Dogecoin‘s (CRYPTO:DOGE) once seemingly unstoppable ride “to the moon,” spurred on by the likes of Elon Musk and Mark Cuban, has been knocked off course in the last month. The meme coin is currently down some 68% from all-time highs reached in May. There’s no saying whether the fire beneath Dogecoin will be relit — and when it will happen if so.
If you’re looking to hedge your bets with other investments that could skyrocket higher, these three Fool.com contributors think Upstart Holdings (NASDAQ:UPST), Newegg Commerce (NASDAQ:NEGG), and Tencent Holdings (OTC:TCEHY) are worth a serious look instead of the cryptocurrency famous for its Shiba Inu mascot. Here’s why.
A platform powering next-gen lending practices
Nicholas Rossolillo (Upstart Holdings): Haven’t heard of Upstart yet? That’s OK: Most of this small but fast-growing fintech company’s work goes on behind the scenes. Upstart has developed a lending platform based on artificial intelligence (AI) that partner banks can use to originate personal and auto loans.
The credit approval process is automated and uses nontraditional metrics to paint a more accurate picture of potential borrowers’ creditworthiness. Borrowers complete the application electronically, and access to Upstart’s marketing channels can be tapped to help a bank increase access to new clients.
Did I mention this is still a relatively small company? Management expects sales to be only about $600 million this year. And given its smallish size, this isn’t a perfect business. If a bank partner decides not to retain a loan originated with Upstart, Upstart itself purchases the loan — which it immediately resells to institutional investors.
A few of those loans are held on Upstart’s balance sheet (it had $57.2 million worth listed under assets as of the end of March 2021). For some investors, Upstart might not differ enough from a typical lending institution to warrant too much excitement.
However, the company has been redirecting its attention away from actual lending and focusing instead on generating fees from partner banks subscribing to its software. In fact, that $57.2 million in loans held on balance at the end of March were actually a $21.3 million reduction from a year prior — 96% of revenue generated in the first quarter was directly related to fees collected from banks or loan servicing, and was untethered from any revenue source bearing credit risk (owning a loan and collecting interest on it from the borrower).
And it’s this fast-growing AI-powered software platform that’s really moving the needle. Upstart’s projection for about $600 million in revenue in 2021 represents about a 158% increase over 2020, indicating loans originated via Upstart AI are rocketing higher.
There are risks here to be sure, and detractors will point out that Upstart is currently priced at nearly 16 times expected 2021 sales. For a company that barely turns a profit yet and that’s highly reliant on the banking industry, it’s a premium price tag. This will be a volatile stock as a result. But the long-term potential for Upstart to disrupt more-traditional lending practices is massive. This young company is on a roll, and it could just be getting started.
Once you know, you Newegg
Anders Bylund (Newegg): Technology-focused online retailer Newegg Commerce has been around for 20 years but only recently entered the stock market as a publicly traded company. It filed for an initial public offering way back in 2009 but canceled that plan two years later on the heels of a leadership shake-up and a rocky patch of operations.
The company finally sealed the deal in May 2021 through a reverse merger with a SPAC (special purpose acquisition company). Many investors are hearing about Newegg’s stock for the first time this week because the shares skyrocketed.
It was 78% higher on Wednesday before taking a 15% haircut on Thursday. The extreme volatility was caused by Newegg’s shares becoming eligible for options-based trading for the first time, allowing both bulls and bears to apply their full bags of trading tricks to this young stock.
I’m downright excited to see Newegg on the market these days. The company has established itself as a market leader in the electronics and computer components sector over the years. It’s enjoying particularly powerful growth in China at the moment, setting the stage for a potentially massive target market.
Newegg was also an early player in cryptocurrency. The e-commerce platform accepted Bitcoin (CRYPTO:BTC) in payment as early as 2017 and tends to sell through its graphics card inventories at elevated prices whenever cryptocurrency prices are on the rise. Crypto mining enthusiasts can’t get enough of those sweet number-crunching cards sometimes.
Net sales rose 28% last year to $2.1 billion. Newegg’s stock is trading at a reasonable 3.4 times that trailing sales tally, and I can’t wait to get my hands on the company’s first public earnings report in a couple of weeks. In the meantime, I would recommend starting a small position in this promising e-commerce stock.
The best company in China is on sale right now
Billy Duberstein (Tencent): Investors might be getting a rare opportunity to buy one of the world’s best companies on the cheap in Tencent, which is down 25% from its February highs. That’s a much bigger pullback than any of the FAANG stocks here in the U.S., most of which are slightly up for the year.
The underperformance can likely be attributed to two things. First, China’s government is beginning to crack down on large Chinese internet giants, a campaign set off by Alibaba (NYSE:BABA) founder Jack Ma’s wayward comments prior to the aborted Ant Financial IPO last year. Alibaba itself was later fined $2.75 billion for forcing vendors into exclusive contracts for access to its leading e-commerce platform.
Chinese regulators have levied tiny fines against others as well, but Tencent has basically been operating under a shadow of potential future fines and/or more stringent regulation. Those potential regulations could slow Tencent’s growth or force it to divest certain investees.
Second, Tencent said on its recent earnings call that it would be stepping up investment in new business opportunities across cloud software, short-form video, and high-end video games, which will eat into profits this year. The company is also investing billions in a social responsibility fund, with an uncertain financial payoff.
However, I think these concerns are overblown. Tencent has been a much better corporate actor than Alibaba, at least in terms of staying in the government’s good graces. While Tencent also has dominant businesses, it doesn’t usually abuse its pricing power. So, while the fear of regulation hangs over China, I tend to think the actual regulations will be manageable. Tencent, like Alibaba, is a national champion with international growth prospects, so I don’t think the Chinese government will want to do significant harm to its businesses’ prospects.
Additionally, while some may think Tencent’s stepped-up investment could be due either to intensifying competition or to please the country’s regulators, it’s also possible the company sees genuine growth opportunities that will pay off handsomely over time. It is highly profitable, with operating margins of 32% last quarter, so the company can afford stepped-up investments if it sees the opportunity.
Tencent is still run by founder Pony Ma and President Martin Lau, the team that has been responsible for its ascent from a mere messaging platform to a global tech behemoth that touches almost every aspect of Chinese life. I’d tend to give Tencent’s management — one of the best in the world — the benefit of the doubt in this case.
When stripping out its massive investment portfolio, Tencent only trades around 25 times its core business earnings. That’s not overly expensive for a company with Tencent’s moat and growth prospects, so long-term Foolish investors might wish to take advantage of this short-term pullback.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.