In the sports world, Mac Jones was named the starting quarterback of the New England Patriots. Despite the fact he is a rookie with no pro experience, Bill Belichick had enough faith in their first-round pick to release last year’s starter, Cam Newton, a former league MVP. We have no idea if Mac Jones will be the long-term answer at quarterback for the Patriots but even if he does succeed, he will likely go through some growing pains throughout his career. The Patriots liked Jones enough to draft him in the first round with the 15th overall pick. They paid him based on what he could potentially do for them in the future. The keyword is potential. Potential in sports is referred to as upside. Not proven or realized, but in the right situation could potentially be good or even great. Mac Jones might struggle his first year or two, or three, but the Patriots believe he will eventually become a solid starting quarterback.

These 3 stocks present huge potential upside, however, the keyword again, is potential. These stocks aren’t there yet. They all have no price-to-earnings ratios (P/E ratio), meaning they are unprofitable. That’s not uncommon for newer companies. It took Amazon 9 years before having a profitable year. It took Tesla 18 years. Apple almost went bankrupt. Not only are these companies profitable today, but they are also actually among the most financially healthy publicly traded companies you can invest in today. Although the future is uncertain, I believe these companies can eventually become profitable, potentially meaning lots of gains for shareholders who own the stocks in the beginning stages of these companies.

Lemonade (LMND)

Lemonade currently has 1,206,172 customers. They are rapidly growing for a company that was started in 2015.

56% of their business comes from Renter’s Insurance which has a $3.8 billion market size

30% of their business comes from Homeowners Insurance which has a $19.2 billion market size

13% of their business comes from Pet Insurance, which has a 3.62 billion market size.

1% of their business comes from Life Insurance, which has an $886.7 billion market size.

Lemonade is planning to enter Car Insurance, which has a $311 billion market size.

The key to taking away from these numbers is a fast growth, big market opportunity, lots of ambition. Think of Lemonade right now as a small fire. I think it will spread like a wildfire. Some think it will be distinguished. If you want to learn more about Lemonade you can read the founder’s letter here. Ask yourself, do you like your current Insurance Company: State Farm, Allstate, Geico? When I mean like, I mean with a passion or something you care about. Most people I know would say no. How Lemonade does business in the insurance industry is different. I am not saying better or worse, but different. It is making me change the way how I feel about my insurance and the insurance industry in general. Insurance is boring. Part of the reason we discuss certain types of insurance is not by interest, but by the legal requirement to own these products! Lemonade has the potential to be a generational company in its early stages, which makes for quite an appealing investment option. They just entered the Life insurance market and have yet to launch Lemonade Car. Be patient. They are disrupting a big industry so the ride will be bumpy. There are obstacles ahead however this company is just scratching the surface. They could 10x in size and still be a small player in the insurance industry.

Bilibili (BILI)

If you do not know what Bilibili is, it’s basically the Chinese version of Youtube mixed with Reddit, Twitch, and maybe Netflix?

They went from 110 million monthly active users last year to 237 million this year!

Think about this. The average time spent on TikTok is 52 minutes per day. The average time spends on Bilibili is 81 minutes per day.

I honestly have very little doubt Bilibili will see over 500 million monthly active users by 2023. You have a social media/video game platform targeting Gen Z and Millennials in the largest Asian country. To me, Bilibili is a no-brainer and I potentially could see its stock outperform even Alibaba and/or Tencent. The only question is regulatory headwinds but I see that issue being overblown. If you take the fear out of the equation and look at this issue analytically, I am not as worried. A lot of these high-growth Chinese tech stocks are going through a temporary volatile period. In the long-term not much has fundamentally changed. Remember, oftentimes gut-wrenching pain is a necessary feeling for an investor. That feeling of owning a stock during intense fear and doubt can yield the best gains.

Here are two good articles to explain what China is doing recently. The first from Ray Dalio, founder of Bridgewater Associates, and Gabriela Santos, Global Market Strategist from J.P Morgan.

Understanding China’s Recent Moves in Its Capital Markets

What should investors do after China’s increase in regulations?

One of my key investing philosophies is to be open-minded and diverse. You can take this as a basic life philosophy. “In a forest of a hundred thousand trees, no two leaves are alike. And no two journeys along the same path are alike.” Paulo Coelho in Aleph.

Be diverse in the companies you invest in. Of course, invest in things you know and understand but don’t ignore stocks outside of your core competency. In 2007, Ulta Beauty IPO’d. As a man, I know very little about cosmetics or nail products. When I mean, very little, I mean almost nothing. I would guess a lot of male investors have the same gender bias that would potentially make them ignore a company like this. If I had done some basic research and invested in ULTA back in 2007, I would be up 1,110.81%

With Chinese Tech stocks I can sense a lot of anti-Chinese sentiment from American investors. America good, China bad, Democracy good, Communism bad. A lot of this is fear-based but also I get the feeling this is related to the growing anti-China rhetoric growing in this country. I don’t want to make this a political discussion but I think there is an indirect link that has caused a lot of investors to dump their shares of Chinese companies or to remain on the sidelines. I simply ask people to ignore sentiment in the short term and focus on the numbers. In my opinion, having no allocation in Chinese companies is financially reckless for a growth investor. It is no different than those that have nothing invested in Cryptocurrency. As an investor, you are capping off your upside which is too safe of a strategy.

Honest Company (HNST)

Unlike LMND and BILI I do not own any shares of the Honest Company but I am strongly considering adding this to my portfolio.

In a lot of companies, I invest in, it is not an immediate decision. It can take a few months for me to want to invest in an individual company. I am not overly impressed with HNST’s growth, but I am intrigued.

Jessica Alba isn’t just a figurehead for the company. She is a legitimate founder that built the company from the start. She started this lifestyle movement and for her, this isn’t just paid sponsorship. She is the face of the company and a mega influencer who provides an edge over its competitors.

What makes HNST appealing to me is its intrinsic value. The customers care about the company and its products. That’s why they have such positive reviews for their products. You won’t find this in the book value of the company but I think the edge for the Honest Company is its branding and messaging.

The company can speak to Millennial and Gen Z moms in a way Proctor & Gamble and Johnson & Johnson cannot. The consumer base they are targeting is more mission-driven and cares more about the ingredients in the products they buy instead of the actual price. Consumers will pay a premium for this, causing margin expansion. If this company can get into more retailers like Walmart, get their diapers into Costco, an existing retailer they do business with and expand their product line, I think they can become profitable by next year. Luckily for HNST, they aren’t in a winner-take-all marketplace. They don’t need to become the #1 consumer good company to be wildly successful. There is plenty of TAM (Total addressable market) for them to succeed. Similar to how Shake Shack doesn’t need to become the biggest fast-food company to be profitable. If HNST can execute and expand, it can become a highly profitable company in the upcoming future.