Investors should always be mindful of the market environment, perhaps now more than ever. Despite sweeping political changes in Washington, COVID-19 continues to keep investors guessing as to what lies ahead for the broader U.S. economy.
Still, some companies are going to grow regardless of the political and/or economic backdrop. Their stocks typically make better long-term buys for investors who can stomach a little volatility.
Among the top growth prospects you should consider right now are these three: Square (SQ 2.23%), NVIDIA (NVDA 5.86%), and Incyte (INCY 0.66%). Here's why each name is pushing through the current economic headwinds.
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1. Square is in the right place at the right time
You may know it as the company that sells devices that turn smartphones and tablets into credit card swipers, but Square is much more than that. E-commerce, lending, and business management tools for businesses ranging from retailers to service providers to restaurants are actually the biggest part of the company's current repertoire.
It matters. Through the first three quarters of 2020 its non-bitcoin-based revenue is up 15% year over year, as small businesses clamor for contactless payment options. Meanwhile, with or without the explosion of Square's bitcoin business, gross profits are up on the order of 40% year over year through 2020's fiscal third quarter. And as the pandemic abates and businesses get back to doing business, demand for Square's services may ramp up rather than cool off. Analysts are modeling revenue growth of 39% for the year under way, which should drive per-share earnings up more than 50%.
Then there's the clincher -- Square's Cash App. This simple app allows users to make peer-to-peer money transfers in a way that rivals PayPal's flagship platform as well as PayPal's Venmo, although the tool is much more. It also boasts checking account-like features (like direct deposit), links to a debit card, and even facilitates stock trading and the conversion of bitcoin into dollars (and vice versa). Although it only has about half the number of users Venmo currently does, given its trajectory, RBC Capital analyst Daniel Perlin says he believes Square's Cash App will be a bigger sales and profit engine than Venmo by 2020.
The added capability to trade stocks became even more significant with the GameStop short-selling debacle that prompted stock-investment platform Robinhood to -- albeit temporarily -- limit trading of the volatile stock and select others. Several analysts now say they expect significant numbers of Robinhood's customers to react to the action by finding an alternative stock trading service. Mizuho estimates that nearly 40% of the Robinhood clients who are now closing their accounts will defect to Square.
2. Think for the long term with NVIDIA
Anyone following NVIDIA knows its most recently reported quarterly numbers were strong, but marred by a management warning. CFO Colette Kress said during November's conference call, "we expect data center [revenue] to be down slightly [for the current quarter ending in January] versus Q3." The caution threw cold water on one of NVIDIA's most compelling growth prospects, and enthusiasm was further cooled by the expected decline in the technology company's original equipment manufacturing (OEM) business in the fourth quarter.
The stock had already been spinning its wheels for more than two months before that earnings release. But, with little for would-be buyers to latch onto, shares of NVIDIA have continued to move sideways.
Largely lost in the political and pandemic noise circulating since that quarterly report, however, is the temporary nature of Kress' concern. Gaming and data centers -- NVIDIA's two biggest businesses, accounting for about 90% of its top line -- are still growing markets. Mordor Intelligence believes the gaming graphics card market is going to grow at an annualized clip of 14%, while worldwide data center accelerator spending should improve at an average annual growth pace of more than 40% through 2026. Data center accelerators are GPU-based computer banks capable of handling millions of numerical computations per second. They're particularly well suited for artificial intelligence applications, which require lots of relatively simple number crunching. To this end, Mordor estimates the enterprise AI market itself is growing at an average annualized pace of more than 50%, and should do so through 2026.
In this light, this year's consensus revenue growth estimate of more than 20% makes sense, as does the projected 20% profit growth.
3. Incyte has a multifaceted drug portfolio
Finally, add Incyte to your list of prospective growth stocks to buy sooner rather than later.
Incyte is the biopharma name behind myelofibrosis drug Jakafi, lymphoma treatment Monjuvi, and leukemia drug Iclusig. None of them are showstoppers like Merck's Keytruda or AbbVie's Humira.
But for a relatively small ($20 billion) outfit like Incyte, these lesser-known drugs still make a big impact. The company's going to report sales of around $2 billion for Jakafi when it releases its fourth-quarter results a few days from now. And, while its rheumatoid arthritis therapy Olumiant is still a small-time franchise, its third-quarter year-over-year sales growth of 32% makes it an encouraging prospect. The company's overall year-to-date sales growth of 19% also makes it clear Incyte isn't going to be stymied by the pandemic.
The analyst community is calling for a slight slowdown in sales growth this year, but 12% top-line growth is still nothing to be ashamed of -- particularly given that the company is operationally profitable. Shares are trading at an affordable 25 times this year's per-share earnings estimate of $3.49.
What's arguably not being fully priced in, however, is the potential of its existing portfolio and pipeline. Jakafi, already approved for some uses, holds promise for certain graft-versus-host disease patients. The same drug is now also being tested as part of a combination therapy with Cellenkos' T-cell treatment of myelofibrosis. In the meantime Incyte's retifanlimab has been granted a priority review by the Food and Drug Administration as a therapy for select squamous cell carcinoma patients. Most recently, its pemigatinib is shaping up as a treatment option for certain metastatic cholangiocarcinomas.
The point is, Incyte's drug portfolio is more multipurpose than it may seem on the surface.
