After a bullish year of big gains for growth investors, market jitters have set in. The U.S. 10-year Treasury yield recently reached a 52-week high, now sitting above 1.7%. In January 2017, that yield was over 2.5%, and economists are debating whether we’ll soon see a return to those levels.
But despite occasional pullbacks in broader markets, I expect many growth stocks to ride the wave of macrotrends we watched develop over the past 12 months to continue creating shareholder value for many quarters to come.
In the past year, we have seen tech shares take off as digitalization became an indispensable part of our lives. As a result, e-commerce, financial technology (fintech), online streaming and gaming companies have been in the limelight.
Similarly, investors have not been shy to put their money into sustainable living, alternative energy, and electric vehicle (EV) businesses. Also, since the end of the U.S. Presidential election, cannabis stocks have also enjoyed stellar gains, mostly with growing optimism that a federal legalization might happen stateside sooner than later.
With that information, here’re seven growth stock to keep on your radar screen in April:
- Etsy (NASDAQ:ETSY)
- Global X Lithium & Battery Tech ETF (NYSEARCA:LIT)
- GrowGeneration (NASDAQ:GRWG)
- NextEra Energy (NYSE:NEE)
- Skillz (NYSE:SKLZ)
- Vanguard Russell 1000 Growth Index Fund ETF Shares (NASDAQ:VONG)
- Xpeng (NYSE:XPEV)
There could, understandably, be occasional profit-taking in these growth names. However, potential shareholders could see such declines as an opportunity to buy these companies.
Growth Stocks to Buy: Etsy (ETSY)
52-week range: $29.95 – $251.8
This New York-based e-commerce company offers a range of seller services and tools to help entrepreneurs start, grow and manage their businesses. Etsy competes with brands like Amazon (NASDAQ:AMZN) Handmade, Shopify (NYSE:SHOP) and Big Cartel.
Etsy reported Q4 and ful-year 2020 results in late February. Revenue came in at $617.3 million compared to $269.9 million a year ago. Investors were pleased with revenue growth of 128.7% YoY. Net income was $148.5 million, up 374.7% YoY. The platform had 4,365 active sellers, up 61.7% from Q4 2019. Active buyers stood at 81,898, an increase of 76.7% YoY.
CEO Josh Silverman said:
“In conjunction with achieving record 2020 consolidated financial results of approximately $10.3 billion in GMS and $1.7 billion in revenue, we provided economic opportunity for millions of creative entrepreneurs… We are just getting started executing on our long-term growth strategy, focused on highly differentiated and defensible competitive advantages within a $1.7 trillion market opportunity.”
The online platform has a dynamic seller base. As a result, in the past year, sellers were able to shift inventory to products that become relevant such as face masks during the current pandemic or “vote” necklaces during the U.S. presidential election. The company has been a winner over the past year, and its share price clearly reflects that momentum.
ETSY stock’s forward price-to-earnings (P/E) and price-to-sales (P/S) ratios are 107.15 and 22.47, respectively. Despite the continued growth prospects of the group, these metrics show a frothy valuation. Potential investors might find better value around $200.
Global X Lithium & Battery Tech ETF (LIT)
52-Week Range: $17.83 – $74.83
Dividend Yield: 0.42%
Expense Ratio: 0.75%
The Global X Lithium & Battery Tech ETF invests in business that focus on the full lithium supply chain, from mining and refining the metal all the way to battery production. LIT, which tracks the Solactive Global Lithium Index, has 40 stock holdings. Since its inception in July 2010, net assets have reached $3.1 billion.
The past year saw high growth in consumer and investor interest in electric vehicles (EV) and alternative energy sources. As lithium is preferred over lead-acid batteries, lithium stocks have benefited significantly in the past year. Leading names in the fund are Albemarle (NYSE:ALB), Ganfeng Lithium (OTCMKTS:GNENF), Byd (OTCMKTS:BYODY), Samsung and Eve Energy.
As far as sector diversity, funds are distributed among Materials (42.7%), Industrials (28.5 %), Consumer Discretionary (16.3%) and Information Technology (11.3%), among others. Over 60% of the holdings are of the top ten stocks. Chinese firms comprise 43.9% of the holdings, followed by stocks from the U.S. (21.8%), South Korea (12.0%), Japan (6.6%) and others.
In the past 52 weeks, the fund is up over 200% and recently hit an all-time high in mid-February. Therefore, LIT is likely to come under pressure in the coming weeks. However, buy-and-hold investors could regard dips as opportunities to buy into the fund.
GrowGeneration (GRWG)
52-Week range: $2.80 – $67.75
Denver, Colorado-based GrowGeneration owns and operates specialty retail hydroponic and organic gardening stores. Currently the company has 31 stores across 11 states and also operates an online superstore for cultivators. It is a supplier of productsincluding lights, ventilators, fertilizers and nutrients for cannabis growers.
Thus GRWG stock has been able to ride the positive momentum in pot shares. Over the past year, shares are up about 1,700%. Put another way, the proverbial $1,000 invested back then would now be worth more than $18,000.
Its Q3 2020 earnings report showed that revenue rose 153% YoY to $55.0 million. GAAP net income was $3.3 million, up 133% compared to net income of $1.0 million. Diluted EPS was 6 cents, an increase of 100% year over year. Cash and equivalents stood at $55.3 million, compared to $12.98 million a year ago.
CEO Darren Lampert said:
“Our steadfast focus on rapid, strategic growth in key markets, both organically and through acquisitions, has resulted in our eleventh consecutive quarter of record revenues and EBITDA… The results of the recent elections, combined with our proven ability to scale while reducing operational costs, will allow us to grow our revenue and expand our bottom line into the following quarters.”
GRWG stock’s forward P/E and P/S ratios of 140.85 and 16.86 point to an expensive valuation. Investors could regard a decline toward $60 as a better entry point.
NextEra Energy (NEE)
52-week range: $43.70 – $87.69
Dividend yield: 2.18%
Juno Beach, Florida-based NEE stock is a clean energy company that owns Florida Power & Light Company, serving more than 5.6 million customer accounts. The group also operates NextEra Energy Resources, one of the largest generators of renewable energy companies worldwide. It is a leader in battery storage, too. Over the past 12 months, this high-performing stock is up about 47%.
Q4 financial results were released on Jan. 26. Adjusted income was $785 million, an increase of 11% YoY. Adjusted EPS was 40 cents per share, up 11% YoY. Additionally, cash and equivalents were $96 million, compared to $64 million a year ago.
CEO Jim Robo cited:
“Based on the strength and resiliency of our underlying businesses, I will be disappointed if we are not able to deliver financial results at or near the top end of our adjusted earnings per share expectation ranges in 2021, 2022, and 2023, while at the same time maintaining our strong credit ratings.”
NEE stock’s forward P/E and P/S ratios are 28.09 and 7.72, respectively. Although shares are not cheap by historical valuation levels, the optimistic outlook for green energy companies continues. Rising interest rates could mean short-term headwinds for the stock price.
Therefore, buy-and-hold investors could consider a decline toward $65 or even below as a better entry point. Most analysts concur NextEra has plenty of power to keep growing.
Skillz (SKLZ)
52-week range: $9.81 – $46.30
Mobile e-sports group Skillz operates a platform for developers to build their franchises. It hosts e-sports tournaments for players worldwide and distributes significant prizes.
Skillz became a public company in September 2020 through a reverse-merger with the special purpose acquisition company (SPAC) Flying Eagle Acquisition. 2020 was a huge year for e-sports and mobile entertainment, so this company was in the limelight well before going public.
Management announced Q4 and full-year 2020 financials on March 10. Quarterly revenue was $68 million, up 95% YoY. The bottom line on the other hand, remained in the red. Net loss, which was $9 million in Q4 2019, further deteriorated to a $44 million loss in Q4 2020. Diluted net loss per share was 14 cents in Q4 2020, compared with a loss of 7 cents in the preceding year. As of Dec. 31, 2020, the company had $263 million of cash and no debt.
“Our first quarter as a publicly traded company was our twentieth consecutive quarter of revenue growth,” said Andrew Paradise, CEO and founder. “We look forward to many more such quarters ahead.” 2021 revenue guidance of $366 million implies a 59% YoY growth.
SKLZ stock’s P/S ratios of 32.93 and 40.49 point to an overstretched valuation level. In January, Ark Next Generation Internet ETF (NYSEARCA:ARKW) announced that it had purchased the shares in its popular fund.
Yet in recent days, shares have come under pressure, falling from a record-high of $46.30 to the current level of $25. Any further decline toward $20 would improve the margin of safety for long-term investors.
Vanguard Russell 1000 Growth Index Fund ETF Shares (VONG)
52-Week Range: $131.88 – $262.81
Dividend Yield: 0.77%
Expense Ratio: 0.08%
The Vanguard Russell 1000 Growth Index Fund ETF Shares invests in U.S.-based large-cap growth firms. VONG, which has 459 holdings, tracks a range of businesses from the Russell 1000 Growth Index.
The fund started trading in September 2010. The ten largest stocks in the fund comprise close to 46% of the fund’s net $8.7 billion assets. The technology sector tops the list with 45.6%, followed by consumer discretionary (20.0%), health care (13.3%), and industrials (12.3%).
Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Amazon, Alphabet (NASDAQ:GOOGL), (NASDAQ:GOOG), and Facebook (NASDAQ:FB) are the leading names in the roster.
Since the start of 2021, the fund is down 1%, but has returned over 77% in the past 12 months. It hit a record high in mid-February. Trailing P/E and P/B ratios stand at 37.6 and 11.4, respectively. In April, many names that make up the top holdings will release quarterly earnings. Therefore, further volatility and short-term profit-taking are possible.
Those investors who would like to invest in large-cap growth names could consider buying into the price declines. The longevity of the U.S. bull market in stocks has been mostly driven by large-cap tech darlings. Despite occasional pullbacks in price, we can expect that trend to continue in the coming quarters too.
Xpeng (XPEV)
China-based XPeng, a smart EV company, is the last of our growth stock today. It offers autos integrated with advanced AI and autonomous-driving technologies. Its two primary products are a type of sport utility vehicle, named G3, and a type of four-door sports sedan, named P7.
The company is backed by Alibaba (NYSE:BABA) and posted Q4 metrics in early March. Revenue came at $437.0 million, an increase of 43.3% YoY. Non-GAAP net loss was $109.2 million. The company delivered 12,964 vehicles during the quarter.
“We closed 2020 on a strong note, with a record number of total deliveries in the fourth quarter of 12,964 vehicles, led by the P7, our second Smart EV model, which fueled our robust operational and financial performance throughout the year,” said CEO He Xiaopeng.
Overall, the company’s current market share in China is currently less than 1%. However, investors are betting that this figure is likely to increase in the decade. Investors who are bullish on the Chinese EV market should keep XPEV stock on their radar.
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 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. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.