Growth stocks have been leaders for much of the bull market of the past decade. Many of these companies, mostly from the technology and biotechnology sectors, have become the darlings of investors. The novel coronavirus pandemic days of 2020 have once again put the focus on growth stocks. Today, we will introduce seven growth stocks that deserve your attention.
InvestorPlace.com readers would be familiar with the fact that value investing and growth investing are among the two most popular investment strategies used by market participants. Growth investors typically invest in stocks with future growth potential. They look for business that will possibly increase revenue, earnings or cash flow faster than their peers in a given sector.
On the other hand, value investors, who look for robust companies that have come under pressure in the recent weeks or months, follow a more conservative approach than growth investors. Such value stocks usually have lower prices in relation to earnings, book value or cash flow.
Research led by Victoria Geyfman Bloomsburg University of Pennsylvania highlights the “belief that prices of past winners (known as glamour or growth stocks) will continue to rise” in the future, too.
Potential higher returns in growth stocks also mean higher degrees of volatility and risk, especially in the short-run. Therefore, investors should be ready to embrace wild swings in price, which could be stomach-churning at times.
Are you an investor looking to be rewarded with capital appreciation; i.e., higher stock prices, in the future? If your portfolio’s risk/return profile can handle the volatility in such growth shares, then the markets offer plenty of choices.
With that said, here are growth stocks and growth-based exchange-traded funds that should be on your radar for the rest of 2020:
- Adapthealth (NASDAQ:AHCO)
- Etsy (NASDAQ:ETSY)
- Fastly (NYSE:FSLY)
- Global X FinTech ETF (NASDAQ:FINX)
- Invesco DWA Technology Momentum ETF (NASDAQ:PTF)
- O’Shares Global Internet Giants ETF (NYSEARCA:OGIG)
- Pure Storage (NYSE:PSTG)
Growth Stocks: Adapthealth (AHCO)
52-Week Range: $7.82 – $31.80
Pennsylvania-headquartered Adapthealth is our first stock for today’s article. The group provides home healthcare equipment, medical supplies and related healthcare services stateside. Such equipment includes mobility, oxygen and respiratory therapy products, bed lifts, walkers, bath aids, nutritional products, wound care, as well as sleep apnea machines.
The company was initially founded in 2012 as a private company. In 2019, it had a reverse merger with DFB Healthcare Acquisitions Corp, a special purpose acquisition company (SPAC) sponsored by Deerfield Management. The reverse-merger finalized in late 2019. Many analysts regard it as one of the more successful SPAC IPOs of recent months.
Over the past several years, Adapthealth has grown both organically and through acquisitions. Its recent emphasis has been on diabetes management. For example, “In the third quarter, the Company acquired several additional diabetes management and home medical equipment businesses in high-growth areas … the Company [also] acquired Pinnacle Medical Solutions, a leading distributor of medical devices and supplies to patients for the treatment of diabetes (including continuous glucose monitors and insulin pumps).”
In early November, Adapthealth released Q3 earnings. Net revenue of $284.4 million meant a 108% increase from the third-quarter of 2019. It was also 23% higher than its revenue in Q2 of this year. Management increased new revenue financial guidance for fiscal year 2020 to $1 – $1.04 billion. Also for 2021, management expects net revenue of $1.30 – $1.40 billion.
Its forward price-to-earnings, price-to-sales and price-to-book ratios stands at 21.74x, 1.58x and 5.84x, respectively. I first wrote about the company earlier in September when the stock price was around $21. Now, it is flirting with $30. I expect the growth and the uptrend in AHCO stock to continue in 2021 too. Long-term investors could still consider buying the dips. In future quarters, the company could also find itself as a takeover-candidate.
52-Week Range: $29.95 – $154.88
Brooklyn, New York-based e-retailer Etsy operates an online platform for unique items, such as handcrafted or vintage goods. The company has a diversified base of active sellers both in the U.S. and overseas. It is also an inventory-light business.
In late October, the company released Q3 metrics. Gross merchandise sales (GMS) came in at $2.64 billion. A year ago, GMS had been $1.20 billion, representing a YoY growth of 119.4%. Revenue was $451.4 million, compared to $197.9 a year ago (i.e., growth of 128.1% YoY).
CEO Josh Silverman, who was pleased with the results, said, “We’ve been able to sustain growth by driving retention and frequency of our existing buyers as well as becoming an important shopping destination for new buyers.”
Etsy was founded in 2005 and held its IPO in 2015. For the following two years, the shares traded around $15. Since July-2017, however, the company has created significant shareholder value. Now, ETSY stock is above $120. Its forward P/E, P/S and P/B ratios are at 57.80x, 12.13x and 24.03x, respectively. We would look to buy the shares, especially in the case of a decline, toward the $110 level or below.
52-Week Range: $10.63 – $136.50
San Francisco, California-headquartered real-time content delivery network (CDN) firm Fastly had its IPO in May 2019. Fastly operates an edge cloud platform for processing and serving customer applications.
The edge cloud architecture is a high growth area, whereby “(processing) power to the edges (clients/devices) of your networks. Traditionally the computing power of servers is used to perform tasks such as data minimisation or to create advanced distributed systems. Within the cloud model, such ‘intelligent’ tasks are performed by servers so they can be transferred to other devices with less or almost no computing power.”
According to metrics from MarketsandMarkets, “the global edge computing market [will] grow from USD 3.6 billion in 2020 to USD 15.7 billion by 2025, at a Compound Annual Growth Rate (CAGR) of 34.1%.”
On Oct. 28, Fastly announced Q3 results. Revenue of $71 million meant an increases of 42% YoY. Total customer count went up to 2,047 up from 1,951 in Q2 2020. It’d be important to note that enterprise customers generated 88% of Fastly’s trailing twelve-month total revenue.
In addition, total enterprise customer count was 313, an increase of nine from 304 seen in Q2 2020. The average enterprise customer spend stands around $753,000, up from $716,000 in Q2 2020.
Fastly is not yet profitable. However, CEO Joshua Bixby cited, “The quality of our services and products, as well as our team’s ability to execute, will continue to propel us on our path to profitability.”
P/S and P/B ratios are at 30.51x, and 16.17x, respectively. There is likely to be short-term profit-taking in the shares. A potential decline toward $70 would offer a better entry point for long-term traders.
Global X FinTech ETF (FINX)
52-Week Range: $19.65 – $41.23
Expense Ratio: 0.68%, or $68 annually per $10,000 invested
Our next choice is an ETF, namely the Global X Fintech ETF. The fund, which provides access to global firms in the emerging financial technology (fintech) sector, started trading in 2016.
Academic research by Itay Goldstein University of Pennsylvania points out that “FinTech is about the introduction of new technologies into the financial sector, and it is now revolutionizing the financial industry … The scope of activity in FinTech started from mobile payments, money transfers, peer-to-peer loans, and crowdfunding, spreading to the newer world of blockchain, cryptocurrencies, and robo-investing.”
FINX, which has 33 holdings, tracks the the Indxx Global FinTech Thematic Index. These firms typically offer innovative mobile and digital solutions, disrupting established industries like insurance, investing, fundraising or third-party lending.
The top ten businesses make up about 60% of net assets of almost $800 million. Square (NYSE:SQ), Australia-based Afterpay (OTCMKTS:AFTPY) and the Netherlands-based Adyen (OTCMKTS:ADYYF) lead the names in the fund. Long-term investors may regard any potential drop in the price of FINX as opportunity to go long the fund.
Invesco DWA Technology Momentum ETF (PTF)
52-Week Range: $36.25 – $129.06
Expense Ratio: 0.60%
Next in line is another ETF: the Invesco DWA Technology Momentum ETF. The fund invests in companies showing relative strength (momentum) and are mostly members of the NASDAQ US Benchmark Index. Fund managers define relative strength as “the measurement of a security’s performance in a given universe over time as compared to the performance of all other securities in that universe.” Put another way, this investment style relies more on short-term price trends instead of company fundamentals.
PTF, which has 37 holdings, started trading in 2006. The top ten holdings comprise over 40% of net assets. In terms of sectoral allocation, software companies have the highest weighting (52.09%), followed by semiconductors (22.07%) and IT services (6.07%). The ETF is rebalanced quarterly.
This fund could be appropriate for investors who follow momentum to invest in shares. Typically such stocks show an accelerating price. If you believe these momentum stocks will possibly keep charging ahead, this fund deserves to be on your radar.
O’Shares Global Internet Giants ETF (OGIG)
52-Week Range: $20.48 – $50.38
Expense Ratio: 0.48%
Our final ETF for today is the O’Shares Global Internet Giants ETF, which provides access to large global firms that get most of their revenue from e-commerce and the internet. U.S.-based companies have the highest weighting (61.07%), followed by China (22.13%%) and Germany (6.45%).
OGIG, which has 73 holdings, started trading in 2018. The top ten businesses comprise around 40% of the ETF. Amazon (NASDAQ:AMZN), Alibaba (NYSE:BABA), Tencent (OTCMKTS:TCEHY), Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), and Facebook (NASDAQ:FB) are the leading names in the fund.
According to Statista, “In 2019, an estimated 1.92 billion people purchased goods or services online. During the same year, e-retail sales surpassed 3.5 trillion U.S. dollars worldwide.” In 2020, we all witnessed the growth of online sales as the “stay-at-home, work-from-home” trend was taken up by billions of global citizens.
InvestorPlace.com readers would have followed the recent news that Chinese authorities are unveiling anti-monopolistic regulations that take aim at big internet firms. As a result, most of the Chinese companies in the fund have come under pressure in the past few trading days. Therefore, the fund may be volatile in the coming days, at least until there is more clarity as to the full effect of the regulatory developments. A price decline toward $45 or below would improve the margin of safety for long-term investors.
Pure Storage (PSTG)
52-Week Range: $7.93 – $20.50
Mountain View, California-based data platform Pure Storage is our last stock for today. It provides “enterprise data flash storage solutions designed to substitute for electromechanical disk arrays. As data becomes a more valuable asset to companies, emphasis on enterprise storage has increased.”
In late August, Pure Storage announced second-quarter results. Revenue was $403.7 million, up 2% YoY. Subscription services revenue hit $131.4 million, an increase of 37% over the past year. Free cash flow was $25.7 million, an increase of $5.8 million YoY.
CEO Charles Giancarlo said, “Pure delivers the Modern Data Experience by providing dynamic storage, a cloud-like experience via APIs, shared services and flexible on-demand consumption. Looking forward, I am confident in our opportunity, long-term strategy and ability to reaccelerate growth upon exiting the global crisis.”
Forward P/E, P/S and P/B ratios are at 72.46x, 2.47x and 6.46x, respectively. On Nov. 24, Pure Storage is expected to announce third-quarter results. Potential investors may want to analyze the results before investing in the shares. In the coming quarters, the group’s cloud-like solutions, i.e., Pure-as-a-Service and Cloud Block Store, will likely to gain further momentum.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil Ph.D. has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination.