Change is coming to Washington. Earlier this month, Americans went to their local voting booths or mailed in their ballots and elected Democratic Party challenger Joe Biden as the 46th President of the United States.
Generally, a new president, especially one from the opposite political party of a sitting president, would imply that big changes are imminent. But that may not prove to be the case. With a greater than 50-50 probability that the Senate will remain under Republican control after two runoff elections in Georgia, gridlock in Congress would lead to a continuation of the status quo on Capitol Hill. This would mean no corporate, individual, or capital gains tax hikes.
A Biden presidency will also increase the likelihood of a second round of federal stimulus getting passed. When coupled with the Federal Reserve's ultra-dovish monetary policy that's intent on keeping interest rates near historic lows, the table is set for equities, and especially growth stocks, to thrive.
With Wall Street potentially set up for success, here are five growth stocks you should strongly consider buying for a Biden bull market.
If you like making money, you're going to want to own fintech stock Square (SQ 4.02%) with Biden in the White House. Even after the coronavirus disease 2019 (COVID-19) pandemic is placed firmly in the rearview mirror, the push toward cashless payments and peer-to-peer digital transactions isn't going to ebb.
Most folks are probably familiar with Square's seller ecosystem. This is what provides point-of-sale devices and analytics tools to businesses. For much of its existence, Square has predominantly focused on processing transactions for smaller businesses. But in recent quarters, the percentage of gross payment volume derived from medium and large businesses has grown considerably. Since this is a merchant fee-based segment, attracting higher-volume merchants in an expanding economy could be quite lucrative.
Square's other operating segment is digital payment platform Cash App. Since the end of 2017, Cash App's monthly active user count has catapulted from 7 million to 30 million. Merchant fees are helping Cash App grow, but the company's bitcoin exchange and investments are driving Cash App's revenue potential through the roof. It's not out of the question that Square's sales more than double under Biden.
Edge cloud-computing service provider Fastly (FSLY 1.31%) has taken a lot of flak in recent weeks for top customer TikTok substantially paring back its usage of Fastly's content delivery and security solutions during the third quarter. TikTok was, after all, responsible for 12% of Fastly's first-half sales. But look beyond this one-quarter hiccup, and investors are going to like what they see.
When life returns to normal, the new normal will consist of consumers favoring e-commerce for their shopping needs and the internet for their content consumption. That's excellent news for Fastly, which has been firing on all cylinders, even without TikTok in its corner. Its perceived-to-be maligned third quarter featured the addition of 96 new customers and saw an uptick in average enterprise customer spending of $37,000 from the sequential third quarter.
Even better, the success of Fastly's business model is based on increased usage from existing clients. In the third quarter, the company's dollar-based net expansion rate hit 147%, up 10 percentage points from the sequential second quarter. It's become very clear that Fastly is a preferred edge cloud platform, and it wouldn't surprise me if the company's sales potentially tripled with Biden in the White House.
Another growth stock that looks to be a surefire winner under Biden is social media platform Pinterest (PINS 6.39%), which happens to be a customer of Fastly.
Whereas most social platforms eventually hit a user-growth ceiling, Pinterest has been busy breaking through those barriers. It ended the September quarter with 442 million monthly active users (MAU), and was growing its MAU count by 30% on a compound annual basis in the three years leading up to 2020.
Even though it's had a COVID-19 boost with people stuck at home, Pinterest has demonstrated years of sustainable MAU growth, especially in international markets. These ex-U.S. countries will provide the company with its greatest ad-based growth potential this decade.
Pinterest is also a burgeoning e-commerce play. Its users are willingly posting the products, services, and places that interest them, making it exceptionally easy for Pinterest to act as the bridge and connect these users with small businesses catering to their desires. All Pinterest needs to do is keep its users engaged to keep growing at a rapid rate. (Hint: It'll be using more video.)
Don't forget about specialty drugmakers with Biden as president, because a split Congress means little chance of healthcare reform or pushback on brand-name drug prices. That's all great news for Vertex Pharmaceuticals (VRTX -0.28%).
The allure of Vertex is tied to its success as a developer of treatments for cystic fibrosis (CF). Though CF doesn't have a cure, the therapies Vertex is developing are improving the quality of life for patients. What really stands out is Trikafta, the newly approved combination therapy that took virtually no time to become Vertex's top-selling CF treatment. Trikafta was responsible for $960 million of $1.54 billion in third-quarter net product sales, meaning it looks well on its way to topping $6 billion in peak annual sales in short order.
But there are reasons to be excited beyond just CF. Vertex's pipeline consists of clinical candidates to treat beta thalassemia, sickle cell disease, pain, alpha-1 antitrypsin deficiency, and APOL1-mediated kidney diseases. While not all of these indications will necessarily bear fruit, Vertex's drug-development track record speaks for itself and offers plenty of hope to patients and investors alike.
Investors would also be wise to buy into cybersecurity stocks like Okta (OKTA 0.88%) for a Biden bull market. Okta's cloud-native identity-verification solutions rely on artificial intelligence, which means they're getting smarter at detecting threats all the time.
As noted, the new normal after the pandemic will still feature a lot of online buying, as well as workers wanting remote data access. The physical office isn't going away, but it'll continue to evolve to suit the needs of workers. This means even greater cloud demand and a continuous need to protect enterprise and customer data. In other words, cybersecurity stocks like Okta are providing a basic-need service, which should lead to highly predictable cash flow.
A key point to the Okta investment thesis is that virtually all of the company's revenue (about 95%) is derived from subscriptions. Subscriptions are a much higher-margin way to generate cybersecurity revenue than physical firewall products. It also doesn't hurt that subscriptions have a tendency to reduce client churn and eliminate the revenue lumpiness associated with physical security products.
As Okta's customer count grows and its existing clients expand the number of security solutions needed, operating margins should soar.