Good US growth stocks for 2021 and beyond

As a follow on from my previous post (and in the interests of being fair and balanced!), let’s also briefly examine the case for growth in the next year.

This should not be news to anyone, but a wave of technological innovation, highlighted by the increasing importance of cloud computing, the accelerated adoption of ecommerce around the world, and a migration to mobile, has completely transformed the global landscape. Whilst we take them for granted now, these shifts are huge - this is the Industrial Revolution 2.0!

To set the scene, let’s start in November 2018. At the time, growth started to come into prominence by a collapsing 10-year US Treasury yield, which eventually bled out to an all-time low of 0.54% in March 2020. Why is this relevant? Simply put, lower bond yields make the value of future earnings for growth stocks more attractive. The 10-year yield did improve from the low, but has since softened again, to around 1.17%.

Also, as you will be all too familiar, around March 2020 we saw a huge shift in the way we work, which has meant technology solutions have become increasingly important to sustain local and global businesses, across all industries. Depending on where you live in the world (and I’m not here to comment on which country did well or poorly in managing the pandemic) lockdowns were seen as temporary, but the solutions delivered for those ‘temporary’ lockdowns have resulted in permanent changes to the workplace and indeed economies themselves.

So, the case for growth’s rebound is seen in greater levels of automation, Software-as-a-Service (SaaS) solutions, communications services, online and cybersecurity. On that last point, although not very sexy, cybersecurity will play a very significant role in our future, so keep an eye on CrowdStrike (NASDAQ: CRWD) if you are looking at a medium to long-term investment in this space. The outlook for the global cybersecurity market is good – the expectation is that the market will nearly double by 2023 and by then will be a market worth around $250bn. As we become more and more internet-reliant, the levels of threats are only going to increase, which bodes well for companies in this increasingly important industry.

In determining if investing in growth stocks is right for you, consider the following:

1. What is your investment horizon? Growth stocks tend to play out over a longer time horizon, so you will need to be patient. A $10,000 investment in Netflix (NASDAQ: NFLX) in the beginning of 2017 would be worth over $42,000 today. In March 2011, Tesla’s (NASDAQ: TSLA) stock price was $4.92 – adjusted for splits, etc. Today the stock price is over $700.
2. What is your view on volatility? Growth stocks tend to do better than the overall market when stock prices in general are rising, but on the flip side, they tend to underperform the market as prices fall.

In essence though, what I feel it boils down to is simply this – buy what you like. If you like the story and you want to hold it, go ahead. Whether it is a value proposition or a growth proposition, does it really matter? Do you have to be in love with the company? Absolutely not. Trust me, the company does not care that you are a shareholder. But if you’re thinking of taking a look at some potential growth names, here’s a few you could be thinking about over the next 12 to 18 months.

Zoom Video (NASDAQ: ZM)

• Whilst it is easy to suggest that ZM was last year’s pandemic theme and therefore it has run it’s course, it is also important to recognise that their growth was already strong pre-pandemic (ZM’s revenue was up 88% for year ending January 2020)
• ZM have guided revenue of USD4bn for fiscal year end 2022, up from $2.7bn for fiscal year end 2021.
• The new way-we-work bodes well for a company like ZM and any additional solutions in the future within the ZM experience will further empower continued work from home solutions.

DocuSign (NASDAQ: DOCU)

• E-signatures are here to stay even post-pandemic, as businesses have to move away from printing out paper documents and sending them around for physical signatures, to a more seamless digital solution that help to sign and manage documents.
• DOCU already have a remote online notarisation product, which further banishes physical paper to the dark ages. That said, from early June to the 3rd week of July, the stock is up 58%, but it feels like there’s more room to the upside, as sales are projected to rise over 40% this year and 30% next year.
• DocuSign has also moved into the cloud with its DocuSign Cloud offering, where it handles the management, storage and security of documents, in addition to signatures.

Food and Beverage

• MacDonald’s (NYSE: MCD) and Starbucks (NASDAQ: SBUX) are 2 good examples of food and beverage recovery stocks. Both these companies anticipate seeing growth through international markets and, in the case of SBUX, it sees huge potential in Asia-Pacific. That said, there might be some pain with the recent partnership announcement with Alibaba (NYSE: BABA) for platform integration across both companies’ ecosystems, given the recent troubles Chinese names have had in the US, but I believe Starbucks will nonetheless continue to do well.
• For the sector in general, a recent survey by Mazars in the US found that 80% of respondents expect increased sales, employment, profit, and product line growth this year. The survey also found significant industry shifts toward health, wellness and sustainability, with a growing focus on adopting new technology solutions that enhance customer experience.

Gaming

• Two names to watch out for in this space are Las Vegas Sands (NYSE: LVS) and MGM Resorts (NYSE: MGM). Since LVS’s announcement of the sale of its Las Vegas property (Venetian Las Vegas) in March, LVS has become a solid Asian gaming play, with Macau being at the centre of that strategy. LVS has also made some initial investment into digital gaming products as a way of diversifying its business and getting a slice of the online gaming market.
• MGM is partly an opening up story. Once the largest property owner in the Vegas Strip, the firm has focussed on diversifying away from ownership and rotating investment into Asia and experiences like sports betting and online gaming. That said, MGM still has a solid presence on the Strip and, whilst a resurgence of COVID infections in the US will put the brakes on re-opening, there’s opportunity in the medium term, with revenues from sports betting and online gaming carrying the can in the meantime. In other words, they look well positioned in both the online and offline gaming space.

Some of the names above do trade at rather high prices, but as mentioned in my previous post, with fractional trading you can be indifferent to price. A dollar-based order allows you to determine the notional value that you are comfortable with, so you can invest a dollar amount irrespective of whether the price of the stock is $10 or $1,000.

Happy trading!

Disclaimer

The views expressed above are those of the authors and are intended to be general in nature. They do not necessarily represent Gotrade’s views. Please consider your situation carefully before investing and, if in doubt, please seek independent professional advice. Nothing in this post is intended to be a recommendation or an offer to buy, sell or hold any securities.