Top 5 Growth Stocks to Buy for Singapore Investors 2022 (Financial Horse)

A couple of ground rules to frame this discussion:

• China stocks excluded
• Preferably less than $50 billion market cap
• 3 to 5 year holding period

Digital Ocean

Market Cap: $11.3b

Price/Sales: 29

There are 2 ways of looking at Digital Ocean.

If you love it, you’ll call it the Shopify of Cloud Computing.

If you hate it, you’ll call it the poor man’s AWS (Amazon Web Services).

The goal of Digital Ocean is to simplify cloud computing, for small and medium businesses.

Digital Ocean wants to be the “Shopify” of cloud computing.

To make it so easy to use cloud computing, that the army of future developers and creators can spend their time building the business, instead of worrying about the cloud.

So far at least, the performance has been keeping up:

• 37% year on year revenue growth,
• 36% growth in annual recurring revenue (ARR),
• 28% growth in average revenue per user (ARPU),
• Rock solid growth in net dollar retention (NDR) to 116%.

Citron Research, the former short seller turned long only, recently issued a great report on Digital Ocean that is worth checking out if you’re keen on this growth stock.

Oatly

Market Cap: $8 b

Price/Sales: 19

Oatly is a rather controversial stock, with the supporters citing the explosive growth of the oat milk industry in recent years.

As a Swedish company, Europe is their core market, with Asia and America the growth markets.

Oatly recently entered into a partnership with Starbucks, and apparently the demand was through the roof.

Short seller Spruce Point Capital recently released a short attack on Oatly that contributed to the recent drop in short price. The full report is here.

I extract the key arguments below, which point towards:

• Oatly not being environmentally friendly
• Potential financial accounting issues

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Palantir

Market Cap: $43 b

Price/Sales: 42

Palantir is a very secretive company.

There are 2 main products: Gotham, and Foundry.

Gotham is the data operating system used by defence and intelligence agencies. It collects real time data from sensors around the world & applies AI / Machine Learning to generate actionable insights. It’s used by the US Air Force, Navy and Army.

Whereas Foundry is the commercial version of Gotham. It does the same thing, but for private customers.

Revenue growth is very solid though, coming in at 49% year on year growth, at a 31% operating margin.

Solid growth in ARPU and customer growth as well.

The share price has gone nowhere for a whole year though, so depending on how you see it, could mean a great buying opportunity or a complete dud.

Note: For a more detailed explanation of the stocks covered in this article, check out the full post on FinancialHorse.com

Zscaler

Market Cap: $46 billion

Price/Sales: 66

You’ll notice that a lot of names on this list are cloud players.

I’m just hyper bullish on this whole sector right now.

In 2021, computing power is becoming a utility. Increasingly, computing power is becoming centralised. Companies just “rent” computing power from the cloud, from players like AWS, Azure, or Digital Ocean.

In the future, every company will be a cloud company. Computing power will be something you pay per use, like electricity.

You need a whole new wave of systems designed from the group up for cloud. A whole infrastructure on security, analytics, identity verification, just to support this transition.

Things like zero trust security, and SASE (Secure access service edge).

Zscaler is one of the leading names in this space, alongside names like Cloudflare and Crowdstrike.

This growth stock doesn’t come cheap at 66 times Price/Sales, but almost no player in the cloud space is cheap today.

What you do get, is 57% revenue growth, 128% net dollar retention, and a net promoter score of 74. That’s some ridiculous numbers there.

Cloud growth will slow down one day, but it doesn’t look like we’re there yet.

Cloudflare

Market Cap: $60b

Price/Sales: 135

While players like Crowdstrike focus on security, Okta on identity verification, Cloudflare’s focus is on… building a better internet.

I look at Cloudflare and I’m just mindblown by the number of ways this company can evolve.

They are trying to build themselves into the backbone of the internet, and find ways to monetise that later.

51% year on year revenue growth, 124% net dollar retention, and 69% CAGR in large customers growth.

The valuations are mind boggling though. 135 times price to sales.

Honourable Mentions

Cloud Players – Crowdstrike, Service Now, Workday, Datadog

In the cloud space there is Crowdstrike (Security Cloud), Service Now (Service Cloud), Workday (HR Cloud), Datadog (Data Analytics).

The future is going to be cloud centric, and every company will build their IT around the cloud. That’s just going to power massive growth for the sector in the coming years.

Hubspot

Hubspot is a cloud based Customer Relationship Management (CRM) platform.

In simple English, it helps you manage your relationship with your customers and sales leads. Things like their previous history with you, status or orders, contact information etc.

Hubspot has been called the poor man’s version of Salesforce.

Closing Thoughts: Tightening Monetary Policy a headwind for Growth stocks?

Earlier this month, Feds announced the tapering of QE, to end completely by June 2022. And markets are pricing in anywhere from 2 – 3 rate hikes by Dec 2022.

If so, that’s going to be a massive headwind for growth stocks, and some caution is warranted.

That said, most of these growth stocks are secular plays, with the potential to grow their core business for years to come.

As investors, we can’t control the macro, we can only control what we buy, and when we buy.

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Note: For a more detailed explanation of the stocks covered in this article, check out the full post on FinancialHorse.com