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4 Stocks Cashing In on the Digital Transformation Gold Rush

Tim Beyers, The Motley Fool


Digital transformation is an often-used but ill-defined term. Investors read about it all the time, as if there's an urgent need to upend existing infrastructure in favor of any number of companies, all of which naturally expect to rake in billions in new profits.

So what is "digital transformation"? Put simply, it's automating a business process that's been done manually in the past using some form of digital technology. BlackLine has products that do this sort of work in the specific realm of accounting.

Accounting is just one of dozens or even hundreds of disciplines that could be more automated, more secure, and more seamless — hence the talk of a new gold rush in enabling digital transformations. I'm not buying the rhetoric. What I am buying are stocks that will profit whether there's a gold rush or not, and the four you'll find below — two of which I already own — are already helping clients with sprawling operations make work more automated, more secure, and more seamless. Let's take them one at a time.

A man pressing a button marked "digital transformation" on a transparent screen filled with other tech symbols

When it comes to digital transformation, these four companies have unique insights -- and unique opportunities to profit. Source: Getty Images.

1. Hire the right experts

Automating and securing business processes can be hard work, and handing it to an already overworked internal staff can lead to turnover at exactly the wrong time. EPAM Systems (NYSE: EPAM) is a small but focused professional services firm with a 25-year track record for building software. The company's multistage process starts with consulting on the problem, designing, and then engineering a solution, an approach that's powered 25%-plus annual revenue growth since 2015. There aren't many companies not named Amazon growing that fast 25 years in, especially among professional services firms. Nevertheless, co-founder Arkadiy Dobkin has been with the company since day one and CEO since 2002. He still owns 3.94% of EPAM's shares outstanding.

2. Unify content for simple, secure sharing and access

Were you to look closely at what supports the edifice of the modern corporate world, content would surely be one of the pillars. Email, contracts, designs, proposals, notes, and more — millions or even billions of documents of some type — offer insight and intelligence about the operations of a business. Sharing that intelligence more seamlessly and securely is a key tenet of digital transformation, and it's the central thesis behind Box (NYSE: BOX). All four founders continue to work at the company 14 years after its founding, including CEO Aaron Levie and Chief Financial Officer Dylan Smith. Growth paused last quarter as management took time to figure out how to better engage the big enterprise customers and government agencies that most need its content collaboration. The resulting sell-off has Box trading for just 4.7 times sales in a sector where the median multiple is 12.9.

3. Build what you need, not what will work

Appian (NASDAQ: APPN) specializes in what's known as low-code software development. The idea is to give companies the means to develop software that's unique to their business more quickly than writing a new system line by endless line of code, only to spend months testing for problems and plugging holes. Instead, Appian provides tools for drawing up how processes are to be automated, which produces a base of code to be customized by consultants under the hood. Having partners sell Appian in this way has proved smart. Clients getting stellar results — executives told the audience at a recent Morgan Stanley conference that a Fortune client banked between $9 million and $10 million in savings with Appian — have allowed revenue to grow at a blistering pace, up 23.4% over the trailing 12 months.

4. Provide secure access for all

If you've used Okta (NASDAQ: OKTA), it might be difficult to see the advantage. Basically, it's a log-in service -- or at least that's how it seems. In truth, it's a lot more complex than that. Okta provides security by integrating tightly with hundreds of different software applications and then providing a means to "authorize" access on a separate device, such as a smartphone. To be fair, others provide this form of "two-factor authentication" but usually as a one-off that still requires workers to save passwords to different systems, sometimes on sticky notes littered across their desks. Okta takes all that data and puts it in a secure spot and then hands the key to your IT department. User access is simpler and so is management, which makes the entire system more secure. If that sounds like a good pitch, it is. Gross margin is up more than 17 percentage points over the last four fiscal years, and revenue continues to grow over 50% annually.

Stocks worth looking at

Digital transformation sounds like a massive undertaking worth billions. In some cases, it can be. More often, it means mastering and automating tasks that are essential but annoying, yet which can break a business if executed poorly. EPAM, Box, Appian, and Okta are small names helping in a big way to get this work done — fast, efficiently, and at what looks to be a sizable profit in the years to come.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Tim Beyers owns shares of Appian and Box. The Motley Fool owns shares of and recommends Amazon, Appian, Box, EPAM Systems, and Okta. The Motley Fool owns shares of BlackLine, Inc. The Motley Fool has a disclosure policy.