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2020 has brought uncertainty to personal and professional lives. Yet, it has also seen new trends emerge, such as “stay-at-home” and “work-from-home.” Companies that have been able to adjust to these new realities, as well as those that innovate, have seen their share prices soar to new highs. Today, we’ll discuss seven innovative stocks with their eyes on the future.
The Organisation for Economic Co-operation and Development (OECD) defines innovation as “the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organisational method in business practices, workplace organisation or external relations.”
Innovation typically begins with an idea, sometimes a simple one. Then entrepreneurship at the firm level develops it further and adds value. Finally comes commercializing it to generate revenue and profit. Innovation is important not just for companies, but also for the society at large. Recent research by Nicholas Bloom and Heidi Williams of Stanford University and John Massachusetts Institute of Technology highlights, “Innovation is the only way for the most developed countries to secure sustainable long-run productivity growth.”
McKinsey suggests many businesses appreciate how important it is to innovate. Yet management usually falls short when it comes to execution. With that information, here are seven innovative stocks that could benefit long-term portfolios in the new decade:
- ETFMG Prime Mobile Payments ETF (NYSEARCA:IPAY)
- Intuitive Surgical (NASDAQ:ISRG)
- Invesco S&P Spin-Off ETF (NYSEARCA:CSD)
- Nvidia (NASDAQ:NVDA)
- Renaissance International IPO ETF (NYSEARCA:IPOS)
- SPDR FactSet Innovative Technology ETF (NYSEARCA:XITK)
- VictoryShares Nasdaq Next 50 ETF (NASDAQ:QQQN)
Innovative Stocks: ETFMG Prime Mobile Payments ETF (IPAY)
52-Week Range: $30.56-$57.82
Expense Ratio: 0.75%
Our first choice is an exchange-traded fund (ETF), specializing on the mobile payments industry. We’re witnessing a transition taking place from cash/physical credit card payments to a mobile/digital system. The sector — which benefits from increased e-commerce transactions, use of smartphones and the need for convenience in transactions — is expected to grow from $1.1 trillion in 2019 to around $4.7 trillion in 2025. The Asia Pacific region is the fastest growing region for the industry.
The ETFMG Prime Mobile Payments ETF provides exposure to companies that are playing a leading role in the shift from credit card and cash transactions to digital and electronic systems. These businesses focus on credit card networks, payment infrastructure, software services, payment processing services, and payment solutions (such as smartcards, prepaid cards, virtual wallets).
IPAY, which has 41 holdings, tracks the Prime Mobile Payments Index. Its sector allocation is Data Processing & Outsourced Services (81.7%), Consumer Finance (10.8%), Electronic Equipment & Instruments (2.8%), Application Software (2%), Technology Hardware, Storage & Peripherals (1.7%) and Diversified Support Services (0.3%).
The top 10 holdings constitute over 54% of IPAY’s net assets, which stand close to $800 million. Square (NASDAQ:SQ), Fiserv (NASDAQ:FISV) and Paypal (NASDAQ:PYPL) top the list of companies. In terms of country exposure, the U.S. tops the list, followed by Brazil, France, the Netherlands, Australia and Japan.
Year-to-date, this innovative stocks fund is up 9.9% and hit an all-time high in early September. I’d look to buy the dips, especially if the price declines toward $45.
Intuitive Surgical (ISRG)
Source: Sundry Photography / Shutterstock.com
52-Week Range: $360.50 – $778.83
Sunnyvale, California-headquartered Intuitive Surgical is a global leader in minimally invasive care. The company is also credited as the pioneer of robotic-assisted surgery that aims make surgeries more effective and less invasive and easier. Its “da Vinci surgical system” and the “Ion endoluminal system” are used extensively by hospitals and medical professionals worldwide.
For example, the da Vinci system offers surgeons high-definition 3D vision and magnified views, as well as robotic and computer assistance. Through specialized instrumentation (such as miniaturized surgical camera or wristed instruments, i.e., scissors, scalpels and forceps), precise dissection and reconstruction deep inside the body become possible.
In late July, the group released second-quarter results. Revenue of $852 million meant a decrease of 22% year over year. Management highlighted the decline in surgical procedures and systems placements due to the substantial disruption caused by Covid-19, while “healthcare systems around the world diverted resources to meet the increasing demands of managing” the pandemic.
Quarterly net income of $68 million translated into 57 cents per diluted share. The metrics had been $318 million, or $2.67 per diluted share, in the second quarter of 2019. It ended the second quarter with almost $6.1 billion in cash and cash equivalents. The number had been about $5.8 billion as of December 31, 2019.
CEO Gary Guthart sounded optimistic and emphasized the company’s commitment to innovation to “advance minimally invasive care and to address the long-term need to improve patient outcomes.” However, the company was not able to provide a financial outlook for the rest of the year.
Year to date, the shares have gone up by 17%. As a result, forward price-earnings and price-sales ratios stand at 50 and 18, respectively. A potential price decline toward the $600 level would offer a better margin of safety.