There are different ways to categorize stocks in terms of investing and different stocks offer varying opportunities for investors to earn great returns. Growth stocks are one great category that offer amazing potential investors can take advantage of, but how does one know, what is the best growth stock?
If you are an investor looking to acquire growth stocks and you want to know the best growth stocks available, then this article is right for you. We will show you the differences between growth stocks and value stocks and answer the question, “what are the best growth stocks?”
What Are Growth Stocks?
To determine the best growth stocks, you must first understand what growth stocks are. Growth Stocks are company stocks that are growing or anticipated to grow at a much faster rate than the market forecast.
Investors who choose these stocks do not invest because of dividends. Most growth stocks do not offer dividends because the profits are reinvested into the company to accelerate the growth of the stock.
Investors make profit from the capital gains of the stocks; they then resell the stocks at a much later time when the value has appreciated.
How Do Growth Stocks Work?
Growth stocks are usually in different markets and sectors and sell at a higher price-to-earnings ratio in comparison to other stocks. These are usually stocks of companies that have produced an innovative product or service that is gaining strong market shares.
And in some cases, they are in new and emerging markets. To accelerate the growth process, all dividends get reinvested into the company. If the strategy works, these stocks experience a phenomenal increase in the value of the shares.
And when investors choose to sell, they make profits from the selling price as against the price they used in acquiring the stocks. Some of the best growth stocks are usually in the field of technology or have access to new or developing technologies.
What Makes a Good Growth Stock?
You may wonder, how do I find the best growth stock? What should I be looking out for as a prospective investor looking to enter the growth stock market?
Here are some of the key elements that make up the top growth stocks.
Strong Leadership Management
The best growth stocks are not products of chance and luck. When you do your research, you will find that there is an innovative and effective engine working behind the scenes to keep the company constantly growing and reaching to achieve higher goals.
This is where strong leadership comes into play. Company leaders who understand the market trends and make qualitative decisions towards staying on top are important.
Together with a strong management team, you will find a growth stock with good prospects and the right structure to grow over a long-term basis.
Good Growth Trajectory
Investing has a lot to do with speculations and predicting the movement of the market. Like many investment tools, these speculations and predictions are not made on a whim or mere gut feeling.
There must be a good and strong growth trajectory ahead. Adequate research is necessary here to see what the company is about and how they plan to grow and remain in the market on a long-term basis.
The right question you should ask is, what stock will grow the most in 2021? You will often find short-lived stocks that do well only within a limited amount of time and then plummet with the hopes and funds of investors.
The best growth stocks will show a good growth trajectory.
Strong Growth History
History plays a role in how stocks operate. This phenomenon is often attributed to certain actions and decisions taken by the leadership and management team.
Most times, when stock managers find a strategy that works for them, they waste no time implementing them again and again. On the other hand, as well, many failing stocks fail because of certain wrong decisions and actions taken by the leadership.
The best growth stocks will provide a history of strong growth.
7 Best Options for Growth Stocks
Growth stocks have been a favorite for investors and will continue to be this year. We’ve taken the liberty of outlining some of the best growth stocks for 2021 with a quick overview of what these companies are about.
Upstart is an online platform that offers artificial intelligence in the money lending market sector. The business has created several great artificial intelligence services that can automate the entire process of lending.
Upstart also has several partnerships with banks in helping them determine creditworthiness to help reduce the cost and losses of default loans.
For investors looking to hold stakes in the fintech sector.
- In 2020, Upstart posted a net profit of $6 million which makes it one of the most profitable fintech companies to invest in. They are one of the best growth stocks to buy now.
- Upstart has so far partnered with 10 banks. The largest of which is the Cross River Bank.
- Upstart has a groundbreaking AI technology with limitless opportunities for the fintech market.
- So far profits has only come from one product.
- Most of the loans have come from one bank (Cross River Bank) which accounts for 72% of all loans in 2020.
- While AI technology is great, it hasn’t been fully tested against economic crises or long economic downturns.
Pricing: $115 (as of July 2021)
Fastly is a content delivery network (CDN) platform. They offer quick and secure delivery of content to users. If we continue to see a steady shift toward online content consumption, Fastly is forecasted to triple its full-year revenue by 2024.
Investors who are looking for an innovative company in the field of cloud computing.
- Fastly has self-sustained growth from existing clients. They may triple in revenue by 2024.
- It has an incredibly strong customer retention rate of over 130%.
- The market is saturated with a lot of similar platforms and this can be a threat to future growth.
- The company is yet to make any groundbreaking profit.
Pricing: $60.64 (as of July 2021)
Vertex Pharmaceuticals is popular for ongoing innovations in the pharmaceutical field. It has recently developed gene-specific medications to combat various genetic diseases, particularly CF (cystic fibrosis).
Investors who are looking to invest in the pharmaceutical or biotech industry.
- Its recent product hit almost $4 billion in revenue and is forecast to hit $6 billion. They are one of the best dividend growth stocks.
- The company is set to make more acquisitions to help solidify its position in the market.
- They are not well known and can have wild market fluctuations which can cause a scare for investors.
- Too much dependency on the potential of the cystic fibrosis drug. It has also suspended a trial process for an anti liver disease drug.
Pricing: $194 (as of July 2021)
Crowdstrike offers cloud-based security services as well as cyber-attack response services and threat intelligence. The company has been successful in several high-profile cybersecurity investigations in the US.
Investors looking to explore innovations in cybersecurity as well as cloud-based services.
- Crowdstrike is built from the ground up on modern technologies, whereas other companies in this same field are trying to make a move into these technologies.
- At present, Crowdstrike’s machine learning technology is unrivaled on the market and is the best in stopping cyber insecurity.
- The company is still seeing strong and remarkable customer growth.
- It didn’t perform well in the last year and has yet to hit any remarkable profitability.
- The pricing is quite expensive in comparison to other competitors in the market.
Pricing: $253 (as of July 2021)
Zoom Video Communications Inc.
Zoom Video Communications provides a cloud-based platform for video conferencing, online meetings with voice and chat capabilities, as well as file sharing.
The company’s stocks skyrocketed during the global lockdown caused by the covid-19 pandemic.
Investors looking to invest in virtual communications and video conferencing.
- It has a strong growth record and is a known brand.
- The company continues to expand its features according to customer requests and needs.
- It serves a strong market demand for cloud-based telecom services.
- It is quite expensive which can be a turn-off for investors who are trying to map out the company’s growth trajectory.
- There has also been a significant increase in competition. More companies offering similar services and a couple of diversified options have entered the market as rivals.
- There are concerns about sustainability when offices return to normal working conditions.
Pricing: $372 (as of July 2021)
Shopify is a Canadian-based eCommerce platform that came around about a decade ago. They offer eCommerce solutions and software for businesses to sell their products online. The platform has become a major competitor for eCommerce giants, eBay.
Investors seeking to invest in the eCommerce market.
- It has a strong and sustained earning force with a great track record over the last three years.
- Its platform is carefully curated for both merchants and customers.
- The company has grown in leaps and bounds and has great potential for more in the near future.
- There is a growing number of fierce competition that could prove a serious threat to the company.
- The stock price is pretty steep.
- The platform does not offer a lot of tech-savvy functionality like some of its competitors.
Pricing: $1,473.54 (as of July 2021)
McAfee Corp is a computer security company in California that covers personal protection services and digital protection services. They provide globally with its device security services, including anti-virus, anti-malware software, and the likes.
Investors who are curious about personal and digital protection services.
- The digital protection market is still profitable due to the recent increase in cyberattacks.
- The company’s detection program is much stronger than other well-known competitors like Windows.
- The company experiences falling and often fluctuating stock prices.
- It also recently sold off its enterprise solution.
Pricing: $28.34 (as of July 2021)
Value Stock vs. Growth Stock
As mentioned earlier, there are many ways to categorize stocks for the purpose of investing. Growth stocks are one category that is often mixed up with value stocks.
Growth stocks are those stocks expected to rise higher and outperform the market value placed on them because of their future potential for growth. However, value stocks are stocks that are currently being traded below their actual market worth and are expected to provide greater returns.
Value stocks are usually larger and belong to more well-established companies as opposed to growth stocks which are from new or smaller companies. Value stocks are seen to have lower risks and lesser volatility than growth stocks because they are often in larger companies that are more established.
On the other hand, growth stocks have a higher volatility and greater risks because the companies are often newer and small. The dividends are not paid to the investors but are reinvested in the stocks to propel the growth.
Grow Your Capital with Growth Stocks
Growth stocks are a great way to make capital gains on your investment but knowing what is the best growth stock can be difficult. This investment style has a high level of volatility and makes it a great place for investors looking to find stakes in emerging markets or new and profitable fields.
Picking the right companies to invest in will require a lot of research and a proper understanding of the markets they occupy. Do diligent research before investing in any company and, where necessary, get help from financial advisors.