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

10 STOCKS FOR 2021 1 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, -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 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 2021 10 STOCKS FOR 2021 3 spent 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, from surprises: that the world is the late 1920s, and epidemiologists and do most of your socialization surprising. ” have been warning about a viral 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, 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 3 He’s not exaggerating. Consider this chart from investment firm Alger:

U.S. business investment 55% Diitl 50%

45% Physicl 205 206 207 208 209 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 would have been extremely A lot of the history of innovation stress-induced innovation is 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 10 STOCKS FOR 2021 5 — 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, 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 5 NEW 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. large-cap companies, but that means they AMANDA KISH, task that we think every investor should 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 2021 10 STOCKS FOR 2021 7 and 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 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 7 THE 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. Now from Stock Advisor and Rule Breakers, When the world shut down amid the RICH GREIFNER 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 2021 10 STOCKS FOR 2021 9 2. 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 9 APPIAN

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 we believe this stock has the best none low-code software services is set to boom in the coming decade, providing Appian — chance at growing by 6× in 10 years. SECTOR and its investors — with the opportunity Technology Appian’s profitability is improving as for exponential gains. its overall gross margin increased to HEADQUARTERS 73%, up from 64% a year ago. Tysons, Why This Business Will Thrive Virginia 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 2021 10 STOCKS FOR 2021 11 Appian STOCK CHART



 APPN 



 207 208 209 2020 202

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 11 CLOUDFLARE

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 businesses become more secure, none school attempting to find out who was responsible for sending spam emails. Two more speedy, and more reliable. 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 2021 10 STOCKS FOR 2021 13 Cloudflare STOCK CHART

 NET 





 209 2020 202

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 13 unprecedented 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 2021 10 STOCKS FOR 2021 15 FIVERR

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 we believe this stock has the best none (hence the name “Fiverr”), but projects 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 15 Fiverr STOCK CHART



FVRR 



 209 2020 202

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 2021 10 STOCKS FOR 2021 17 FULGENT GENETICS

RECOMMENDED: Extreme Opportunities: Fintech Fortunes

TICKER A recommendation for Fulgent Genetics Nasdaq: FLGT [NASDAQ: FLGT] in Fintech Fortunes might What It Does seem a little unexpected. On the surface, MARKET CAP 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, platform company. Its lab management California 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 17 Fulgent Genetics STOCK CHART

FLGT 









 206 207 208 209 2020 202

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 2021 10 STOCKS FOR 2021 19 LEMONADE

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 we believe this stock has the best none to make the insurance process simpler, more efficient, and more profitable. chance at growing by 6× in 10 years. 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 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 19 Lemonade STOCK CHART

LMND 







 2020 202

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 2021 10 STOCKS FOR 2021 21 MERCADOLIBRE

RECOMMENDED: Extreme Opportunities: Platinum

TICKER MercadoLibre [NASDAQ: MELI] is often Nasdaq: MELI referred to as the [NASDAQ: What It Does MARKET CAP AMZN] of 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 marketplace in Latin America and a none In fact, in addition to its fast-growing marketplace, MercadoLibre is also cashless payments platform called 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 , , , , 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 21 MercadoLibre 5-YEAR STOCK CHART

, MELI ,

,



 206 207 208 209 2020 202

GMV rose 117% year over year in payment volume through Mercado environments, it creates the poten- the third quarter as consumers Pago is about 6% of PayPal’s. tial for losses. shopped from home more than In a nutshell, not only is an Finally, MercadoLibre is by no ever. Over 205 million items were investment in MercadoLibre like means a cheap stock. The company sold on the platform during those investing in Amazon and PayPal isn’t profitable (not consistently, three months, more than twice the in a single company, but it’s like anyway) and trades for about 22 volume of the third quarter of 2019. investing in both at a much earlier times trailing-12-month revenue, a As if that weren’t impressive stage. This is a business whose lofty multiple. To be sure, we feel enough, it pales in comparison to management team is doing a fan- the valuation is more than justified the growth in Mercado Pago. Total tastic job of executing on its growth by the opportunity, but it’s fair to payment volume on the platform strategies and has a big addressable say that a significant amount of was $14.5 billion, a staggering market opportunity to pursue. future growth is priced into the 161% year-over-year growth, with stock at this point. If growth were 60 million unique payers making What Could Go Wrong? to unexpectedly slow down, it transactions. While much of the could be a major negative catalyst growth was from the higher volume When investing in a foreign for the stock. on MercadoLibre’s marketplace, company like MercadoLibre, it’s the biggest driving force came from important for investors to be aware The Foolish Bottom Line off-platform payments growth, the of the associated risks. In addition most important element of long- to obvious ones like currency While the stock isn’t without risks, term growth. Payment volume from fluctuations, MercadoLibre has MercadoLibre is the dominant sources other than the company’s exposure to political and economic player in both e-commerce and own marketplace nearly tripled issues in its core markets. cashless payments in markets from a year ago. Also, there’s quite a bit of credit where both are still very young Together, MercadoLibre’s reve- risk in MercadoLibre’s relatively and fast-growing services. There nue rose by 148% in the most recent new lending business, which is still tremendous opportunity quarter, but we think this could be had $284 million of loans on its for MercadoLibre to grow, and the just a starting point. For compari- balance sheet as of the end of the pandemic has accelerated adop- son, the $5.9 billion in GMV on the third quarter. To be clear, we think tion of its platform and payments company’s marketplace is actually lending is more of an opportunity technology. We’re excited to watch less than Amazon did during its than a risk for MercadoLibre, but in the next chapters of this incredible latest Prime Day event, and a deep recession or other adverse growth story play out. S

22 10 STOCKS FOR 2021 10 STOCKS FOR 2021 23 OKTA

RECOMMENDED: Stock Advisor’s Team David Best Buys Now

TICKER A side effect of the ongoing COVID-19 pan- can in turn lead to compromised creden- Nasdaq: OKTA demic is that more employees are working tials and unauthorized access by hackers.

MARKET CAP remotely than ever before, leaving behind The Okta Identity Cloud solves this $35.3 billion the safety net of the in-house IT team. At problem by securely connecting the right the same time, businesses are adopting people to the right technologies at the DIVIDEND none the cloud at an accelerated pace. With right time. The system provides employ- so many workers now logging into these ees, customers, and contractors with SECTOR Technology cloud systems from home, it becomes access to all the systems they need with a more crucial than ever to ensure the iden- single sign-in. It also provides app-based HEADQUARTERS tities of internet users accessing business multifactor authentication and a number San Francisco networks to help keep them secure. of other systems to ensure users are who That’s where Okta [NASDAQ: OKTA] they say they are. comes in. The cloud-native company is Okta is on track to earn $1 billion in a clear leader in the fast-growing field revenue next year. It estimates that the of identity and access management and workforce identity total addressable offers a host of identity-verification market is $30 billion, and the customer services, from multifactor authentica- identity market is $25 billion. While the tion to single sign-on across multiple number of U.S. businesses with more applications. than 250 employees has certainly changed First recommended on David’s side since the U.S. Bureau of Labor Statistics of the Stock Advisor scorecard in January calculated it to be 50,000 companies in 2018, Okta has returned more than 700% 2019, it is obvious that there is significant for investors. Yet this company is just opportunity left for Okta to add domestic getting started. It has 9,400 customers and international customers. in a large and growing market (all com- There is competition in the access panies with employees who connect management space, including large, to digital corporate resources whether well-known companies like Microsoft on-premise or remote). [NASDAQ: MSFT] and smaller, less well- known ones like Ping Identity [NYSE: The Business Basics PING] and ForgeRock. Okta was recently named to Gartner’s [NYSE: IT] Magic For employees accessing a large and Quadrant of Identity Management leader- growing number of business software ship ranks for the fourth year in a row. applications, remembering all the login Okta added more than 400 custom- and password information can be a chore. ers in the third quarter. The size of its With the requirement to change pass- contracted revenue also increased in the words frequently, it gets even worse. This quarter. Through new deals and upsells, can lead to users taking shortcuts, which Okta added six $5 million-plus contracts

10 STOCKS FOR 2021 23 Okta STOCK CHART

 OKTA





 206 207 208 209 2020 202

and 21 that ranged in value from $1 to $5 million. In support of inter- national growth, it opened a new office in . Okta has been recommended twice in Stock Advisor and has been a Best Buy Now 11 times. We like this company for its long-term growth opportunity. If you aren’t already overweight Okta, we think it might be a great time to start or add to a position. S

24 10 STOCKS FOR 2021 10 STOCKS FOR 2021 25 PINTEREST

RECOMMENDED: Rule Breakers Best Buys Now

TICKER Facebook [NASDAQ: FB] may be relevant is the new normal or something that will NYSE: PINS despite — or because — of the contro- recede along with COVID-19.

MARKET CAP versy it stirs. But Pinterest [NYSE: PINS] Management has admitted some $44.0 billion is the feel-good social platform that uncertainty on this point — and observed millions of users have turned to during that engagement increases with lockdown DIVIDEND none the coronavirus crisis. Call it the perfect conditions. But with that said, newer users antidote to a troubling news cycle. It’s have tended to be more engaged with the SECTOR Communications a place to plan your next trip, or just platform overall, which is one reason that figure out how to reimagine Thanksgiving average revenue per user was up 15% in HEADQUARTERS during a pandemic. the third quarter. As Pinners get habitu- San Francisco Monthly average users increased 37% ated to using Pinterest, we think they’ll to 422 million in the third quarter, driving stick around. And with ARPU at just $1.03, revenue up 58% to $443 million. One key there’s plenty of room to further monetize question for investors now is whether this this fast-growing user base. S

Pinterest STOCK CHART



PINS 





 209 2020 202

10 STOCKS FOR 2021 25 SHOPIFY

RECOMMENDED: Discovery: The Ownership Portfolio

TICKER At the intersection of entrepreneurship NYSE: SHOP and e-commerce lies Shopify [NYSE: Key Takeaways MARKET CAP SHOP]. $145.5 billion More than 1 million merchants rely Shopify is a vital online retail partner on its platform to power their online for companies large and small. DIVIDEND none businesses. And as the world shifts Despite years of torrid growth, increasingly online, Shopify’s e-commerce Shopify still has plenty of room for SECTOR services have never been more important. Technology expansion in a global e-commerce Shopify helps to level the playing market set to top $6.5 trillion by HEADQUARTERS field for small businesses. For just $9 per 2023. Ottawa, month, you could begin selling products Founder and CEO Tobi Lütke is an on your website and accept credit card outstanding business leader who payments. For $29, you could build a fully has consistently delivered market- functioning online store. Shopify also crushing returns for shareowners. offers shipping, payment processing, and business loan services, among others. An Shopify’s focus on customer army of third-party application providers satisfaction, a culture of innovation, helps to further strengthen Shopify’s and high employee morale should all value proposition to merchants. help drive its success. But it’s not just the price or breadth of Shopify’s offerings that sets it apart from the competition, it’s also the quality. operating income jumped to $113.7 Shopify gives its merchants access to million, or 16% of revenue, in the second e-commerce technology that’s on par with quarter, up from $6.4 million, or 2% of that used by far larger businesses. In fact, revenue, a year ago. massive corporations such as PepsiCo Despite this impressive growth, [NASDAQ: PEP], [NASDAQ: Shopify remains early in its expansion KHC], and Nestle [OTC: NSRGY] use cycle. Global retail e-commerce sales are Shopify’s platform to support portions of forecast to exceed $6.5 trillion by 2023, their online retail operations. up from $3.5 trillion in 2019, according to With both individual entrepreneurs Statista. and billion-dollar companies flocking to For its part, Shopify pegs its market its platform, Shopify’s sales are booming. opportunity to serve small businesses at The company’s revenue soared from $205 a hefty $78 billion. Its total addressable million in 2015 to $1.6 billion in 2019. The market expands even further when we coronavirus pandemic has only served to include its opportunity to serve larger accelerate its growth. Sales surged 97% to companies. Shopify has just barely $714 million in the second quarter. scratched the surface of these massive Better still, Shopify is becoming markets, and its potential for exponential more profitable as it expands. Adjusted growth remains strong.

26 10 STOCKS FOR 2021 10 STOCKS FOR 2021 27 Shopify 5-YEAR STOCK CHART

,

SHOP

,



 206 207 208 209 2020 202

The CEO Customers Employees

Tobi Lütke is exactly the type of Shopify is widely regarded as a Shopify understands that if it’s to leader we like to partner with. As top choice among e-commerce continue to take care of its cus- founder and CEO, he manages platforms. It gets high ratings for tomers, it must also take care of Shopify with a long-term mindset features, ease of use, customer its employees. The company has that aligns his interests well with support, and a host of other criteria. embraced the work-from-home those of shareowners. The web is filled with Shopify trend amid the COVID-19 pandemic, Lütke is a firm believer in the success stories. Many were started going so far as to give $1,000 to power of entrepreneurship, and he by solo entrepreneurs that then each of its employees to help them wants to help more people change grew into large and highly profit- equip their home offices. In addi- their lives for the better by building able businesses, thanks in part to tion to helping to keep its people their own businesses. So while Shopify’s tools. safe during the pandemic, its move Lütke has said that he’d consider Under Lütke’s leadership, toward a distributed workforce handing off the CEO position to Shopify is always on the hunt for should help Shopify source talent another executive in order to focus new ways to create more value for from a wider geographic area than more on code and product, we its customers. An ever-growing its home base of Ottawa. expect him to remain intimately array of new features and services Shopify encourages idea gener- involved in key areas of the helps to further ingrain Shopify ation throughout its ranks. Hack company for many years to come. into its customers’ businesses, days — in which employees break Lütke brings an engineer’s ana- increasing their switching costs and into small teams to plan, create, lytical mind and a programmer’s making it less likely they’ll leave and launch new projects — help to skill set to the job. He’s displayed the platform for that of a com- drive excitement and spur inno- an impressive ability to foster a petitor. And the few that do leave vation. Many people seem to truly strong culture of innovation at tend to return to Shopify, as it has love working at Shopify and believe Shopify. His people seem to love become the platform of choice for in the company’s mission to “make him: Lütke has a 90% approval small-business e-commerce. e-commerce better for everyone.” rating among Shopify’s employees, Glassdoor reports that 76% of according to Glassdoor. employees would recommend the

10 STOCKS FOR 2021 27 company to a friend — a figure we candor on earnings conference think could head higher over time calls is refreshing, and Shopify has as more people come to appreciate time and again delivered on its Shopify’s work-from-home and promises. employee-development initiatives. And 80% of employees are opti- Ownership Structure mistic about to the future of the company. Lütke is Shopify’s largest share- owner, with a roughly 7% stake Shareowners worth approximately $8.2 billion. Lütke’s Class B stock also gives Shopify’s shareowners have been him control of about a third of well rewarded. The stock has the company’s voting power. Yet delivered staggering returns since Lütke asks his board of directors its in 2015. every year if they want to replace Shopify is a top holding of many him as CEO. That humility helps growth-focused hedge and mutual to further endear him to his fellow funds. It’s also rated 4 out of 5 stars shareowners. on Motley Fool CAPS. Both profes- Investing alongside Lütke has sional and individual investors are long been a winning move. That’s bullish on Shopify, and the stock is something we expect to continue in a popular holding among Fools. the years and decades ahead. And Like us, many investors appreci- with so much growth yet to come, ate the company’s clear communi- Fools who buy shares today should cations with stakeholders. Lütke’s enjoy handsome returns. S

28 10 STOCKS FOR 2021 10 STOCKS FOR 2021 29 ZOOM VIDEO COMMUNICATIONS

RECOMMENDED: Stock Advisor Team Tom’s Best Buys Now

TICKER Just when most of us thought the row, Zoom’s customer growth (485%) far Nasdaq: ZM numbers couldn’t get better, they did. outpaced its revenue growth (367%). MARKET CAP Zoom Video Communications [NASDAQ: This means Zoom is planting seeds $115.4 billion ZM] reported a third quarter that blew for not just years but potentially decades

DIVIDEND away even the most optimistic expec- of sustained growth from customers who none tations for a quarterly performance. To are only now starting to experiment with recap, here’s what S&P Global Market the platform. As they increase their usage, SECTOR Communications Intelligence analysts were anticipating: they’ll contribute billions in new, high-mar- ɏ $693.6 million in revenue, up 316% gin revenue and cash flow. And that’s saying HEADQUARTERS San Jose, ɏ $0.92 a share of adjusted earnings, something: Thanks to strong earnings, California a greater than 10× increase Zoom has produced more than $1 billion in free cash flow over the past 12 months. What we got instead: There will come a time when Zoom is ɏ $777.2 million in revenue, up 367% no longer the growth story it is today. For ɏ $0.99 a share of adjusted earnings, now, though, the tailwinds remain brisk an 11× increase and exhilarating — and we don’t see that Impressive as those numbers are, they changing soon. So long as the company pale compared to the one that matters continues to grow its customer base faster most: 433,700, the total number of than revenue, Zoom’s shares will remain Zoom customers that have 10 or more worth holding. Or, if you don’t yet own employees. For the second quarter in a any, they’re a Best Buy Now. S

Zoom Video Communications STOCK CHART 



ZM 

 209 2020 202

10 STOCKS FOR 2021 29 DISCLOSURES

John Mackey, CEO of , an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Rich Greifner owns shares of Appian and Pinterest. Tom Gardner owns shares of Appian, Facebook, Fiverr, Okta, Shopify, and Zoom Video Communications. The Motley Fool owns shares of Amazon, Appian, Cloudflare, Facebook, Fiverr, Fulgent Genetics, Illumina, Lemonade, MercadoLibre, Microsoft, Okta, PayPal, Ping Identity, Pinterest, Shopify, and Zoom Video Communications. The Motley Fool has a disclosure policy. Company data as of December 13, 2020.

30 10 STOCKS FOR 2021 10 STOCKS FOR 2021 30