Growth Stocks: The 8 Biggest Growth Stocks of the First Quarter

With fears of higher inflation in the coming years, a key investment objective is to protect the purchasing power of money. This is only possible if returns from different asset classes in the portfolio beat the rate of inflation. Equities, as an asset class, give investors the best chance to generate returns that can easily beat inflation. And for that to happen, it’s important to have growth stocks in your portfolio.

Data confirms that over a 10-year period, large-cap, mid-cap and small-cap growth stocks have outperformed value stocks. The same fact is evident if we look at “The Wilshire Growth & Value Indices.”

In the last one year, some high-growth stocks have surged. However, several names have seen profit-booking after an extended rally. This column will focus on eight growth stocks that have cooled off from all-time highs. These companies have a robust growth outlook for the year and potentially for the next few years. The correction therefore presents a good opportunity to accumulate these growth stocks.

Let’s take a deeper look into eight growth stocks worth holding in your portfolio.

  • XPeng (NYSE:XPEV)
  • Marathon Digital (NASDAQ:MARA)
  • JD.com (NASDAQ:JD)
  • Teladoc Health (NYSE:TDOC)
  • Skillz (NYSE:SKLZ)
  • Canadian Solar (NASDAQ:CSIQ)
  • Pinduoduo (NASDAQ:PDD)
  • Sea Limited (NYSE:SE)

Growth Stocks: XPeng (XPEV)

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The Chinese electric vehicle (EV) industry is on a high-growth trajectory, and XPeng is among the most attractive companies. XPEV stock touched a high of $74.49 and has corrected meaningfully to current levels of $33.82. Considering the company’s growth, the stock seems attractively valued.

For the fourth quarter of 2020, XPeng reported revenue of $437 million, which was higher by 345% on a year-over-year basis. This growth was driven by a 302.9% surge in vehicle deliveries. Even for FY2020, the company’s revenue was $895.7 million, which was higher by 151.8%.

Clearly, XPeng is among the top growth stocks to consider. It’s worth adding here that the company’s vehicle deliveries in January and February were higher by 470% and 1,281% on a year-over-year basis. This sets the stage for robust top-line growth in Q1 2021.

From a financial perspective, XPeng has $5.4 billion in cash and equivalents. In addition, the company has access to RMB 12.8 billion in credit facilities. This allows the company to invest in innovation, new model development and planned manufacturing expansion.

Through the year, XPeng is likely to report strong revenue growth. As vehicle margins improve, XPEV stock is likely to trend higher.

Marathon Digital (MARA)

Marathon Oil (MRO) gas station carport on sunny day with blue sky background

Source: Jonathan Weiss/shutterstock.com

As Bitcoin (CCC:USD-BTC) remains firm at higher levels, crypto stocks are attractive. Recently, Tesla (NASDAQ:TSLA) announced that the company would be accepting Bitcoin as a payment option. Gradually, the cryptocurrency seems set for wider adoption.

MARA stock has surged by nearly 8,720% in the last one year. However, the best part of growth for the company is still to come. Considering the expansion plans, MARA stock is among the top growth stocks to consider.

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For Q4 2020, Marathon Digital reported revenue growth of 854% on a year-over-year basis to $2.6 million. Importantly, the company purchased 90,000 miners in the quarter. With this, the company expects to expand the number of miners to 103,120 by Q2 2022.

Translating this into numbers, Marathon Digital expects $94.4 million in monthly revenue (at $55,000 Bitcoin) by Q1 2022. Further, $86.5 million in monthly mining profit is anticipated. Therefore, the company’s top-line growth will continue to accelerate in the next four to five quarters.

With $219 million in cash and equivalents as of March 2021, the company is well-positioned to finance the expansion. Additionally, operating cash flows are likely to surge in the coming year, and this will provide Marathon Digital with ample cash buffer for future growth.

Overall, MARA stock is an attractive growth stock in an industry that has garnered significant attention of investors.

JD.com (JD)

JD.com (JD) logo displayed at the entrance to the company's Silicon Valley office.

Source: Sundry Photography / Shutterstock.com

JD stock has corrected from 52-week highs of $108.29 and currently trades around $83. The stock is among the high growth stocks to consider.

Investors will point to the fact that JD stock trades at a price-to-earnings (P/E) ratio of 42, which seems expensive. However, analyst estimates point to average annual earnings growth of 45.7% in the next five years. Therefore, the stock still trades at a price/earnings-to-growth (PEG) ratio of less than 1. This implies potential undervaluation.

There are several reasons to believe that strong growth will sustain for the company. First, JD.com is among the top players in the Chinese market, where the industry has a multi-year tailwind. Furthermore, JD.com has robust financial flexibility with a robust cash buffer of $23.2 billion. In addition, swelling cash flows add to the financial strength.

Recently, JD.com announced a $800 million equity investment (51% stake) in Dada. The latter is a local on-demand delivery and retail platform. The equity stake and strategic cooperation is likely to boost the company’s omni-channel capabilities. With a strong cash position, JD.com is likely to pursue further inorganic growth.

It’s also important to mention that the company has possibly the best warehouse and logistics infrastructure in China. This will help JD.com expand its core commerce business in lower tier cities.

Overall, JD.com is positioned for strong growth through the organic and inorganic route. This makes JD stock attractive at current levels.

Teladoc Health (TDOC)

The Teladoc (TDOC) logo through a magnifying glass.

Source: Postmodern Studio / Shutterstock.com

The telehealth sector has positive industry tailwinds, which have been accelerated due to the novel coronavirus pandemic. To put things into perspective, the telehealth industry is expected to grow at a compound annual growth rate (CAGR) of 17.7% in the next five years. TDOC stock is among the best growth stocks in the sector.

TDOC stock, however, has corrected significantly from highs of $308 to current levels just under $180. Current levels seem attractive with the company on a high-growth trajectory.

For FY2020, the company reported 98% revenue growth to $1.1 billion. For Q1 2021, Teladoc has guided for revenue of $450 million. On a year-over-year basis, this would imply revenue growth of 149%. Even for the full year, the company has a healthy guidance of 80% top-line growth.

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It’s also worth noting that for FY2020, Teladoc reported 41% growth in U.S. paid memberships to 51.8 million. For the year, the company is expecting paid members to increase to 53 million.

As paid members increase at a strong pace, there is likelihood of expanding EBITDA (earnings before interest, taxes, depreciation and amortization) margins and accelerating cash flows. Importantly, 80% of the company’s revenue is recurring in nature with a 90% client retention rate. Therefore, the business model is robust and provides for clear cash-flow visibility.

Skillz (SKLZ)

A close-up shot of hands playing a video game on a mobile phone.

Source: Shutterstock

SKLZ stock is another attractive name among growth stocks. Recently, Cathie Wood’s ARK Next Generation Internet ETF (NYSEARCA:ARKW) snapped-up 745,700 shares of the company.

The company’s mobile gaming platform has witnessed strong growth in active users, and this has translated into robust top-line growth. For FY2020, Skillz reported 92% growth in revenue on a year-over-year basis to $230 million. For the year, the company is guided for 59% revenue growth to $366 million.

In terms of paying monthly active users, the company has 0.391 million users as of Q4 2020, which was higher by 121% on a year-over-year basis. As paying users increase, the BITDA margin is likely to expand. Further, marketing and user acquisition expenses are likely to decline in the coming years as word of mouth boosts paying user growth.

It’s worth noting that for FY2020, the company believes that the global mobile gaming market was worth $86 billion. For the same period, there were 2.7 billion gamers globally. Therefore, the company has a big addressable market, and revenue growth is likely to remain strong.

From a stock price perspective, SKLZ stock had touched a high of $46.30. However, the stock trades lower by 60% at $18.60. I believe that current levels are attractive for fresh exposure to the high-growth stock.

Canadian Solar (CSIQ)

A Canadian Solar (CSIQ) display booth at a convention in Bangkok, Thailand.

Source: Shutter B Photo / Shutterstock.com

It seems very likely that the next decade belongs to the renewable energy sector. With this, solar energy is positioned for healthy growth. President Joe Biden’s administration has set an ambitious target of cutting the cost of solar energy by 60% over the next decade.

Among solar energy stocks, CSIQ stock is attractive at current levels. And it is worth considering in a sub-portfolio of growth stocks. At a forward P/E of 26.3, the stock looks attractively valued.

Last year, the company’s revenue growth was muted at 9% with total reported revenue of $3.5 billion. However, Canadian Solar has guided for revenue of $5.8 billion for the year. Therefore, top-line growth is likely to accelerate to 66%.

This growth will be backed by module shipments of 18GW to 20GW for the year. It’s also very likely that module shipment growth will be strong in the next few years. Additionally, the company expects solar PV and energy storage solutions to contribute to revenue growth from the current year.

It’s also worth noting that as of FY2020, the company had a total module manufacturing capacity of 16.1GW. By the end of the year, the company expects module manufacturing capacity expansion to 25.7GW. This is an indication of the potential growth the company expects in its order backlog.

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Overall, CSIQ stock is among the best plays in the solar-energy segment. It’s also among the top growth stocks to consider.

Pinduoduo (PDD)

A smartphone displays the Pinduoduo (PDD) website.

Source: madamF / Shutterstock.com

China’s e-commerce growth has been stellar, and the country’s e-commerce already accounts for “more than 50 percent of worldwide retail sales on the internet.”

The novel coronavirus pandemic has further accelerated e-commerce growth, and it’s not surprising that Pinduoduo has reported strong growth.

However, PDD stock has taken a breather after a big rally. After touching a high of $212, the stock currently trades at $134. I believe it’s a good opportunity to consider exposure to the stock.

Let’s talk about the growth.

For Q4 2020, Pinduoduo reported revenue of $4.1 billion, which was higher by 146% on a year-over-year basis. Even for FY2020, top-line growth was 97%. With Pinduoduo reporting cash and equivalents of RMB 87 billion as of December 2020, there is ample flexibility to pursue aggressive growth.

I also like the fact that Pinduoduo has a strong vision for the agriculture and grocery business. The company already has the largest agricultural platform in China, and this segment can be a major growth driver for the coming years.

Overall, with strong revenue growth, improving cash flows and big plans for the grocery segment, PDD stock is among the attractive growth stocks.

Sea Limited (SE)

SEA Limited - Shopee app on mobile phone

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Companies like Alibaba (NYSE:BABA), JD.com and Pinduoduo are attractive bets for the fast growing e-commerce market in China. Southeast Asia is another big e-commerce market, and SE stock is a good way to gain exposure to this market.

Coming to the company’s e-commerce segment growth, the company reported revenue of $2.2 billion for FY2020. This implied a 159.8% year-over-year growth. For the year, the company has guided for revenue of $4.6 billion. Therefore, revenue growth will remain above 100%. Even in the digital entertainment segment, the company has guided for strong bookings of $4.4 billion. Booking growth is therefore likely at 38.1% on a year-over-year basis.

Amid these positives, the concern is that the company’s e-commerce segment adjusted EBITDA loss widened to $1.3 billion for FY2020. On the other hand, the digital entertainment segment reported a robust EBITDA of $2 billion. The stock is likely to trend higher if EBITDA level losses narrow in the e-commerce segment.

SE stock has surged nearly 400% in the last year. However, the stock currently trades at $220 and has corrected from highs of $285. The stock might be worth considering around $180 to $200 levels.

On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. 

Faisal Humayun is senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.

View more information: https://investorplace.com/2021/03/the-8-biggest-growth-stocks-of-the-first-quarter/

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