How I would Invest €10k in a basket of stocks
If I were to invest €10k, I would invest it in a basket of individual stocks. My approach to investing a €10k lump sum would involve spreading the amount over 8/10 individual stocks that I have high conviction in.
In this article, I will detail 5 stocks that would merit inclusion in this basket of high conviction stocks. For full disclosure, the author holds long positions in all of the stocks referenced. This article does not represent investment advice and is designed to act as a starting point for you when doing your own due diligence.
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DocuSign Inc
Ticker: $DOCU
Sector: Technology
Market Cap: $48.8 billion
Overview
DocuSign is a company that allows organizations to manage electronic agreements. DocuSign first pioneered the development of e-signature technology and is the undisputed leader in this space with an estimated 70% market share.
However, DocuSign is much more than that and helps organizations connect and automate how they prepare, sign, act on, and manage agreements. As part of the DocuSign “Agreement Cloud”, organizations can manage the entire life cycle of contracts and documents. The e-signature market alone is expected to reach $25 billion and with the inclusion of the Agreement Cloud doubling it to $50 billion.
DocuSign’s value proposition is simple: legacy, paper-based agreement processes are manual, slow, expensive, and error-prone. DocuSign eliminates the paper, automates the process, and connects it to all the other systems that businesses are already using allowing companies to now measure turnaround time in minutes rather than in days, substantially reduce costs, and largely eliminate errors.
Final Words
It is easy to dismiss DocuSign as just an e-signature company that has benefited from Covid-19 and the work from home trend. While it is true that DocuSign has benefited from the work from home trend, this is a trend that has been accelerated and is not going to disappear after the pandemic. Moreover, companies have come to realise how inefficient the physical paper process is and I believe that this will be a thing of the past.
Moving forward, I believe that DocuSign has the potential to revolutionize the contract negotiation process with its AI capabilities which will result in significantly reduced human review time and ensures consistency of response, whilst simultaneously mitigating risk.
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Fiverr International Ltd
Ticker: $FVRR
Sector: Communication Services
Market Cap: $8.6 billion
Overview
Fiverr operates as an online marketplace for freelance workers. Fiverr’s mission is to change how the world works together and helps freelancers in more than 200 categories find “Gigs”. On the opposite side of the coin, Fiverr helps potential customers find freelancers to perform a wide variety of tasks.
For businesses, Fiverr helps finding the right talent. Negotiating and contracting used to be a slow, difficult, and costly process but on Fiverr, it’s a seamless and intuitive browse, search, and click to order experience.
For freelancers, Fiverr’s unique e-commerce platform provides freelancers with direct access to the global demand from buyers. Instead of spending a large part of their time and effort marketing and bidding on projects, Fiverr brings them customers without any effort on the freelancers’ part.
Fiverr’s digital freelancer marketplace allows it to address a massive market opportunity. The estimated United States freelancer market is $750B annually and it is estimated that the current addressable market in the U.S. alone is over $100B. Fiverr is in over 160 countries, yet approximately 70% of revenue today is generated from English-speaking countries.
Final Words
While it is obvious that Fiverr has benefited massively from Covid-19 pandemic, it can be foolish to think that this is a once off event. Instead, COVID-19 has accelerated the trend to long-term remote work. The company is treating this early windfall as an opportunity to accelerate its longer-term growth and recently launched Fiverr Business, providing a platform through which businesses can deliver third-party services to other companies.
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Cloudflare Inc
Ticker: $NET
Sector: Technology
Market Cap: $25.7 billion
Overview
Cloudflare is a service that provides website protection and acceleration. It essentially helps millions of websites to run efficiently and securely, by acting as an intermediary in routing site traffic through a network of data centres to deliver it faster and more safely. The company also protects customers from cyber-attacks.
Cloudflare is completely subscription-based and offers a serverless architecture for subscribers that loads data traffic securely across multiple centres. Given the rising cost of data breaches and the increasingly sophisticated nature of hackers, cyber security has never been as important.
Today, approximately 16% of the Fortune 1,000 are paying Cloudflare customers.
From 2016 to 2019, total revenue grew from $85 million to $287 million, at a 50% compound annual growth rate. Estimated revenue for 2020 is expected to be over $400 million. At the same time, the company has demonstrated its ability to allocate its resources more efficiently over time, pulling in more large customers to balance out the smaller and mostly independent free users at the bottom of the customer pyramid funnel.
Final Words
As more businesses rely on the Internet to operate, Cloudflare protects and accelerates the performance of devices, applications, and entire networks to keep workforces secure. This platform enables businesses to protect their workforce in a flexible and scalable way, without compromising security as distributed teams work from multiple devices and personal networks. Companies have traditionally used a castle-and-moat approach to security, creating a barrier between the enterprise network and external threats. However, as more applications have moved to the cloud, and more employees have moved outside of the office, that old model is redundant and Cloudflare has stepped in.
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Brookfield Renewable Corporation
Ticker: $BEPC
Sector: Utilities
Market Cap: $10 billion
Overview
Brookfield Renewable is a leading global owner, operator and developer of renewable power assets. Brookfield Renewable is part of the Brookfield group of companies whose management have a proven track record of capital allocation. Management has demonstrated the ability to buy assets at great values and generate meaningful returns having generated an 18% total annualized return since its inception nearly 20 years ago.
Currently, long-term fixed-rate contracts back 95% of the company's cash flow, which helps insulate it from economic volatility. In management's view, annual cash flow will grow by 9% to 16% for at least the next five years which supports its plan to increase its dividend at 5% to 9% annually.
Brookfield Renewable has grown at a consistent pace over the years by expanding its portfolio of cash-flowing renewable energy assets through acquisition and development projects. It recently completed the acquisition of one of its largest deals when acquiring full control of TerraForm Power. That transaction created one of the largest, integrated pure-play renewable power producers in the world.
Final Words
Decarbonization is a global objective but there is still a long pathway to meeting carbon-free targets globally. Numerous corporations have set ambitious targets for example, Amazon, Nike and Wal-mart aim to use 100% renewable energy by 2025. As more and more capital will be invested into renewables Brookfield Renewable is perfectly positioned to power the next green wave of energy.
Brookfield Renewable has already agreed to supply Plug Power with 100% of the renewable energy needed to power its green hydrogen plant. Plug Power is involved in the design and manufacturing of hydrogen fuel cell systems that replace conventional batteries in equipment and vehicles powered by electricity. Think of the Electric Vehicle megatrend.
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Innovative Industrial Properties Inc
Ticker: $IIPR
Sector: Real Estate
Market Cap: $4.7 billion
Overview
Innovative Industrial Properties is a Real Estate Investment Trust (REIT) focused on the acquisition, ownership and management of specialised properties leased for regulated medical-use cannabis facilities.
During the recent US presidential election, a number of states also passed legislation to allow the use of marijuana for recreational purposes. North America accounted for 88.4% of the global market size for legal marijuana in 2019 at 17.7 billion and is expected to balloon to $73.6 billion by 2027. As of November 16, 2020, 35 states, plus the District of Columbia, have adopted medical-use cannabis programs, and according to a 2019 poll conducted by Quinnipiac University, 93% of those surveyed support adults being able to use medical cannabis, if recommended by a doctor.
As of January 8, 2021, the company owned 66 properties that were 100% leased to state-licensed medical-use cannabis operators and comprising an aggregate of approximately 5.4 million rentable square feet (including approximately 2.0 million rentable square feet under development or redevelopment) in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York, North Dakota, Ohio, Pennsylvania, Virginia and Washington.
Final Words
This investment in Innovative Industrial Properties is how I decided to gain exposure to this mega-trend. As opposed to pure-play marijuana companies, Innovative Industrial Properties focuses on buying properties and immediately leasing them back to the medical cannabis operator. This business model acts like a banking facility because it gives the cannabis operator an injection of cash so that they can sustain or grow and avoid loan repayments themselves. For me, this should avoid the supply/demand issues inherent in the actual production and sale of marijuana.
About Author
The Wolf of Harcourt Street is a weekly newsletter focused on all things investing including insights into my own personal portfolio. The newsletter aims to make investing knowledge accessible to all so that anyone can own their financial future.
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