The Smartest Stocks to Buy With $500 Right Now

DigitalOcean (NYSE:DOCN) and Upstart (NASDAQ:UPST) have both seen astronomical growth over the past six months — with share prices jumping 118% and 190% respectively. While that might scare some investors, I believe that winners keep winning, and these two stocks are definitely winners.

With one company recently reporting earnings and the other reporting earnings on Nov. 9, now is a good time to evaluate whether it would be worth it to invest $500 into either of these two companies. DigitalOcean reported strong results, and Upstart has the potential to do the same. Let’s look at why these two winners are worth a closer look.

DigitalOcean: Taking on giants

DigitalOcean is trying to help small- and medium-sized businesses (SMBs) develop cloud infrastructure easily. The company is taking on big cloud behemoths like Amazon (NASDAQ:AMZN) Web Services (AWS) and Microsoft (NASDAQ:MSFT) Azure. While those companies mainly focus on enterprise-level operations, DigitalOcean focuses on SMBs. SMBs normally do not need as many tools as enterprises do, so AWS and Azure platforms tend to be unnecessarily complicated.

DigitalOcean’s focus on simplicity and price transparency has led to its small offering of basic, core tools for SMBs and independent developers. Its offering focuses on a few critical cloud-based applications like managed databases, droplets, and app platform building, which are typically all that SMBs need. This has led to the company dominating its space, serving almost 600,000 customers in the third quarter, a 7% increase from the prior-year quarter.

The company reported strong results in Q3, announcing revenue of $111 million, which was a 37% jump year over year. Its average revenue per user increased 28% to $62, and the company’s net retention rate reached 116%. This is impressive for a customer base of SMBs, which are naturally more likely to churn because of their smaller budgets.

This net retention rate was higher than ever before and grew 1,200 basis points year over year, which might have contributed to the company’s net loss improving from a $10 million loss in Q3 2020 to a net loss of $1.9 million in Q3 2021.

DigitalOcean does not come without risk, however. Its competition from heavyweight cloud providers like Amazon and Microsoft is an obvious risk, and the company will have to balance the benefit of simplicity it brings while expanding its offering. This challenge will be difficult, but so far the company has done a very good job strategically adding new offerings to expand its relationship while keeping its platform simple.

The stock is priced at 25 times sales, but its ability to keep Amazon and Microsoft on the ropes is very impressive. DigitalOcean sees its addressable market increasing 27% annually to reach $116 billion by 2024. If it can continue dominating the SMB market, this company has room to explode, which is why I think it is a smart stock to buy today.

Upstart: Starting a credit revolution

In a world where Fair Isaac‘s (NYSE:FICO) FICO credit score rules all, Upstart is trying to revolutionize how consumers get loans. Upstart does not solely rely on the FICO score, but rather on a diverse set of data points ranging from employment to the time it takes for customers to view the application to determine creditworthiness. Often, a consumer’s credit score is bad because of one slip-up, or they have no score at all. With FICO, these consumers might not be able to access good credit, but Upstart is trying to change that.

The primary risk with Upstart has been its revenue sources. Customer concentration was high at the end of 2020, with one lender accounting for 67% of its loan volume. Since the start of the year, however, Upstart has rapidly been…

 

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