These are the top growth stocks to buy this year.
Growth stocks, some of the biggest stars of 2020, have gotten off to a difficult start to 2021. Many investors feel the rotation to value stocks is underway, as growth isn’t as hard to come by as it was last year. Plus, valuations are sky-high in many names, and the uptick in interest rates to begin the year disproportionately hurt growth stocks and the value of their future profits. Largely due to some of these headwinds, U.S. News’ selection of the 10 best growth stocks to buy for 2021 are off to a rocky beginning. Here’s a look at how each is doing thus far.
Square (ticker: SQ)
Payments and point-of-sale solutions company Square has been an out-and-out growth stock for a number of years. Its revenue has grown at a compound annual growth rate of 49.6% over the last five years. Square’s most recent earnings release on May 6 revealed 44% year-over-year net revenue growth, showing size hasn’t slowed its prodigious growth much. A big chunk of Square’s current growth comes from Cash App, its Venmo-like peer-to-peer mobile payments app. In the first quarter, Cash App’s gross profits jumped 171% year over year, accounting for $495 million, or 51.3%, of Square’s total $964 million gross profit. Just a year earlier, Cash App’s gross profits of $183 million accounted for just 34% of total gross profit. Square is now worth more than $95 billion, and analysts expect earnings per share (EPS) to grow by more than 55% annually over the next five years.
Year-to-date return (through 5/07/21): +7.2%
Amazon.com (AMZN)
While indeed one of the biggest companies on earth, Amazon has proven its uncanny ability to post spectacular growth rates despite its size, making it a natural member of 2021’s best growth stocks to buy. For many years, Amazon denied itself profitability, choosing instead to expand its market share through razor-thin margins while plowing every dollar back into long-term investments. In 2021, AMZN remains a glorious tale of margin expansion combined with rapid top-line growth. Its international business just turned profitable in 2020, and for a company with $419 billion in trailing sales, Amazon’s 44% growth rate last quarter is stunning. AMZN is still looking to disrupt other parts of the economy, reportedly planning its own primary health care services business it will offer to large employers. With health care spending accounting for more than 17% of the U.S. economy, Amazon has its eyes on the prize.
YTD return: +1.1%
NetEase (NTES)
Chinese online gaming company NetEase may not be expanding as quickly as Square or Amazon, but its strong track record of growth, pipeline and valuation made it an attractive growth stock to buy heading into 2021. Sales growth over the last five years has clocked in at more than 27% annually and remains impressive with a 25.6% year-over-year growth rate just last quarter. In development are games based on already-popular franchises such as “Harry Potter,” “The Lord of the Rings” and “Pokemon.” While gaming is its bread and butter, the online education, music and e-commerce businesses all managed to grow in 2020. Even after a decent run in the first part of 2021, shares trade for 26 times forward earnings.
YTD return: +14.8%
Nautilus (NLS)
Peloton (PTON) is considered the high-end home exercise bike company, but for the money, competitor Nautilus is a better stock to buy. Nautilus doesn’t just make its namesake workout equipment. The company owns Bowflex and Schwinn, and it’s also getting into the subscription-based connected fitness business. Shares have been on a roller coaster in the early part of 2021, but if recent numbers are any indication then NLS should be in for a rebound. Analysts were expecting revenue of $159.2 million on EPS of 52 cents, but instead were treated to $206.1 million in revenue — up 119.9% year over year — and EPS of 93 cents, driven by its connected fitness bikes and treadmills. Nautilus was also named one of U.S. News & World Report’s 10 best stocks to buy for 2021 overall, and with rival Peloton now embroiled in scandal after a treadmill recall, NLS still looks poised for outperformance.
YTD return: -6.8%
Alibaba Group (BABA)
Investors shouldn’t be entirely focused on the U.S. in their portfolios. When looking abroad, the single-largest market and most attractive investment landscape has to be China, with a population of around 1.4 billion. Importantly, the Chinese middle class has been expanding rapidly, too — it’s likely China’s middle class already exceeds the entire population of the U.S. This is an enormous secular tailwind for the country’s largest e-commerce company, Alibaba, which, despite doing roughly $100 billion in annual sales, grew revenue by 36.9% last quarter. Recent pressure from Chinese government regulators on Alibaba’s business has caused some investor apprehension, leading to unflattering performance — and a compelling entry point to buy BABA at less than 20 times forward earnings.
YTD return: -3.2%
Fiverr International (FVRR)
Fiverr is an e-commerce marketplace matching buyers and sellers in the fast-growing gig economy. Freelancers can seamlessly connect with parties looking to hire someone for a wide range of services, including design, marketing, translation, animation, programming, website creation, data entry and more. The “flywheel effect” is hard at work with FVRR. As more buyers use Fiverr to find freelance talent, growing demand attracts more sellers to the platform, bringing deeper talent and a wider range of services, in turn attracting more buyers. Fiverr broke into the black last year, and analysts don’t expect the company to look back. And top-line growth is bonkers, with revenue jumping 99.7% year over year last quarter. Expect FVRR to be volatile. Shares have more than tripled over the last year, and at 30 times sales, the stock isn’t cheap. But with exploding profitability, FVRR is a risky growth stock worth the stretch for more aggressive investors.
YTD return: -7.6%
Editas Medicine (EDIT)
Editas is arguably the most speculative of the best growth stocks to buy for 2021, as its value is wholly derived from its potential to successfully spearhead a futuristic groundbreaking technology. One of the few pure plays on the CRISPR gene-editing technique, one of Editas’ scientific founders, Feng Zhang, conducted pioneering research critical to the development of CRISPR technology, which essentially allows humans to edit DNA. The $2.25 billion Editas has a leading candidate in clinical trials for the treatment of the top cause of childhood blindness and filed with the U.S. Food and Drug Administration to begin clinical trials for treating sickle cell disease. Although Editas’ long-term prospects look promising, investors seeking to bet on the future of CRISPR in a more diversified way may consider owning a piece of Crispr Therapeutics (CRSP) as well. With no profits, there’s high volatility with EDIT.
YTD return: -51.4%
iRobot Corp. (IRBT)
iRobot might strike some as a silly name, but take one look at the company’s financials and you’ll realize it’s no joke. Founded in 1990 by Massachusetts Institute of Technology roboticists, the company makes robotic cleaning products that automate the home-cleaning process. Its two leading products are the Roomba automatic vacuum and the Braava automatic floor mop. Business is on the upswing, with revenue jumping more than 55% year over year last quarter as consumers placed more importance on their home surroundings amid widespread lockdowns. At about 15 times earnings, iRobot’s 18% annualized earnings growth, which analysts expect in the next five years, comes at a discount. IRBT is also venturing into a new product line of educational coding robots aimed at teaching children to program.
YTD return: +20.7%
Twitter (TWTR)
Among the best growth stocks to buy for 2021 is Twitter, which has enjoyed a unique position in the market for years as a live, crowdsourced tool for unearthing current events on a real-time basis. Twitter played an important role in the Arab Spring in 2011, and 10 years later, it remains a unique technological tool and an increasingly vital part of modern society. Twitter stock was doing phenomenally to start the year until its April earnings report, which caused shares to shed 15% in a single day. Even though monetizable daily active users rose 20% to 199 million, the company’s projections slightly missed expectations, and in contrast with Facebook’s (FB) blowout quarter, that was a glaring disappointment. In the grand scheme of things, however, one quarter is no reason to give up on Twitter.
YTD return: -0.7%
Roku (ROKU)
Lastly, streaming TV platform Roku is an unapologetically priced growth stock, and it’s not for the faint of heart. Trading at 22 times sales, Roku is not yet profitable, and analysts expect 2022 to be the first full year of profitability. In the meantime, Roku’s growing share of the video streaming platform market is the name of the game. Last quarter, active accounts grew 35% to 53.6 million while streaming hours grew 49% year over year to 18.3 billion. Advertising on the Roku platform makes up the bulk of company revenues, as platform revenue — which includes advertising — jumped 101% last quarter. The recent addition of HBO Max to Roku’s platform illustrates how the company’s rapid growth makes it more desirable to streaming apps, which makes Roku more useful to consumers, powering a feedback loop that drives its business.
YTD return: -4.5%
10 best growth stocks to buy for 2021:
— Square (SQ)
— Amazon.com (AMZN)
— NetEase (NTES)
— Nautilus (NLS)
— Alibaba Group (BABA)
— Fiverr International (FVRR)
— Editas Medicine (EDIT)
— iRobot Corp. (IRBT)
— Twitter (TWTR)
— Roku (ROKU)
