Coinbase Global is riding the crypto wave

The Motley Fool Take

Investing in cryptocurrencies such as bitcoin and ethereum is very popular, but there are more than 13,000 cryptocurrencies out there, and it’s far from clear which ones will be the best investments. So consider investing in the cryptocurrency exchange Coinbase Global instead.

Barring outright bans by major global powers, Coinbase should be at the center of whatever cryptocurrency’s future is. It recently had 89 million registered users, though few were making monthly transactions. Coinbase generates most of its revenue from these trades. It was recently sitting on $7.1 billion in cash and cash equivalents.

Trading activity has fallen lately, and Coinbase’s stock was recently down nearly 60% from its 52-week high, sporting a price-to-earnings ratio near 12.

But there’s a good chance that crypto trading will revive. And Coinbase is building out different long-term revenue streams. For example, it’s offering financial custodial services to corporations, something that could grow in importance as businesses diversify their balance sheets. Coinbase is expanding globally, is supporting trading for new cryptocurrencies and will soon launch a marketplace for non-fungible tokens.

Risk-tolerant long-term investors might want to take a closer look at this crypto leader. (The Motley Fool owns shares of and has recommended Coinbase Global.)

Ask the Fool

From DW in Superior, Colo.: When a company purchases another company, where does its payment go?

The Fool responds: If the company makes its acquisition with cash, the money goes to the shareholders of the purchased company. Their shares in the acquired company will one day disappear, replaced in their accounts with cash (or equivalents). Other classes of owners, such as holders of preferred stock, can also receive payments. Some of the cash might go to debt holders if the purchase agreement includes paying off debt.

If the purchaser pays with its own stock instead of cash, then the acquired company’s shareholders will get shares of the purchaser in exchange for their shares of the acquired company. They can sell these shares for cash or keep the shares, as shareholders of the purchaser. Some purchases involve both cash and stock.

Note, too, that companies often buy other companies for more than their recent market value, paying a “premium.”

From PT in Hillsdale, NJ: I don’t have to buy stock in multiples of 100 shares, right?

The Fool responds: Right. You can buy just a single share, and you can even buy fractions of shares through some brokerages. That can be handy if a stock is trading for, say, $1,000 per share and you only have $200 to invest. Read up on fractional-share investing if it interests you.

It used to be important to make sure you weren’t paying too much in trading commissions, as paying a $10 commission to buy a $40 share means you’re down 25% from the get-go. But these days, many, if not most, of the major brokerages are charging $0 for trades.

The Fool’s School

When investing your hard-earned dollars in stocks, find the best companies you can. Different investors will focus on different criteria. Some people, for example, are looking for inventive companies addressing large markets, while others favor companies with simple product-solving products. Many like to see savvy managers and big returns.

The best stocks for you are ones whose businesses you can understand. Here are some other attributes you might look for:

Consistent growth and growing market share: The company’s revenue and earnings should be growing at a reasonable rate — and ideally, its market share is growing, too, reflecting its ability to compete well against rivals.

Growth potential: The company should have lots of room to grow — perhaps via the introduction of new products or services, or expansion into new countries or markets.

Solid and growing profit margins: Companies can be very successful with low margins, but relatively high margins — coupled with lots of sales — are powerful.

Sustainable competitive advantages over peers: These can include a strong brand that draws customers and allows premium pricing or being in a business with high barriers to entry.

Financial health: Debt should be nonexistent or manageable thanks to ample cash.

An attractive business model: A business model is how a company makes its money. Some effective models include subscriptions and franchises. Another is the razor-and-blade model, where a product such as a razor or printer is sold at a low price, and money is made mainly from costly refills — blades or ink.

Good management: Communications from management should be candid, inspiring confidence. Ideally, management will be long-tenured, with a record of good results in both booming and ailing economic environments.

Once you identify a great company, be sure to invest when its shares are attractively priced. Ideally, for example, its price-to-earnings ratio should be low relative to those of its peers, or to its own five-year average.

My Dumbest Investment

From Y., online: My dumbest investments — so far — have been in the funeral home and cemetery company StoneMor and in web-based marketer Rocket City Enterprises. I bought them years ago, and I’ve kept them in my portfolio as a reminder to dig really deep into a company before buying its stock.

I liked StoneMor because its dividends were excellent, and its financials seemed OK. And death services sure seemed like something everyone would need at some point. However, I’ll never forget my dad advising me to not buy the stock. He said there was no room for it to grow—it was limited. He was right.

The Fool responds: You have a smart dad. StoneMor wasn’t performing well in the mid-2010s, and it slashed (and then ended) its fat dividend, which had been topping 20% ​​at one point. (In general, ultra-high dividend yields should raise a flag for investors, as they can be tied to stocks in trouble.) It’s considered a penny stock now, with a market value recently below $350 million.

Even if it were performing well, it wasn’t likely to grow quickly, as death rates generally tend to be stable, and few places need many more cemeteries.

Rocket City Enterprises was recently listed with a price of zero.

You’re right that it’s well worth digging deeply into any stock you might buy. And steer clear of penny stocks, too.

Who am I?

I trace my roots back to a small grocery business in 1894. I grew into a major grocery wholesaler and distributor by the 1960s, and then became a crucial part of the US supply chain. I boast more than 80 distribution centers and one of America’s largest private fleets of trucks. I buy, sell and deliver more than 10 billion pounds of products annually to almost 110,000 sites across the US I also distribute alcoholic drinks through my Empire Distributors business. In 2003, I was bought by Warren Buffett’s company, Berkshire Hathaway. You’ve surely seen me on the road. Who am I?

Can’t remember last week’s question? Find it here.

Last week’s trivia answer: Ocean Spray Cranberries

Leave a Comment