Investing in growth stocks has been a common strategy for attaining long-term wealth in the stock market. However, the growth sector suffered a setback in 2022, with stock prices declining by up to two-thirds. Nevertheless, there are still viable prospects for investing in growth stocks based on solid fundamentals. This article provides a guide to growth investing, including what growth stocks are, examples of great growth stocks, and how to find them.
What are growth stocks?
Growth stocks are companies whose revenue and earnings increase at a rate higher than that of the average business in their industry or the overall market. These companies usually have innovative products or services that are gaining market share or creating entirely new industries. As a result, growth stocks tend to be more expensive than the average stock in terms of profitability ratios.
Examples of great growth stocks
To give investors an idea of what great growth stocks look like, here are some examples:
Amazon (AMZN): As one of the largest e-commerce companies in the world, Amazon has consistently delivered impressive revenue growth over the past decade. The company has expanded into a variety of new markets, including cloud computing and digital advertising, and shows no signs of slowing down.
Tesla (TSLA): The electric vehicle market has exploded in recent years, and Tesla has emerged as the clear leader in the space. The company's innovative technology and strong brand recognition have helped it achieve impressive growth, even as it faces increasing competition from other automakers.
Square (SQ): This financial technology company provides payment processing and other financial services to small businesses. Square's revenue has grown rapidly over the past few years, and the company has expanded into new markets like cryptocurrency trading and online lending.
Shopify (SHOP): As more businesses shift to e-commerce, Shopify has become an increasingly important player in the industry. The company's cloud-based platform allows businesses to easily set up and manage online stores, and its revenue has grown at an impressive rate over the past few years.
Zoom Video Communications (ZM): The COVID-19 pandemic sparked a huge surge in demand for video conferencing tools, and Zoom was one of the biggest beneficiaries. The company's revenue has skyrocketed over the past year, and even as the pandemic subsides, many businesses and individuals continue to rely on Zoom for remote communication.
Facebook (FB): Despite some recent controversy, Facebook continues to dominate the social media landscape and generate impressive revenue growth. The company has also expanded into new markets like virtual reality and digital payments.
Nvidia (NVDA): As a leading manufacturer of graphics processing units (GPUs) for gaming and data centers, Nvidia has experienced tremendous growth in recent years. The company's technology is also being used in a variety of new applications, such as self-driving cars and artificial intelligence.
Microsoft (MSFT): Although it's been around for decades, Microsoft has continued to grow and innovate in recent years. The company's cloud computing business, Azure, has seen impressive growth, and Microsoft is also investing heavily in new technologies like artificial intelligence and augmented reality.
DocuSign (DOCU): As more businesses shift to digital document management, DocuSign has become a key player in the space. The company's e-signature platform has seen impressive growth in recent years, and DocuSign is also expanding into new markets like contract lifecycle management.
Moderna (MRNA): As a leading manufacturer of COVID-19 vaccines, Moderna has seen explosive growth over the past year. The company's technology is also being used to develop new treatments for a variety of other diseases, making it a promising player in the biotech industry.
How to find growth stocks
To find great growth stocks, investors need to identify powerful long-term market trends and the companies best positioned to profit from them. This involves narrowing down the list to businesses with strong competitive advantages and large addressable markets.
Long-term market trends include e-commerce, digital advertising, digital payments, cloud computing, streaming entertainment, remote work and electric vehicles. These trends were accelerated by the COVID-19 pandemic and are likely to continue for many years.
Investors can take advantage of these trends by investing in companies such as Amazon, Shopify, and Etsy for e-commerce; Meta and Alphabet for digital advertising; Block for digital payments; Amazon and Google for cloud computing; Netflix for streaming entertainment; Salesforce.com for cloud software; and Tesla for electric vehicles.
The Importance of Identifying Trends and Companies Driving Them
Identifying trends and the companies driving them is crucial to increase sales, profits, and generate wealth for shareholders. By investing in companies that can capitalize on powerful long-term trends, investors can reap benefits for years to come.
Trends Accelerated by the COVID-19 Pandemic
The COVID-19 pandemic accelerated many trends that were already well underway, creating opportunities for investors. Here are some examples of trends along with the companies that can help investors profit from those trends:
E-commerce
As online shopping grows in popularity, Amazon, Shopify, and Etsy are poised to benefit financially within the United States(and many international markets). MercadoLibre holds a leading share of the online retail market in Latin America. While consumers have started to return to physical stores in 2022, e-commerce still has tons of growth potential as an industry.
Digital advertising
Meta (formerly Facebook) and Alphabet own the lion’s share of the digital ad market and are poised to profit handsomely as marketing budgets shift from TV and print to online channels. Amazon has built a massive advertising business, which continues to expand into new formats. Even Netflix is starting to come around to advertising as a way to increase its subscriber base and boost its revenue.
Digital payments
Block (formerly Square) is helping to accelerate the global shift from cash to digital forms of payment by allowing businesses of all sizes to accept debit and credit card transactions.
Cloud computing
Computing power is migrating from on-premise data centers to cloud-based servers. Amazon and Google’s cloud infrastructure services help make this possible, while Salesforce.com provides some of the best cloud-based enterprise software available.
Cord-cutting and streaming entertainment
Millions of people are transitioning away from costly cable subscriptions and shifting towards more cost-effective and convenient streaming services. Netflix, the world's leading streaming entertainment provider, stands to benefit from this trend, though it is facing increased competition from other media companies.
Remote work
For many organizations, remote work arrangements became a necessity during the pandemic. Studies indicate that the remote work trend will continue well after the pandemic is over as companies realize the financial efficiencies and workforce benefits associated with flexible working arrangements.
The Importance of Early Investment
The key to profiting from these trends is to invest in these types of trends and companies as early as possible. The earlier investors get in, the more they stand to profit. However, the most powerful trends can last for many years and even decades, giving investors plenty of time to claim their share of the profits they create.
Conclusion: Invest in Trends and Companies Driving Them
In conclusion, identifying trends and companies driving them is essential for investors to increase sales, profits, and generate wealth for shareholders. By investing in companies that can capitalize on powerful long-term trends, investors can reap benefits for years to come. It is crucial to invest in these trends and companies as early as possible to maximize profits.
Comments