Everyone feels like they want to change from time to time, especially when it comes to managing their money. If you had the ability to go back and do things differently with the knowledge you have now, you know the outcome would likely be much more lucrative.
Going back in time is of course impossible. What you could do, however, is learn from the investing journeys of these three Motley Fool contributors. If these three were to build a stock portfolio from scratch starting at $15,000 right now, they would split the money between DigitalOcean (DOCN), Veeva systems (VEEV -0.94%), Shopify (STORE 2.50%)and a S&P500 index fund. Here’s why these three stocks have their attention.
The future of the economy is digital
Anthony DiPizio (DigitalOcean): If I were to make a series of investments today, I would start by identifying industries that are primed for growth over the next decade (and beyond). Then I focused on quality companies in those sectors – which is how I landed on small cloud computing powerhouse DigitalOcean. It’s in competition with giants like Amazon Web services and Microsoft Azure, and it’s successful.
What does DigitalOcean do? It provides cloud services to businesses, helping them do simple things like store data online and host a website. It also performs more complex operations such as software development and delivering video content to clients. DigitalOcean specializes in serving small and medium-sized businesses with less than 500 employees, which is a segment of the cloud market that large providers sometimes overlook.
The company stands out from its competitors by offering pricing models suitable for start-up or early life cycle businesses. Plus, it offers a more personalized level of service, which is helpful when scaling from scratch.
Over the past four quarters, DigitalOcean generated $533 million in revenue, most of which came from its 142,100 customers who spend at least $50 a month. But that’s only a fraction of what DigitalOcean estimates to be a $72 billion market right now, so it has substantial room for growth.
Additionally, the broader cloud market is expected to explode in value for the rest of the current decade. By 2030, Grand View Research estimates this could be a $1.5 trillion opportunity every year, making DigitalOcean a great place to bang your buck in the long run.
Lay the foundations
Jamie Louko (Veeva Systems): Building a portfolio is a bit like building a house: the most vital aspect is a solid foundation. The foundations of the portfolio should be built with stable companies that could still thrive decades from now, like Veeva Systems.
The company provides cloud-based data storage software and tools primarily to pharmaceutical and biotech companies, and with numerous tools adopted by many of the world’s top 20 pharmaceutical companies, Veeva leads the pack in terms of domination. It also offers products for businesses of all sizes. If you’re a startup looking for an end-to-end drug trial management tool, Veeva has you covered. But it also has customer relationship management tools and a data cloud for larger companies.
In short, Veeva is there for any pharmaceutical company at any point in its lifecycle, and as it grows, its use of Veeva can expand online. That’s why the company had more than 100 customers using eight or more business tools and more than 200 customers using five or more research and development products in the second quarter of fiscal 2023.
Once the software is built, it costs little to allow more access to customers, so the widespread use of Veeva has resulted in incredible profitability. Over the past 12 months, Veeva has posted a free cash flow margin of 37% and a net income margin of 19%.
Veeva could provide a level of long-term security and stability due to its dominance in the pharmaceutical industry. However, it can also generate growth over the next few years. Veeva sees a total addressable opportunity worth $13 billion. Considering the company only made $2.1 billion in revenue over the past 12 months, Veeva clearly has the opportunity to capture more of the market. That’s why I would invest in Veeva if I was building a portfolio from scratch.
The market leader in e-commerce software
Trevor Jennewin (Shopify): If I were to start investing from scratch, I would split my available funds 75/25 between an S&P 500 index fund and a Shopify stock, respectively. The S&P 500 index fund would instantly diversify my portfolio, providing exposure to a variety of blue chip US companies across all 11 market sectors. In other words, buying an S&P 500 index fund is like buying a slice of the US economy, which is why Warren Buffett has long been a proponent of this investment strategy.
Meanwhile, the investment thesis for Shopify is simple: the Canadian trading company serves as the central nervous system for millions of businesses around the world. Its software helps merchants manage sales in physical and digital stores. It also provides adjacent solutions for payment processing, financing and shipping, and the company is building an order fulfillment network that will support two-day delivery from virtually any sales channel – online marketplaces like Amazon and Etsy, social media like TikTok, and direct-to-consumer websites – for shoppers around the world. No other commercial enterprise offers this convenience.
Shopify first gained traction with small businesses, but the company is successfully scaling up with Shopify Plus, a customizable commerce platform for big brands. Over the past year, innovations such as machine learning-based marketing software and business-to-business (B2B) tools have made Plus an even more attractive option for merchants, while expanding the addressable market. from Shopify.
For example, U.S. retail e-commerce sales are expected to grow 12% annually to reach $1.7 trillion by 2026, while U.S. B2B e-commerce sales are expected to grow 10% per year to reach 2.5 trillion dollars over the same period. This is particularly notable as Shopify accounted for 10.3% of retail e-commerce sales in the United States in 2021, making it the second-largest digital retailer in the country behind Amazon. Shopify is also the most popular e-commerce software provider, according to research firm G2, meaning it’s well positioned to benefit from the growth of digital retail.
Currently, Shopify shares are trading at 8.8 times sales, a discount to the three-year average of 35.2 times sales. This creates an attractive entry point for investors.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Anthony Di Pizio has no position in the stocks mentioned. Jamie Louko holds positions at Amazon.com, Etsy, Shopify and Veeva Systems. Trevor Jennewine holds positions at Amazon.com, Etsy and Shopify. The Motley Fool occupies and recommends Amazon.com, DigitalOcean, Etsy, Microsoft, Shopify and Veeva Systems. The Motley Fool recommends the following options: $1140 January 2023 Long Calls on Shopify and $1160 January 2023 Short Calls on Shopify. The Motley Fool has a disclosure policy.