Warren Buffett is famously attributed as saying, “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.” He wasn’t talking about disruptive technology stocks, but the principle still applies.
Disruptive technology describes innovations that significantly alter how consumers, industries, or businesses operate. Think about how email and mobile phones have replaced old ways of doing things because they have demonstrated superiority. And while electric vehicles are seen as disruptive, it wasn’t that long ago that an internal combustion engine vehicle was considered disruptive.
Some of the stocks on this list are blue chip stocks that also offer the benefit of having a disruptive proposition. But most of these stocks are still in their early stages. At least one is not yet profitable. That means the true payoff may be years away. And whenever you’re investing in a space like this, there’s always a possibility that a stock may never pan out the way you thought.
Quick Links
- Microsoft
- Texas Instruments
- Intuitive Surgical
- Etsy
- Lovesac
- CRSPR
- UiPath
#1 - Microsoft (NASDAQ:MSFT)
I recently included Microsoft Corporation (NASDAQ:MSFT) on a list of artificial intelligence stocks to buy. One reason for that was the company’s $1 billion investment in OpenAI. At the time, I wrote that it was likely Microsoft would be increasing its investment.
That happened in late January when Microsoft expanded its partnership with OpenAi. Although the specifics have not been announced, it’s believed to be a $10 billion investment that will span multiple years. The conventional wisdom is that Microsoft will be working to incorporate ChatGBT into its Bing search engine.
Being able to chip away at Google’s 70% market share in search would be intriguing. But the company has already said it plans to use AI in every product in its portfolio.
MSFT stock briefly dipped after it missed slightly on revenue in its earnings report on January 24, 2023. But the stock has quickly made those gains as investors are refocusing on the bigger opportunity in the stock.
About Microsoft
Microsoft Corporation develops and supports software, services, devices and solutions worldwide. The Productivity and Business Processes segment offers office, exchange, SharePoint, Microsoft Teams, office 365 Security and Compliance, Microsoft viva, and Microsoft 365 copilot; and office consumer services, such as Microsoft 365 consumer subscriptions, Office licensed on-premises, and other office services.
Read More - Current Price
- $415.49
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 27 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $503.03 (21.1% Upside)
#2 - Texas Instruments (NASDAQ:TXN)
An established semiconductor company such as Texas Instruments Incorporated (NASDAQ: TXN) may not seem particularly disruptive. But the chip market is highly segmented. And Texas Instruments is the market share leader in the analog semiconductor market with about 20% of the market.
Analog chips are essential in helping digital chips function properly. And the digital movement in everything from automobiles to industrial manufacturing will help to fuel continued growth for Texas Instruments. To that end the company is expected to show strong revenue and earnings growth over the next five years.
Once a customer is using the company’s chips, it creates high customer switching costs. This in turn gives Texas Instruments pricing power that is reflected in the company’s healthy profit margins. With a price-to-earnings ratio of around 18x at the time of this writing, Texas Instruments is fairly valued compared to the broader market.
Except for Microsoft, Texas Instruments is the only stock on this list that pays a dividend. And it’s a good one. With a dividend yield of 2.82% and an annual payout of $4.96. Plus, the company has increased its dividend in each of the last 19 consecutive years.
About Texas Instruments
Texas Instruments Incorporated designs, manufactures, and sells semiconductors to electronics designers and manufacturers in the United States and internationally. The company operates through Analog and Embedded Processing segments. The Analog segment offers power products to manage power requirements across various voltage levels, including battery-management solutions, DC/DC switching regulators, AC/DC and isolated controllers and converters, power switches, linear regulators, voltage references, and lighting products.
Read More - Current Price
- $198.19
- Consensus Rating
- Hold
- Ratings Breakdown
- 9 Buy Ratings, 11 Hold Ratings, 3 Sell Ratings.
- Consensus Price Target
- $206.95 (4.4% Upside)
#3 - Intuitive Surgical (NASDAQ:ISRG)
Among the characteristics of a Warren Buffet stock is the concept of a strong moat. That means a company that has products and/or services that are so entrenched it’s difficult for consumers to switch. That’s at least one reason that Intuitive Surgical, Inc. (NASDAQ:ISRG) makes this list of disruptive stocks.
The company’s lead product, the da Vinci surgical system is the de facto standard for replacing traditional laparoscopic surgery for some soft tissue procedures. The company has an installed base of over 7,500 units as of December 31, 2022. That number is more than all its competitors combined.
And because the company has established relationships with the medical community, it’s unlikely that its products will be switched out anytime soon. These products require regular maintenance and allow for additional accessories, both of which are provided by Intuitive Surgical.
The pandemic hurt the company’s growth. But revenue and earnings are projected to grow at a double-digit rate over the next five years which sets the company up for sustained success.
About Intuitive Surgical
Intuitive Surgical, Inc develops, manufactures, and markets products that enable physicians and healthcare providers to enhance the quality of and access to minimally invasive care in the United States and internationally. The company offers the da Vinci Surgical System that enables complex surgery using a minimally invasive approach; and Ion endoluminal system, which extends its commercial offerings beyond surgery into diagnostic procedures enabling minimally invasive biopsies in the lung.
Read More - Current Price
- $541.82
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 14 Buy Ratings, 4 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $524.61 (3.2% Downside)
#4 - Etsy (NASDAQ:ETSY)
Etsy, Inc. (NASDAQ: ETSY) may not be the first name you think of as a disruptive technology stock. But maybe I can change your mind. First, Etsy helps consumers get more personalized, curated merchandise. Items on the platform can be ideal gifts for hard-to-buy for people (you know who you are). That’s a unique selling proposition that can be an advantage over big box stores and even Amazon.com (NASDAQ: AMZN).
I also think Etsy is a great choice here because the pandemic has changed the nature of work, perhaps permanently. Many people have turned a hobby into a side hustle or a full-blown business. And Etsy is a natural place for them to showcase their talents and merchandise.
Like any stock that has retail exposure, Etsy is facing tough market conditions and the company is not yet profitable. However, the company’s debt is very manageable and analysts are forecasting strong earnings growth in the next five years.
About Etsy
Etsy, Inc, together with its subsidiaries, operates two-sided online marketplaces that connect buyers and sellers in the United States, the United Kingdom, Germany, Canada, Australia, and France. Its primary marketplace is Etsy.com that connects artisans and entrepreneurs with various consumers. The company also offers Reverb, a musical instrument marketplace; Depop, a fashion resale marketplace; and Elo7, a Brazil-based marketplace for handmade and unique items.
Read More - Current Price
- $50.86
- Consensus Rating
- Hold
- Ratings Breakdown
- 8 Buy Ratings, 12 Hold Ratings, 4 Sell Ratings.
- Consensus Price Target
- $64.87 (27.5% Upside)
#5 - Lovesac (NASDAQ:LOVE)
The Lovesac Co. (NASDAQ:LOVE) is another company that might not be top-of-mind as a disruptive stock. But as the lines between work and home, leisure and business continue to blur, the company’s products stand out.
Specifically, this is an American company that designs, manufactures, and sells furniture. Its signature product is a modular furniture product that it brands as a “sactional.” This is a sofa in two pieces: seats and sides. Consumers can add to the coach over time. The products are also made from recycled plastic bottles which should be very appealing to consumers who value sustainably manufactured products.
Not surprisingly, Lovesac became solidly profitable because of increased sales during the housing and renovation rush caused by the Covid-19 pandemic. There are some margin concerns most likely attributable to inflation. But the company looks to be appropriately valued, and revenue and earnings are projected to have strong growth in the next five years.
About Lovesac
The Lovesac Company designs, manufactures, and sells furniture. It offers sactionals, such as seats and sides; sacs, including foam beanbag chairs; and other products comprising drink holders, footsac blankets, decorative pillows, fitted seat tables, and ottomans. The company markets its products primarily through www.lovesac.com website, as well as showrooms at top tier malls, lifestyle centers, mobile concierges, kiosks, and street locations in 41 states in the United States; and in store pop-up- shops and shop-in-shops, and barter inventory transactions.
Read More - Current Price
- $33.06
- Consensus Rating
- Buy
- Ratings Breakdown
- 6 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $35.17 (6.4% Upside)
#6 - CRSPR (NASDAQ:CRSP)
When you think of disruptive technology, the field of gene editing may be more of what you imagine. It’s a tantalizing field. But it’s not a particularly new field. It’s just that many companies have been working in relative obscurity.
That could be changing. And if it does, CRSPR Therapeutics (NASDAQ:CRSP) is a stock that needs to be in your portfolio. The company pioneered its proprietary CRISPR/Cas9 gene editing platform. The platform is designed to make directed changes to genomic DNA.
To date, the company has not brought a product to market. But the company’s partnership with Vertex Pharmaceuticals, Incorporated (NASDAQ:VRTX) may change that. The two companies are working together to bring CRSPR’s CTX110 candidate through clinical trials. If successful, it could be a mulit-billion opportunity.
And the opportunities can multiply, particularly if the company is successful at delivering gene editing solutions for rare genetic disorders and, perhaps, even finding a treatment for certain cancers.
About CRISPR Therapeutics
CRISPR Therapeutics is a gene-editing company focused on developing transformative gene-based medicines for serious diseases using its proprietary CRISPR/Cas9 platform. CRISPR/Cas9 is a revolutionary gene-editing technology that allows for precise, directed changes to genomic DNA. CRISPR Therapeutics has established a portfolio of therapeutic programs across a broad range of disease areas including hemoglobinopathies, oncology, regenerative medicine and rare diseases.
Read More - Current Price
- $47.26
- Consensus Rating
- Hold
- Ratings Breakdown
- 9 Buy Ratings, 8 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $74.94 (58.6% Upside)
#7 - UiPath (NYSE:PATH)
The last stock on this list is UiPath Inc. (NYSE: PATH). The software company provides companies with an end-to-end automation platform known as robotic process automation (RPA). Specifically, the company creates bots that help increase workplace productivity by automating repetitive tasks.
UiPath was whacked hard as the economy slowed and valuations were lowered in 2022. Earnings fell by 37.5% and the company was already not profitable. But revenue and earnings are both forecast to show double-digit growth in the next five years. That seems likely with the growing interest in artificial intelligence.
The company is financially stable. And with the labor market becoming more fragmented, companies may be turning to automated solutions which opens up a runway for continued growth.
About UiPath
UiPath Inc provides an end-to-end automation platform that offers a range of robotic process automation (RPA) solutions primarily in the United States, Romania, the United Kingdom, the Netherlands, and internationally. The company offers a suite of interrelated software to build, manage, run, engage, measure, and govern automation within the organization.
Read More - Current Price
- $12.87
- Consensus Rating
- Hold
- Ratings Breakdown
- 2 Buy Ratings, 16 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $17.47 (35.7% Upside)
At the end of the day, your reason for investing in disruptive technology is because you’re willing to play the long game. For most investors, there’s nothing wrong with setting aside a portion of your portfolio for a moonshot or two. Companies like Alphabet do it all the time.
But these companies also know that they may have as many swings and misses as they do home runs. That’s why as an investor in disruptive technology you shouldn’t view it as an all or nothing proposition. Buy at a price you like and be prepared to buy and sell at price points that let you sleep at night.
And if you want to avoid some of the volatility that comes from picking individual stocks in this sector, you can invest in Cathie Wood’s ARK Innovation ETF. This will give you exposure to a broader range of companies and has already over $7 billion in assets under management.
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