Growth stocks versus value stocks: It's possibly the oldest debate on Wall Street.
Historically, value stocks have led to higher average annual returns, according to a Bank of America/Merrill Lynch report that examined the 90-year period between 1926 and 2015. But since the end of the Great Recession, growth stocks have pummeled value stocks. Record-low interest rates are fueling borrowing and allowing growth stocks to hire, innovate, and acquire with ease.
With lending rates expected to remain low for years as the U.S. economy recovers from the crippling coronavirus pandemic, growth stocks should remain in focus. If you have, say, $4,000 in cash that you won't need to pay bills or cover emergencies, then you have more than enough capital to dive into the following four growth stocks.
Most software-as-a-service (SaaS) stocks have been unstoppable over the past year, and application performance monitoring company Datadog (DDOG -1.02%) is no exception. The future remains bright, and Datadog might just be one of the fastest-growing SaaS stocks over the next five years.
Datadog has clearly benefited from the coronavirus pandemic. Businesses forced to abandon the traditional work environment have become more reliant on cloud applications. These include the solutions offered by Datadog, which help businesses better understand user behavior and improve their knowledge of key business metrics. All of this will still be important in a post-pandemic environment.
Arguably the most impressive aspect of Datadog is its ability to attract sizable businesses to its platform. The company ended September with 1,107 customers that had an annual recurring revenue above $100,000. That's up 52% from the prior-year quarter. If Datadog can continue to get these larger existing clients to boost their spending -- total Q3 sales were up 61% -- it should have no trouble growing its adjusted profits.
Investors should expect Datadog to more than double its sales over the next three years.
Until recently, implying that Big Pharma company AstraZeneca (AZN -0.41%) is a growth stock would have been laughable, but it's no longer a joke. A number of tailwinds have made AstraZeneca a bona fide growth stock that's just begging to be bought by patient investors.
Most folks are probably familiar with AstraZeneca's partnership with Oxford University, which led to the development and approval of a coronavirus disease 2019 (COVID-19) vaccine in the United Kingdom. However, it's not COVID-19 vaccines that should have investors excited about this company.
First, AstraZeneca is seeing incredible organic growth from its three blockbuster oncology drugs: Tagrisso, Imfinzi, and Lynparza. Constant currency sales were up a respective 39%, 43%, and 53% through nine months in 2020, with these three drugs accounting for nearly a third of AstraZeneca's full-year revenue. Demand and pricing power for the company's oncology and cardiovascular medicines portfolio are strong and can yield sustained double-digit sales growth.
Additionally, AstraZeneca's pending acquisition of Alexion Pharmaceuticals (ALXN) could be a game-changer. Alexion specifically targets ultrarare indications, meaning it faces minimal competition and little or no pushback on high list prices from health insurers. Further, Alexion's next-generation therapy Ultomiris will, over time, replace its blockbuster drug Soliris and secure the company's cash flow for at least another decade.
Shopping for insurance isn't exciting, but owning a stock that takes advantage of growing online insurance ad spending? That's money.
Online insurance marketplace EverQuote (EVER 1.18%) is designed to take advantage of a shift in how insurance companies attempt to reach new customers. Considering that insurance shoppers are highly cost-conscious, EverQuote provides a platform that easily allows prospective buyers to compare prices. As for insurers, it's bringing them highly motivated customers ready to buy or jump ship from their existing provider.
EverQuote isn't just focusing on a single insurance indication. While auto insurance has always been its bread and butter, it's begun expanding vertically in the insurance space to also cover home, renters, health, and life insurance. These other applications are growing considerably faster than auto insurance, meaning EverQuote's topline growth can remain sustainably high for the foreseeable future.
Investors also shouldn't overlook just how big the opportunity is for digital insurance ad spending. An estimated $146 billion was spent on insurance advertisements in 2020, of which $5.6 billion was digital spending. This digital spend is expected to grow by 16% annually over the next four years. That means it'll nearly double by 2024. EverQuote is simply in the right place at the right time with the right product.
The fuel that keeps the engine going for Exelixis is cancer drug Cabometyx. This is a treatment approved for first- and second-line renal cell carcinoma (RCC), as well as advanced hepatocellular carcinoma (HCC). These indications should have no trouble delivering sustained growth for years, and might even help push Cabometyx above $1 billion in annual sales in 2021. Cabometyx was responsible for $741 million in full-year sales in 2020, according to a preliminary update from the company.
Exelixis isn't just sitting on the laurels of its main indications. It's advancing Cabometyx in close to six dozen ongoing clinical trials as both a monotherapy and combination treatment. One of these studies has already yielded a label expansion. When combined with chief rival Opdivo (an immunotherapy treatment made by Bristol Myers Squibb), Cabometyx produced superior efficacy in the CheckMate 9ER trial for first-line RCC. This combo could well become the standard of care.
The company also happens to be a cash cow. It's expected to have ended 2020 with $1.5 billion in cash and investments. Even with big-time spending on dozens of clinical trials, and the company reigniting its internal growth engine, its cash position could grow by up to $200 million in 2021. If Exelixis doesn't get bought out, it could soon go on a buying spree of its own with its growing cash hoard.