This past year has been a good one for many stocks despite the pandemic. Some businesses benefited from people staying at home, while it became evident that others were made for a digital and cloud-based world. Heading into 2021, some of the trends from this past year will likely continue while other opportunities will also emerge -- whether it's a result of a return to normalcy in people's day-to-day lives or the marijuana industry opening up to business.
For investors looking to be aggressive and tap into next year's growth opportunities, there are three stocks you should consider investing in today: GrowGeneration (GRWG), Zoom Video Communications (ZM -0.82%), and DraftKings (DKNG -2.31%). These stocks all soared in 2020 and they're not about to run out of steam just yet. Here's a look at why these three stocks are still hot buys entering 2021.
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1. GrowGeneration
GrowGeneration stock has soared more than 859% in 2020, blowing past the S&P 500 and its mere mortal returns of just 16%. The company offers cannabis cultivators the tools and equipment they need to grow pot. Its complete hydroponics systems make it easy for people to grow marijuana in small spaces, utilizing pipes, drip systems, and pumps to make the cultivation process much more efficient -- while also eliminating the need for soil. It isn't cheap, as some systems could cost in excess of $10,000, but for serious growers it can help bring down expenses over the long term.
The Colorado-based company has been producing terrific growth numbers. Sales of $131.4 million over the nine-month period ending Sept. 30 well more than doubled the $54.3 million GrowGeneration recorded in the same period last year. Its same-store sales rose by 59%. In addition to organic growth, GrowGeneration is also acquiring more assets to bolster its top line. In November, it entered into an agreement to buy The GrowBiz, which is the third-largest hydroponic garden center chain in the country and generates close to $50 million in annual revenue. In mid-December, it also announced the acquisition of Grassroots Hydroponics, a big industry player in California that can add another $20 million in annual revenue for GrowGeneration. Its most recent acquisition came on Dec. 23, when the company announced the purchase of Canopy Crop Management, a silicic acid company that's also out of California (no revenue estimates were provided).
With GrowGeneration busy acquiring companies left and right and four more states legalizing marijuana for recreational use in November (Arizona, Montana, New Jersey, and South Dakota), this is a stock all growth investors should have on their radars, as 2021 could be another big year for the business.
2. Zoom
Although its 415% returns fall well short of GrowGeneration's stock performance this year, Zoom is another stock that could continue to be a great buy in 2021. Staying at home and working remotely amid the coronavirus pandemic has made "Zoom" not just the name of a popular stock but also a verb for video conferencing online -- and that's not likely to change anytime soon.
Having posted $1.8 billion in revenue over the last nine months, Zoom's total sales are already nearly triple the $622.7 million it reported in its last full fiscal year (which ended on Jan. 31). What makes Zoom more appealing than your average high growth stock is that the company is also generating great profits. Its year-to-date net income of $411.7 million is more than 41 times the $10 million it reported in profit during the same period in 2019.
While investors may be turned off by the company's astronomical price-to-earnings (P/E) ratio that sits at a whopping 245 (even high-priced Amazon trades at only 93 times its earnings), ratios are of little use when a business is growing this fast, as multiples can quickly change in these circumstances. What matters is that the demand for video conferencing isn't about to decline anytime soon -- not with COVID-19 cases on the rise and people staying at home, and certainly not with businesses trying to keep travel and other expenses down next year after a tough 2020. Zoom may not double or triple in value next year, but 2021 could still be a great one for its shareholders.
3. DraftKings
With its stock up around 360%, DraftKings is the worst-performing investment on this list. And those returns are a bit inflated, as the company went public earlier this year through a merger rather than a typical IPO process. Starting from its opening price of $20.49 on April 24, when DraftKings stock took over from Diamond Eagle (a special purpose acquisition company or SPAC), its gains in 2020 are actually closer to 140%.
However, the sports entertainment and gaming stock arguably didn't pick the best time to go public. With COVID-19 restrictions in place, there wasn't a whole lot of sports betting to take place during the year or room for investors to be overly bullish on DraftKings. Many sports leagues shut down as a result of COVID-19 and played shortened seasons. But despite the pandemic, the company's sales over the first three quarters of the year totaled $292.3 million and were up 52% year over year.
In 2021, things should look a lot better for DraftKings, with sports leagues back up and running and hopefully fewer stoppages during the year. That should pave the way for more betting and revenue to come through to the company's top line. DraftKings projects that its revenue for 2021 will come in between $750 million and $850 million, which would be anywhere from a 34% to 57% increase from the pro forma revenue of $540 million to $560 million that it's expecting for the current fiscal year.
With growth like that, DraftKings stock could be a safe bet to outperform the markets in 2021.
