR 2021 9APPIAN
RECOMMENDED: Discovery: Rising Stars 2020
TICKER Appian’s [NASDAQ: APPN] “low-code”
Nasdaq: APPN software-development platform helps
Key Takeaways
MARKET CAP its customers quickly and easily build
$10.7 billion custom applications, saving them time Appian is one of our Highest
and money in the process. Demand for Conviction companies, meaning
DIVIDEND
low-code software services is set to boom we believe this stock has the best
none
in the coming decade, providing Appian — chance at growing by 6× in 10 years.
SECTOR
and its investors — with the opportunity Appian’s profitability is improving as
Technology
for exponential gains. its overall gross margin increased to
HEADQUARTERS
73%, up from 64% a year ago.
Tysons,
Virginia
Why This Business Will Thrive
Appian’s third-quarter performance,
released at the end of October,
The digital transformation megatrend is
revealed a revenue increase of 17%
driving more businesses to digitize their or $77 million.
processes and shift their operations to the
cloud. Mobile apps, in turn, are quickly
becoming necessities for companies of all not yet profitable on a GAAP basis, its
sizes. And these businesses are increas- profit margin is moving in the right direc-
ingly turning to Appian for their app- tion. And with more than $250 million in
development needs. cash reserves, Appian has the capital it
Appian’s revenue rose 17% year over needs to continue funding its expansion
year to $77 million in the third quarter of initiatives while it works toward achieving
2020, fueled by a 40% surge in its cloud sustained profitability.
subscription revenue to $34 million. The
gains were driven by new-customer Why We Like Leadership
additions and higher spending by existing
clients, as seen in Appian’s cloud sub- Founder and CEO Matt Calkins has been
scription revenue retention rate of 115%. at Appian’s helm since he launched the
Better still, Appian’s profitability is company in his basement in 1999. He still
improving as it scales its operations and owns more than 40% of Appian’s stock —
cloud-based subscriptions become a a stake worth over $2.8 billion — which
larger portion of its overall business. Its helps align his interests with those of
overall gross margin increased to 73%, up long-term shareowners.
from 64% a year ago. So while Appian is Calkins has fostered an innovative
10 10 STOCKS FOR 2021Appian STOCK CHART
$200
$150
APPN
$100
$50
$0
2017 2018 2019 2020 2021
culture at Appian built on core Why This Company
principles such as speed and sim- Will 6× in 10 Years
plicity, which help make its services
fast and intuitive. He subscribes to Despite years of rapid expansion,
the idea that “talented and passion- Appian’s growth story is still in
ate people, given the power to be its early chapters. Management
heard and the autonomy to excel, expects its 2020 full-year revenue
will deliver amazing results.” to increase by 14% to $297 mil-
Calkins is right. Happy employ- lion. Yet it pegs Appian’s current
ees — 74% would recommend addressable market at $35.9 billion
Appian to a friend, according to — and perhaps as much as $133.6
Glassdoor — make for happy billion by 2024.
customers, who in turn drive strong Thus, Appian’s revenue in 2020
shareowner value creation. It’s a will likely account for less than
virtuous cycle that’s helped Appian 1% of its total market opportunity.
deliver market-crushing returns of Obtaining just a 5% share of this
more than 540% to investors since large and quickly growing industry
its IPO in May 2017 — and one would likely be enough for Appian’s
that should continue to propel its shares to deliver a 6× return, and
growth for many years to come. perhaps much more, to investors
in the coming decade. We think
the odds of Appian doing so are
strongly in its favor, which is why
we suggest you consider buying
shares of this software star today. S
10 STOCKS FOR 2021 11CLOUDFLARE
RECOMMENDED: Extreme Opportunities: Next-Gen Supercycle
TICKER We introduced Cloudflare [NYSE: NET]
NYSE: NET as a Radar Stock in November, and the Key Takeaways
MARKET CAP more we’ve dug into this company, the
$25.1 billion more impressed we’ve become. It was Cloudflare is a global cloud
founded in 2009 by friends in business computing platform that helps
DIVIDEND
school attempting to find out who was businesses become more secure,
none
more speedy, and more reliable.
responsible for sending spam emails. Two
SECTOR
Technology of the co-founders, Matthew Prince and Cloudflare generates revenue via
Michelle Zatlyn, remain, serving as CEO pay-as-you-go channels as well
HEADQUARTERS
and COO. as subscription and contractual
San Francisco
Cloudflare has made robust growth offerings, meeting customers on
since its IPO in September 2019, with its their terms.
market cap increasing from $4.4 billion to Launched three years ago,
more than $20 billion today, and it contin- Cloudflare Workers is now one of
ues to expand its offerings to help make the largest and most widely used
the internet one that 2007 Kanye West edge computing platforms in the
would approve of: harder, better, faster, world.
stronger. Now we’re thrilled to bring it
Cloudflare’s business is on the
into our Next-Gen Supercycle universe as
rise. Management recently raised
this month’s recommendation.
its guidance: For 2020, it expects
revenue of $422.5 million to $423.5
The Business million, representing growth of 47%
to 48% from 2019.
Cloudflare is a global cloud platform that
helps businesses become more secure,
more speedy, and more reliable through a free tier of service, which has helped
its suite of products that include infra- it generate meaningful global scale.
structure protection, content optimi- Cloudflare generates revenue via pay-as-
zation, and secure VPN access. Since you go channels as well as subscription
Cloudflare exists on a single software and contractual offerings, meeting
stack, it is easy for customers to upgrade customers on their terms. This dynamic
their services, which is an important business model is an advantage that will
feature for a company that runs on a serve Cloudflare well as it continues to
freemium business model. grow.
Thanks to its architecture, Cloudflare As of last quarter, Cloudflare had
is able to optimize the performance of more than 100,000 paying customers and
its highest-paying customers while also landed its first customer paying more
effectively leveraging idle capacity across than $10 million annually. That customer,
its network. Wisely, management has a Fortune 500 software company, initially
chosen to use this idle capacity to create signed up with Cloudflare in 2016 with an
12 10 STOCKS FOR 2021Cloudflare STOCK CHART
$100
NET
$75
$50
$25
$0
2019 2020 2021
annual contract of $60,000. This is ɏ Cloudflare Workers: This The Next-Gen Supercycle
one example of the massive upsell serverless computing platform Angle
opportunities due to the breadth is one of the largest and most
of the offerings through Cloudflare, widely used edge computing Given its diversity of offerings,
resulting in a dollar-based net platforms and continues to be Cloudflare plays an important and
retention rate of 116% last quarter. widely adopted by new users. growing role in our tech-driven
Cloudflare’s key offerings can be Last quarter, 27,000 developers lives. Of all the concepts we discuss
broken out into three groups: wrote and deployed their first in the world of 5G and connectivity,
Cloudflare Workers application, edge computing is among the most
ɏ Cloudflare for Infrastructure: making it more popular than all important. Edge computing brings
These products help ensure that other edge computing platforms computing physically closer to
companies’ internet-exposed combined. the source of the data that’s being
infrastructure remains safe, used, and Cloudflare is a large and
fast, and reliable. The offerings Cloudflare’s mission is simple: growing player in this space thanks
include security (firewall, DDoS, to help build a better internet. to Cloudflare Workers. Launched
bot management), performance Initiatives beyond simple appli- three years ago, Cloudflare Workers
(content delivery networks, cations include Project Galileo, is now one of the largest and most
intelligent routing, content which helps at-risk public-interest widely used edge computing plat-
optimization), and reliability groups protect themselves for free. forms in the world.
(load balancing, helping clients Another initiative, the Athenian As we mentioned earlier, more
remain always online). Project, was utilized by more than than 27,000 developers wrote and
ɏ Cloudflare for Teams: half of states in the U.S. election deployed their first Cloudflare
Launched last January, these to make sure voting was secure. Workers application in the most
products helps companies The beauty in the serverless recent quarter, up from 15,000 a
protect internal resources. It architecture is that as one attack is year ago. And customers are doing
includes Cloudflare Access, deflected, the whole infrastructure all sorts of things with Workers.
which offers access management gets stronger. And with more than One of the most-viewed publica-
and security for internal appli- 3.2 million paid and free customers, tions during the 2020 elections
cations. It is also a part of the Cloudflare’s infrastructure gets used Cloudflare Workers to
Secure Web Gateway, which has stronger every millisecond, helping power its elections news platform
been released in stages in 2020. to advance its mission. and ensure it scaled during an
10 STOCKS FOR 2021 13unprecedented spike in traffic. A What to Watch business generates a gross margin
popular health-food company uses of 76%, meaning that as it grows,
Workers to power its online order- Research and development is the investors can expect impressive
ing system. Marketing firms use lifeblood of tech companies estab- bottom-line economics, although it
Workers to customize content on lishing a position in a nascent and will take some time.
a per-visitor basis. And one of the important market, and R&D rep- As percentages of revenue,
largest online learning platforms resents about 30% of Cloudflare’s management is targeting longer-
uses Workers to deliver its custom- total revenue. That number will term goals of 19% for R&D and 28%
ized content. come down, but it’s a delicate bal- for sales and marketing (versus 45%
While speed is often seen as the ancing act, as management will need today), leading to an operating mar-
killer feature in edge computing, to continue investing in the business gin over 20%. Assuming revenue
co-founder and CEO Matthew to bring new offerings to market. hits management’s full-year target,
Prince takes a bit of a different Security is paramount for a shares trade for 48 times sales
view after watching developers company like Cloudflare, and the and 64 times gross profit, so there
use Workers. Speed, he says, is threat is ever evolving, meaning are clearly some great expecta-
the “icing on the cake,” but the that it must always be a priority. tions baked into the price today.
real differentiator in the coming Any breach or failure, no matter However, Cloudflare is pursuing a
years will be regulatory compliance. the size, could result in customers large and growing market opportu-
Protecting consumers’ data is a losing faith and defecting. nity with many potential avenues
growing issue, and as governments Valuation is likely one of the for growth.
impose new data regulations, bigger risks for investors in
companies will need to find ways to Cloudflare in the short term. As The Foolish Bottom Line
comply with these new laws while with many businesses in this space,
remaining efficient. Cloudflare Cloudflare has yet to turn a profit, Cloudflare does many things,
Workers can already run locally in and it’s not cash flow positive yet, providing security, performance,
more than 100 countries worldwide, either. But we’re confident it’s only reliability, and more. Management’s
allowing it to help developers meet a matter of time. focus from day one has been to
data sovereignty requirements as build a network that customers
they see fit. As this new regulatory Financials and Valuation can plug into and instantly move
landscape takes shape, Cloudflare data securely, reliably, quickly, and
will continue to build tools that Cloudflare’s business is gaining efficiently in any application. In
give developers options for meet- traction. Management recently fact, that focus on building a total
ing regulatory obligations without raised guidance and, for the full network solution is what led the
having to sacrifice the efficiencies year 2020 now expects revenue team to choose the ticker NET
the cloud has enabled. of $422.5 million to $423.5 million, when Cloudflare went public. We
representing growth of 47% to 48% love this approach and believe that
from 2019. Looking farther out, the founders’ vision and execution
Wall Street projects revenue of line up perfectly with the type of
$975 million by 2023, representing business we want to be a part of
annualized growth of 32%. The Next-Gen Supercycle. S
14 10 STOCKS FOR 2021FIVERR
RECOMMENDED: Discovery: Rising Stars 2020
TICKER Quick Overview
NYSE: FVRR
Key Takeaways
MARKET CAP Online freelance marketplace Fiverr
$7.2 billion [NYSE: FVRR] connects buyers and sellers Fiverr is one of our Highest
of digital services for as little as five bucks Conviction companies, meaning
DIVIDEND
(hence the name “Fiverr”), but projects we believe this stock has the best
none
can also reach into the thousands of chance at growing by 6× in 10 years.
SECTOR
Communications dollars. Founded in 2010 by entrepre- Fiverr is headed to profitability
neurs Micha Kaufman and Shai Wininger, much sooner than investors likely
HEADQUARTERS
the company has grown exponentially expected at this time last year.
Tel Aviv
to become one of the world’s largest gig
Fiverr’s third-quarter results,
economy platforms.
released at the end of October,
Fiverr debuted on the public markets
revealed blistering year-over-year
in June 2019, and its stock has had a revenue growth of 88%.
spectacular run so far, soaring nearly
sixfold since Rising Stars 2020 first recom-
mended it in October 2019. But we believe the total amount of business transacted
that Fiverr is still in the early stages of over the platform.
its growth, with significant gains on the Fiverr’s potential is also evident in an
horizon for patient investors. important recent trend: The company’s
average spending per buyer has advanced
Fiverr’s Latest Developments by 15% since the end of 2019, to $195.
The organization is actively targeting
Shareholders shouldn’t be surprised that larger companies through dedicated
Fiverr has enjoyed a huge boost during portals like Fiverr Business, which offers
the COVID-19 pandemic. Buyers have curated access to freelancers and a more
flocked to the platform, using freelancers’ thorough customer service experience.
services to speed up digital transforma- Management very appropriately describes
tion at companies of all sizes. Fiverr’s its strategy of lifting average spending per
third-quarter performance, released at buyer as “continuously going upmarket.”
the end of October, revealed blistering
year-over-year revenue growth of 88%. The Long-Term View Is Promising
More crucially for its long-term
prospects, Fiverr’s active buyer base has Thanks to sales, which have leapfrogged
grown to 3.1 million buyers so far this previous benchmarks, Fiverr is headed to
year — an improvement of nearly 30% profitability much sooner than investors
since the end of 2019. This expansion likely expected at this time last year. The
reinforces Fiverr’s already strong network platform generated a loss of $6.7 million
effects, as increased demand from pur- on $134 million in revenue over the first
chasers attracts new sellers and boosts three quarters of 2020. That’s markedly
10 STOCKS FOR 2021 15Fiverr STOCK CHART
$300
FVRR $200
$100
$0
2019 2020 2021
better than the $26.1 million in red unleashing its potential. It’s
ink Fiverr reported during the same enhancing its revenue streams by
period in 2019. A healthy gross offering new services like content
margin of 82% will provide operat- creation, e-learning, and even seller
ing leverage for the organization to advertising through Promoted Gigs.
scale into profitability in the near The company also plans to lean
future. into global development. While
And it doesn’t hurt that Fiverr Fiverr counts buyers and sellers
captures roughly 27% of the value from more than 160 countries,
of each gig transacted over its it obtains most of its revenue
platform via fees charged to both from English-speaking countries.
buyers and sellers. This “take rate” Pushing into new geographies will
has improved by more than a per- help it capture a bigger slice of
centage point over the last several what management estimates as
quarters, and it’s roughly double a $115 billion market opportunity.
the current 13.6% take rate that With projected 2020 revenue of
rival freelance platform Upwork just $186.5 million, Fiverr has
[NASDAQ: UPWK] captures from its ample space to continue to provide
own marketplace volume. multibagger wins for investors in
Fiverr has many paths to the coming years. S
16 10 STOCKS FOR 2021FULGENT
GENETICS
RECOMMENDED: Extreme Opportunities: Fintech Fortunes
TICKER A recommendation for Fulgent Genetics
Nasdaq: FLGT [NASDAQ: FLGT] in Fintech Fortunes might What It Does
MARKET CAP seem a little unexpected. On the surface,
Fulgent Genetics uses its technology
$1.1 billion Fulgent is a healthcare company provid-
platform to make genetic testing
ing genetic testing for single-gene muta-
DIVIDEND flexible and affordable.
none tions, rare diseases, and whole-genome
sequencing. Most recently, Fulgent has
SECTOR
used its testing expertise to jump into the 100 companies, and even a major NCAA
Healthcare
COVID-19 testing arena. conference.
HEADQUARTERS
But at its core, Fulgent is a technology
Temple City,
California
platform company. Its lab management What Makes Fulgent Genetics
systems and software were all developed a Good Investment?
in-house. The company’s substantial
investments over the last decade have Fulgent has constantly improved its
helped Fulgent recognize the need for and product offerings and now sells tests to
then quickly develop new tests. examine more than 18,000 single genes
and more than 800 rare diseases. It also
How Fulgent Genetics offers whole-genome sequencing and
Will Be a Leader in Fintech other types of sequencing.
The company’s focus on technology
Like any good fintech company, Fulgent’s has allowed it to lower the cost to run its
ability to scale allows it to increase its tests over the years. In the first quarter
profits substantially faster than its of 2017, it cost Fulgent $420 to run its
revenue. Last quarter, for example, tests. Three years later, in the first quarter
revenue rose 880% thanks to the addition of 2020, that figure had fallen to $308.
of tests for COVID-19, and earnings per Fulgent has passed that savings on to its
share skyrocketed 2,375% from $0.08 a customers, with the average selling price
year ago to $1.98. cut in half from $1,200 down to $589 over
Fulgent’s technological capabilities, the same time frame.
which allow it to turn around 90% of its COVID-19 testing has clearly provided
COVID-19 tests in 24 hours or less, are Fulgent an opportunity for quick revenue
largely responsible for the quick adoption growth, with test volume soaring almost
of its COVID-19 testing. The company has 5,000% year over year and revenue rising
won contracts to test for COVID-19 from nearly 900% in the third quarter of 2020.
a variety of institutions, including large But COVID-19 testing also appears
cities for drive-through testing, Fortune to be helping accelerate the company’s
10 STOCKS FOR 2021 17Fulgent Genetics STOCK CHART
FLGT $50
$40
$30
$20
$10
$0
2016 2017 2018 2019 2020 2021
legacy genetic testing business. Risks & How Fulgent Genetics contracts with many customers
Management had expected the Could Be Left Behind that run through 2021.
business to decline from the second A likely scenario is that COVID-
quarter to the third quarter due to Fulgent is currently highly reliant 19 testing will decline over time,
patients postponing visits to their on a small number of customers. starting with symptomatic patients
doctors. Instead, genetic testing One of the company’s clients as the vaccines roll out and protect
increased 57% after the company contributed 37% of its revenue in people. Routine monitoring will
won new clients. It seems likely the third quarter; two other cus- likely continue for many months or
that the increased interactions tomers added 29% and 26% of total even years as the number of COVID-
with insurance companies covering accounts receivable. 19 cases recedes. A slower timeline
COVID-19 tests — insurance claims The company is also dependent would allow Fulgent to refocus
spiked almost 9,000% quarter over on Illumina [NASDAQ: ILMN] for on its genetic tests. And the new
quarter — helped Fulgent gain new the genetic sequencing machines insurance contacts made during the
insurance coverage for its genetic that are responsible for running pandemic should continue to help
tests. Fulgent’s tests. Any disruption the company increase coverage for
Finally, Fulgent’s management in the supply of the consumable its suite of tests.
is definitely an asset. CEO Ming reagents used to run the machines
Hsieh founded the company after could mean that Fulgent wouldn’t The Foolish Bottom Line
he sold Cogent, a biometric iden- be able to perform its genetic tests.
tification business he co-founded, Illumina is also constantly intro- Fulgent Genetics has used its
to 3M [NYSE: MMM]. Hsieh funded ducing new machines, which technological prowess to grow
much of Fulgent’s early growth generally lower the cost of sequenc- its revenue and take advantage of
and didn’t draw a salary until after ing but might require Fulgent to opportunities like COVID-19 testing.
it went public in 2016. As a result, adjust its testing procedures. While revenue is likely to recede
Hsieh owns about 34% of Fulgent, In the short term, Fulgent at some point as COVID-19 testing
giving him plenty of incentive to is dependent on the COVID-19 wanes, we expect Fulgent will
grow the company — and the share pandemic continuing. A full- continue to use its technology to
price along with it. fledged stop in testing would improve its margins and discover
have a huge impact on its overall new opportunities for growth in
sales. However, the company has the future. S
18 10 STOCKS FOR 2021LEMONADE
RECOMMENDED: Discovery: Rising Stars 2020
TICKER Quick Overview
NYSE: LMND
Key Takeaways
MARKET CAP Lemonade [NYSE: LMND] is a tech-
$4.9 billion focused insurance company that uses arti- Lemonade is one of our Highest
ficial intelligence and other technologies Conviction companies, meaning
DIVIDEND
to make the insurance process simpler, we believe this stock has the best
none
chance at growing by 6× in 10 years.
more efficient, and more profitable.
SECTOR
Financials Lemonade’s core offerings include renters Lemonade’s core offerings include
and homeowners insurance for the time renters and homeowners insurance
HEADQUARTERS
being, and the company recently added for the time being, and the company
New York
pet insurance to its product list. recently added pet insurance to its
One of Lemonade’s biggest differenti- product list.
ators is how it makes — and spends — its The COVID-19 pandemic had no
money. While most insurers’ profits vary material impact on demand,
dramatically over time in response to conversion rates, and most other
things like natural disasters (an especially important business metrics.
big problem for homeowners insurers),
Lemonade wants to keep things consis-
tent. It takes 25% of its premium income Perhaps even more noteworthy is
to cover operating expenses and hopefully what didn’t happen in the second quarter.
produce a profit and uses the other 75% The COVID-19 pandemic had no material
to mainly purchase reinsurance policies impact on demand, conversion rates, and
— which limit losses — and to pay claims. most other important business metrics.
And if anything is left over, it goes to char- Fewer than 1% of Lemonade’s customers
ity. In 2020, Lemonade’s “Giveback” was chose to defer their payments during the
more than $1.1 million, about 80% higher spring 2020 lockdowns. So not only is
than in 2019. Lemonade’s business a rapidly growing
one, but it is also quite resilient. To be
Latest Developments sure, some recession-resistance is to be
expected in the insurance business —
In the second quarter of 2020, Lemonade’s after all, most people need either renters
customer base increased by 84% from or homeowners insurance — but this
a year earlier, and the average customer level of resilience is impressive.
is spending 17% more on premiums. As Lemonade is also expanding fairly
a result of this winning combination, aggressively internationally, which we
in-force premiums (the premiums on all see as an encouraging sign. It expanded
policies not expired or canceled) more to Germany in 2019 and the Netherlands
than doubled. Lemonade’s gross loss ratio earlier in 2020, and recently announced
(the percentage of premiums that is used that it will be doing business in France by
to pay claims) fell to 67%. the end of the year.
10 STOCKS FOR 2021 19Lemonade STOCK CHART
LMND $100
$75
$50
$25
$0
2020 2021
Long-Term Advantage but also drawing customers who
should spend more as time goes on.
Based on its second-quarter gross Homeowners insurance is signifi-
earned premium, the company cantly more expensive than renters
currently has about 0.003% of the insurance, and Lemonade is likely
$5 trillion global insurance market. to add other insurance lines that
In other words, Lemonade is in the it could cross-sell to satisfied and
early stages of growth. charitable customers (pet insurance
However, building an insurance for Fido is just warming up).
operation is a marathon, not a sprint. While Lemonade isn’t a cheap
And we’re thrilled with the approach stock based on traditional insurance
Lemonade is taking. For one thing, valuation metrics, the company’s
by putting significant effort into early performance shows tremen-
selling renters insurance to younger dous execution on its vision, and we
adults, the company is not only think there’s a bright future for this
creating a customer base that could innovator, with lots of 6× potential
stick with Lemonade for years, for long-term investors. S
20 10 STOCKS FOR 2021MERCADOLIBRE
RECOMMENDED: Extreme Opportunities: Platinum
TICKER MercadoLibre [NASDAQ: MELI] is often
Nasdaq: MELI referred to as the Amazon [NASDAQ: What It Does
MARKET CAP AMZN] of Latin America due to its market-
$83.9 billion leading e-commerce platform. But there’s MercadoLibre is an e-commerce
more to the company than that. company that operates an online
DIVIDEND
In fact, in addition to its fast-growing marketplace in Latin America and a
none
cashless payments platform called
marketplace, MercadoLibre is also
SECTOR Mercado Pago.
Consumer emerging as a fintech leader thanks to its
cyclical Mercado Pago payments platform. This
isn’t just like buying Amazon, though; platform reached $14.5 billion in the third
HEADQUARTERS
Buenos Aires MercadoLibre is like the Amazon, the quarter of 2020, 15 times the payment
PayPal [NASDAQ: PYPL], and maybe even volume it was generating six years ago.
the eBay [NASDAQ: EBAY] of Latin America Not only is Mercado Pago’s overall
all rolled into one. The company currently growth impressive, but the bulk of
serves Brazil, Argentina, Mexico, Chile, the growth is coming from outside of
and several other countries in the region. MercadoLibre’s e-commerce platform.
While the growth in the marketplace We see lots of similarities to PayPal
side of the business has been impressive, when it was still a part of eBay — the
the payments side has been the biggest online auction site comprised the bulk of
growth driver recently. And although PayPal’s revenue at one point and now is
growth has been spectacular on both just a tiny fraction of the nearly $1 trillion
sides of the business for years, we think in annualized payment volume flowing
there’s still a long growth runway ahead. through PayPal.
A year ago, Mercado Pago derived
What We Said Previously more payment volume from off-platform
sources than from MercadoLibre’s mar-
MercadoLibre is a recommendation of ketplace for the first time ever. In just the
our Extreme Opportunities: Fintech Fortunes past year, off-platform gross merchandise
portfolio. Simply put, the company is volume has grown to where it’s 40% larger
the clear leader in cashless payments in than on-platform volume. And we think
areas of the world where most payments this could be just the starting point.
still take place in cash — so there’s a
tremendous opportunity to grow, and Why Is This a Platinum
MercadoLibre has a big head start. Opportunity?
Since our initial write-up focused on
the fintech side of the business, we were To put it mildly, MercadoLibre has grown
especially drawn to the Mercado Pago at a very impressive pace on both sides of
payments platform. In a nutshell, Mercado the business, and we think it could have a
Pago has grown dramatically over the tremendous amount of runway ahead of
past few years. Payment volume on the it. On the marketplace side of its business,
10 STOCKS FOR 2021 21You can also read
