4 Best Growth Stocks For 2021

Jan 25, 2021 09:22 PM ET
4 Best Growth Stocks For 2021

Growth stocks refer to companies in the early days of their business. These companies tend to have a fast-growing revenue and minimal profitability. As a result, investors love them because they believe these firms will grow to become dominant forces in their industries. As shown below, growth stocks, as measured by the Vanguard Growth ETF, have outperformed their value counterparts.

Vanguard Growth ETF vs. Vanguard value ETF vs. S&P 500

Vanguard Growth ETF vs. Vanguard value ETF vs. S&P 500

For starters, companies typically go through five main stages in their lifecycle. First, there is a launch phase, where an entrepreneur starts the business. This is followed by the growth phase, where the company starts attracting new customers. At this stage, most companies tend to be unprofitable because they reinvest their funds. 

Third, there is the shake-out, when the growth starts to wane. Finally, there is the maturity and the eventual decline. All major companies go through this. Think about all large companies that once dominated their industries in the United States like IBM, Sears, and Exxon.

MarketAxess Holdings (MKTX)

MarketAxes is a company that many ordinary Americans don’t know about. But all large investors and fund managers know the services it provides.

The company provides a platform that enables investors to buy and sell fixed assets, the largest asset class in the world. The total assets in this industry are worth more than $42 trillion. They include corporate and government bonds.

The firm offers these solutions to more than 1,500 institutions around the world, including giants like PIMCO and Vanguard. It also serves broker-dealers, who then provide these solutions to their customers.

The value proposition for the company is that it has helped transition a process that was once manual and complicated to just a few clicks. It also creates a transparent trading platform, expands liquidity, and reduces costs. 

MarketAxess growth can be seen in its income statement. The firm’s revenue has grown from just $167.7 million in 2011 to more than $646 million in the past 12 months. Unlike many companies, MarketAxess has always been profitable, with its annual profit rising from $47.7 million to $276 million in this period. It also has a stable balance sheet with more than $333 million in cash.

Palantir Technologies (PLTR)

Like MarketAxess, Palantir Technologies is a company that many people have never heard about. But after its recent IPO, many investors have come to know more about the firm. 

In general, the company works with the government and corporate customers to capture and analyze data. They can then use this data to make informed decisions. The company works with companies in almost all industries, including retailers and oil and gas explorers.

It has three primary products. Palantir Gotham helps organizations to integrate, manage, secure, and analyze all data. On the other hand, Palantir Foundry helps to integrate data by removing the barriers between front-end and back-end analysis. As such, people of all experiences and expertise can work well with this data. Finally, it has Palantir Apollo, which helps to operate SAAS platforms. 

Palantir is a classic growth company. Its revenue has increased from more than $595 million in 2018 to more than $999 million in the past 12 months. At the same time, its overall loss has increased to more than $1.7 billion. Yet, its market cap now stands at more than $55 billion. 

It is a good growth stock because of the current momentum, potential profitability, and substantive market share.

Palantir vs. S&P 500

Palantir vs. S&P 500

Affirm Holdings (AFRM)

Affirm Holdings is a relatively new fintech company that launched its Initial Public Offering (IPO) in 2020. The company’s business is relatively simple. It partners with retailers and online platforms to offer a buy now, pay later solutions. For example, instead of paying $1,000 for an iPhone, they use the platform to stagger their payments for an extended period. For those shopping online, they can just click Affirm’s button when checking-out. Some of the brands it has partnered with are TheRealReal, Expedia, Bonobos, and Kate Spade, among others.

The buy now, pay later industry has seen exponential growth. For example, in Australia, the biggest fintech company is AfterPay, a company that is similar to Affirm. Similarly, one of the biggest fintech companies in Europe is Klarna, a company that offers the service.

However, looking at the income statement, Affirm’s revenue has risen from $145 million in 2019 to more than $595 million in the past 12 months. Like other growth companies, it has never made a profit, which makes its $54 billion valuation appear stretched. Still, investors will continue buying because of its growth and its market share among millennials.

Affirm vs. S&P 500

Affirm vs. S&P 500

CrowdStrike (CRWD)

CrowdStrike is another growth stock you can invest in. For starters, the company offers cloud end-point solutions to prevent attacks from happening. Its solutions are different from those of the antivirus software offered by companies like Avast and Avira. 

CrowdStrike products are geared towards large corporations like Sony, Tribune Media, Goldman Sachs, and Zebra Technologies. These products are Falcon Pro that replaces the traditional antivirus, Falcon Enterprise that prevents breaches, and Falcon Complete. It also offers tens of other products and services.

CrowdStrike has been on a growth path in the past few years. Its revenue has grown from more than $52 million in 2017 to more than $716 million in the past 12 months. It made a loss of about $102 million in the past 12 months. 

The company has a stretched valuation of more than $49 million. This is an extreme valuation, but it is backed by growth since the firm has a long runway for growth since cybersecurity is one of the biggest industries in our time.

CrowdStrike (CRWD) chart

Summary

Growth stocks are the future. They have done well in the past few years, and this performance will likely continue so long as interest rates are low. In this article, we have looked at four of these firms, but there are still more out there. Among the most notable ones are Twilio, Square, Okta, and even Roku.


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