Warning: Bitcoin May Not Be the New Gold

We're dedicating this week's Stock Up to the juiciest, most actionable bits. ------------------------------------------------------------------------------------------------------------------------------------------------------ [View this email in your browser]( This week's Stock Up wades into some varied waters: bitcoin, gold, annuities, and three stocks growing over 100%! – Anand Chokkavelu, CFA, Managing Editor of Fool.com TWITTER POLL OF THE WEEK --------------------------------------------------------------- [Twitter Poll: If I had to add a third certainty to death and taxes, I'd add:]( [Vote and See Results]( Warning: Bitcoin May Not Be the New Gold --------------------------------------------------------------- Fool contributor Sean Williams [recently made his case]( for why bitcoin isn't the new gold. Cryptocurrency optimists view bitcoin and [blockchain technology]( as game-changers for monetary theory and for how currency is transferred from one party to another — which is a big reason bitcoin has been so successful thus far. Bitcoin's underlying blockchain is its digital, distributed, and decentralized ledger that works around traditional banking networks to record and process transactions. Most notably, blockchain offers the ability to transfer funds from one party to another considerably quicker than with current banking networks, especially in cross-border transactions. Sending funds overseas may take moments to validate and settle with blockchain, whereas traditional banking networks may take up to five business days to settle cross-border remittances. The world's largest cryptocurrency by market cap has also drawn regular comparisons to gold, which is viewed as the go-to investment anytime fear, volatility, and/or inflation rear their heads. This comparison takes shape given the relative scarcity of each asset. In other words, there's a 21-million-coin limit on the number of bitcoin that can be mined, just as there's a limit on the amount of gold that can be mined from our planet. Therefore, the assumption has been made that bitcoin can act as a store of value much in the same way gold has for investors. However, bitcoin falls short of gold on at least three points: - Digital vs. Physical: To begin with, there's the application of gold versus bitcoin. Bitcoin [exists in the digital realm as code](. It's not tangible. You can't put it in your hand or do anything with it, aside from using it as a medium of exchange, or hoping that someone else comes along at a later date and pays more for it, per token, than you did. Gold is a physical asset that at least has some practical uses such as being a conductor in electronic equipment, as the primary metal in fine jewelry, and as crowns in the cosmetic dental industry. - False scarcity: When it comes to gold, all we're ever going to have is what's on this planet. Putting aside science fiction hype of mining asteroids, what we have in the ground and have already mined is all the gold we're ever going to get. That provides a true physical cap on gold, allowing investors to make a genuine case for scarcity. Meanwhile, bitcoin does have a 21-million-coin cap, but this is [only limited by protocols](. Admittedly, getting consensus on bitcoin's network to increase the coin limit would be very difficult — but the point is that it's not impossible. We can't wave a wand and make more gold appear out of thin air, but computer coders with the backing of the bitcoin community could do just that and create more bitcoin. To add to this point, even without increasing the coin limit above 21 million, bitcoin's numerous hard forks essentially violate the idea of a token limit and scarcity. Bitcoin has had three instances since August where a disagreement between developers on the future path of bitcoin and its blockchain resulted in the creation of a new currency. These spinoffs of sorts — Bitcoin Cash, Bitcoin Gold, and Bitcoin Private — topple the idea of true scarcity, as new coins have been, or could continue to be, created from bitcoin. - History: Gold has been used as a currency for more than 2,700 years and is today a highly liquid asset, at least in terms of futures contract trading. It's also an asset held by central banks all over the globe. While you're not likely to pay for your morning cup of coffee with a gold ingot, gold has been viewed as an accepted form of currency for a long time. However, bitcoin doesn't have that tenured history. There are no fundamental tethers that allow investors to make a reasonable determination about bitcoin's value, and liquidity on bitcoin futures contracts has been spotty at times. Additionally, there are no governments holding bitcoin in their vaults, as they do with gold. For Sean, the bottom line is that gold and bitcoin are nothing alike — and to think that bitcoin will behave similarly to gold could prove to be a big mistake. Of course, many of us would then add a layer to the argument and say that [gold ain't stocks]( --------------------------------------------------------------- *Per Wharton professor Jeremy Siegel, $1 invested in gold in 1802 would have been worth about $3 at the end of 2016. That same dollar in the stock market would be worth over a million dollars! --------------------------------------------------------------- SPONSORED [This stock could be like buying Berkshire in 1992]( This Stock Could Be Like Buying Berkshire in 1992 You probably already know Berkshire Hathaway has racked up amazing, life-changing returns over its 50-year history. But you might not know that we've found a much smaller company, 1/30th Berkshire's size, that's closely imitating Berkshire's performance. [Learn More]( --------------------------------------------------------------- Why Do Annuities Have Such a Bad Reputation? Running out of money in retirement [is]( such a major concern that many workers fear it more than [death itself](. And while aggressively funding an IRA or 401(k) during your working years will help lower your risk of depleting your savings in your lifetime, it won't guarantee that you don't wind up strapped for cash when you're older. An [annuity]( on the other hand, can help eliminate that risk. An annuity is a contract between you and an insurance company. With an annuity, you're essentially paying a lump sum of money in exchange for guaranteed payouts for life. Those payments might start right away or begin at some point in the future. Sounds like a pretty good deal, right? Not necessarily. While annuities are a smart investment in theory, there's a reason they tend to get a bad rap. For one thing, they can be awfully confusing and come with their own complicated tax rules and implications. Furthermore, annuities are only as good as the companies that issue them. If you buy an annuity and the insurance company behind it goes under, your so-called guaranteed income stream disappears. But if there's one aspect of annuities that really drags their name through the mud, it's none other than fees. And that's something you need to be aware of before you buy. What will your annuity cost you? Let's be clear: Most investments come with fees in some shape or form. But annuities take that concept to a whole new level. First of all, annuities are frequently (though not always) sold by pushy sales reps who land huge commissions for getting you to buy them. Those commissions can easily hit the 10% mark, and they're often built into the annuity's operating costs, which means that charge is passed along to you, the buyer. Speaking of operating costs, it's not unheard of for annuities, particularly variable ones, to charge 3% to 4% in annual fees. Actively managed mutual funds, by contrast, might charge as little as half that amount. Granted, you're not getting guaranteed income for life with a mutual fund, but it's something to consider nonetheless. Another thing to know about annuities is that they typically come with surrender charges, which means that if you attempt to back out of your contract, you'll be hit with a hefty fee there as well. That fee can be as high as 7% during the first year of your annuity, though it'll typically decline by about 1% annually during your surrender period until it goes away completely. That said, some annuities allow you to withdraw a small portion of your account value each year without facing a surrender charge, but that depends on the specifics of your contract. So are all of those fees worth the guaranteed income? Part of it depends on how long you end up living. If you pass away sooner than expected, you may not end up recouping those fees, or your initial investment, for that matter. Is an annuity right for you? Despite their [complexities]( and sizable fees, annuities can be a smart choice under some circumstances because unlike your IRA or 401(k), they essentially guarantee income for life, provided you pick the right insurer. That said, it generally pays to max out your retirement plan contributions before buying an annuity. But if you're sitting on extra cash and don't want to bear the risk of investing it on a long-term basis, an annuity might work out in your favor. The same holds true if your health is fantastic and you have a strong family history of longevity. That's because the longer you live, the greater your chances of getting the most out of your annuity. On the other hand, if you can't wrap your head around annuities enough to understand how they work, you may be better off putting your money elsewhere. Remember, annuities technically aren't risk-free, and if the idea of buying one doesn't sit well with you, that's reason enough to explore alternatives for establishing an income stream for life. --------------------------------------------------------------- 16%: Percentage of employed Americans [who plan to work]( till age 75 or beyond. --------------------------------------------------------------- 3 Healthcare Stocks Growing Over 100% Technology stocks are staples in growth portfolios because of their eye-popping revenue growth, but technology isn't the only sector of the stock market that boasts fast-growing companies. For [example]( many healthcare stocks are growing at rates that Silicon Valley would envy. In fact, Foundation Medicine ([NASDAQ:FMI]( Exelixis Corp ([NASDAQ:EXEL]( and Teladoc ([NYSE:TDOC]( all reported year-over-year sales growth north of 100% in the first quarter of 2018. Are these stocks worth including in your portfolio? 1. Precision cancer treatment Our understanding of the human genome and the role genes play in cancer is increasingly shaping patient treatment and one company that's at the forefront of this movement is Foundation Medicine. Using next-generation screening technology, Foundation Medicine helps drugmakers identify for clinical drug trials patients who have genetic mutations that make them most amenable. Also, following the [Food and Drug Administration approval]( of FoundationOne CDx late last year, Foundation Medicine became the first company to offer a comprehensive gene testing solution that matches solid-tumor cancer patients up with cancer drugs that are most likely to help them. Thanks to a flurry of biopharma cancer gene therapy research and rising demand for clinical testing, Foundation Medicine's first-quarter 2018 sales skyrocketed 101% year over year to $52.8 million. Contributing to the growth was a 57% year-over-year increase in completed tests to 21,861. I expect testing volume to climb much higher, though. In Q1, Medicare granted FoundationOne CDx broad coverage through a final national coverage determination that makes it available for eligible stage 3 and stage 4 solid-tumor cancer patients. Private insurers usually follow Medicare's lead, so I suspect FoundationOne CDx will win widespread reimbursement soon. If so, then FoundationOne CDx could become widely used to create cancer treatment plans for advanced cancer patients, an addressable market that Foundation Medicine estimates at over 1 million people in the U.S. alone. Foundation Medicine isn't turning a profit yet, but I expect that will happen soon enough. The sheer size of the addressable market and the importance of advancing cancer treatment could easily make genetic testing a necessity. According to the National Cancer Institute, about 1.7 million people will be newly diagnosed with cancer this year and over 600,000 Americans will pass away this year because of cancer. Foundation Medicine estimates it will do between 90,000 to 100,000 clinical tests and sales will clock in at up to $220 million this year. That won't fully offset the $250 million to $260 million it expects to spend, but it could put Foundation Medicine in a position to turn a profit as soon 2019. 2. Improving kidney cancer treatment Pfizer's ([NYSE:PFE]( Sutent has long been the go-to cancer drug used to treat first-line kidney patients. However, Sutent's use in these patients may decline rapidly following the [approval]( of Exelixis' Cabometyx in that setting in December. Cabometyx has been on the market as a second-line therapy since 2016, and since its approval, it's steadily displaced the use of Afinitor, a drug that was generating $1.6 billion in annual sales prior to Cabometyx getting a green light. Given that Cabometyx first-line approval was based on its outperforming Sutent in trials, I expect it will have similar success in winning market share in the first-line indication. So far, it appears to be off to a good start. Exelixis' companywide revenue soared to $212.3 million in Q1, up 163% from one year ago, largely because Cabometyx's revenue improved by 43% quarter over quarter to $129 million. According to management, Cabometyx's market share among tyrosine kinase inhibitors (a commonly used class of drugs in kidney cancer) improved to 25% from 21% between Q4 and Q1 in 2018. Cabometyx sales could climb significantly from here as doctors increasingly use it instead of Sutent in kidney cancer, but that's not the only reason Exelixis revenue could continue higher. Management recently filed for Cabometyx's approval in second-line liver cancer and a decision in that indication is anticipated later this year. If it gets the go-ahead, that could increase revenue by an additional nine figures. The company reported first-quarter earnings per share of $0.37, and since sales are likely to continue growing, industry watchers think Exelixis' EPS could grow to $1.28 next year. If they're right, then buying Exelixis when its forward [P/E ratio]( is just 14.9 could prove to be profit-friendly. 3. Dialing up profits In the future, patients may receive a lot of their primary care via [virtual doctor visits]( facilitated by Teladoc. In partnership with providers and insurers, patients can use Teladoc's service to discuss their healthcare concerns with doctors on smartphones or computers. The on-demand nature of virtual visits makes it a great option for time-strapped patients and virtual visits are a win for providers because they're a good way to fill empty slots in their schedule. Virtual doctor visits are arguably most appropriate for simple healthcare needs now, but in the future, advances in remote patient monitoring could make them useful in complex healthcare cases, as well. In anticipation of this shift, Teladoc acquired Best Doctors last year. Best Doctors provides virtual second opinions from top-rated specialists and this acquisition was a big reason why Teladoc's first-quarter revenue grew 109% year over year to $89.6 million. Best Doctors was an important source of revenue in Q1, but even if you back out its contribution, Teladoc's sales still grew by 47% in the past year. Teladoc sees a net loss of between $1.36 to $1.41 this year, but sales are expected to increase to between $350 million to $360 million from $233.3 million in 2017. The losses will likely continue for a while, but the size of the addressable market still makes this a stock worth buying. In Q1, Teladoc had 606,000 doctor visits and that's only a small fraction of the 991 million times patients visited doctors last year, according to the Centers for Disease Control. Overall, fast-growing companies tend to be more volatile than slower-growing peers, but over time, investing in high-growth companies like these three can pay off with market-beating returns. Therefore, if you have a long-term time horizon and you're willing to accept the risk associated with investing in growth stocks, it might be worth buying all three of these for your portfolio. --------------------------------------------------------------- Contextual data point: Health spending accounts for about 18% of U.S. GDP. --------------------------------------------------------------- FEATURED PODCAST --------------------------------------------------------------- [Motley Fool Industry Focus]( Kids and Money: Parental Instincts Gone Wrong New York Times bestselling author Beth Kobliner joins us to talk about how common parental instincts aren't always right when it comes to teaching kids about money. [Subscribe on iTunes]( In next week's Stock Up email... 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