Approximately 13.5 months ago, uncertainty on Wall Street hit its peak and the benchmark S&P 500 bottomed out. Since hitting its trough on March 23, 2020, it's returned as much as 88%, not including dividend payouts.
In many respects, growth stocks led this rebound. An historically low interest rate environment that's been fueled by the Federal Reserve and Capitol Hill pumping money into the system has been the perfect storm for growth stocks to thrive. Unfortunately, nothing goes up in a straight line.
Since mid-February, fast-growing companies have struggled. The prospect of higher interest rates, which would raise borrowing costs, as well as investors becoming more critical of income statements, has pushed growth stocks out of favor.
But where there's pain, there's usually an opportunity to gain. I've already been dipping my toes into the water over the past couple of sessions. While I can't yet disclose what stocks I've been buying, there are five other growth stocks quickly rocketing up my prospective buy list. If these wild downward swings continue, I'll be looking to add each of the following growth stocks to my portfolio.
It's no secret that e-commerce company Etsy (NASDAQ:ETSY) wasn't going to be able to maintain its triple-digit growth trajectory. But this apparently did come as a surprise to Wall Street, which absolutely pummeled shares of the company last week after it forecast "just" 15% to 25% revenue growth in the second quarter.
But what investors seem to be overlooking is Etsy's competitive edge. While there are plenty of online marketplaces to choose from, none truly offers the personalization and customization of Etsy's small business-focused platform. Etsy has reinvested heavily to make its marketplace easily navigable by potential customers, and is doing what it can to streamline the success of small merchants. Since ad-spending from merchants is what makes Etsy tick, it has a vested interest in the success of small business. Virtually no other online marketplace can say that.
Something else that really stands out is how effectively Etsy is converting casual buyers into habitual buyers. In the March-ended quarter, gross merchandise sales per buyer rose 20%, with habitual buyer growth of 205% from the previous year. A habitual buyer is defined as someone who makes six or more purchases and spends at least $200 over the trailing 12 months. Etsy is attracting new and infrequent shoppers and its top buyers are spending more. That's a recipe for long-term success.
Among cybersecurity stocks, I'm ready to crown CrowdStrike Holdings (NASDAQ:CRWD) as king. Any significant or prolonged downside in this company's share price should be viewed as a buying opportunity.
What stands out about CrowdStrike is the company's Falcon security platform. Falcon is a cloud-native platform that relies on artificial intelligence (AI) to identify and respond to potential threats. In English, this means it was built within the cloud to be nimble at responding to potential data breaches. Its reliance on AI also means that it's constantly growing smarter at identifying potential problems, which is easy to do when it's overseeing 5 trillion events each week.
The operating results CrowdStrike has delivered are stellar. In each of the past 12 quarters, existing clients have spent between 23% and 47% more than they did in the year-ago period. Further, the company is retaining 98% of its clients, and almost two-thirds of its customers have purchased at least four cloud module subscriptions. That's up from just 9% of its customers less than four years ago.
With a subscription gross margin of almost 80%, CrowdStrike has all the look of a no-brainer buy.
It's absolutely criminal that an innovative and successful biotech stock like Vertex Pharmaceuticals (NASDAQ:VRTX) is growing by a double-digit rate annually, yet is valued at under 18 times forward earnings.
The underperformance for Vertex can primarily be traced to a mid-October pipeline update that announced the discontinuation of VX-814 as a potential treatment for alpha-1 antitrypsin deficiency. VX-814 was in mid-stage trials and caused liver enzymes to rise noticeably in a handful of patients.
The reason this trial failure isn't a big deal has to do with Vertex's success as a developer of drugs to treat cystic fibrosis (CF). CF has no Food and Drug Administration (FDA)-approved cure, but Vertex has developed multiple generations of mutation-specific treatments. The latest, combination drug Trikafta, was approved five months ahead of schedule and brought in almost $3.9 billion in its first full year on pharmacy shelves.
Vertex also sports a mountain of cash (more than $6.9 billion). The company's plan is to continue developing its roughly one-dozen in-house compounds, as well as acquire new treatments (or companies) to diversify its product portfolio. Vertex is the definition of success in the biotech space.
Zoom Video Communications
Cloud-based Web conferencing platform Zoom Video Communications (NASDAQ:ZM) is also rocketing up my prospective buy list. Shares of the company have effectively been halved since its mid-October all-time high.
As many of you may know, Zoom was one of the biggest winners of the coronavirus pandemic. With workplaces completely disrupted, businesses turned to Web conferencing to keep dialogue ongoing and projects/innovation on track. Zoom's sales grew an absurd 326% last year to $2.65 billion and essentially tripled the company's own full-year forecast issued before the pandemic struck.
What's allowed Zoom to be such a success is the freemium model it offers. The company lures in prospective clients with a free version of its Web conferencing solution, giving businesses a taste of what's possible with a paid subscription. Quite a many enterprises choose to pay for a subscription after seeing how Zoom could help improve their operating efficiency. This was particularly noticeable among small-and-medium-sized businesses. Last year, Zoom's subscribers with at least 10 employees jumped 470%.
Even if a lot of workers return back to a physical office after the pandemic, Zoom is here to stay, as evidenced by its close to 40% Web conferencing market share in the United States. In my book, that makes its recent swoon particularly intriguing.
Palantir went public via a direct listing in 2020 and wasted little time rocketing into the stratosphere weeks later. Unfortunately, its lofty price-to-sales valuation has stood out like a sore thumb and knocked shares well off their all-time high.
The thing about Palantir is that there's no other company that offers an AI-powered data-mining platform like it does. The company's Gotham platform focuses on contracts with the federal government and aids with missions and data culling. Meanwhile, the Foundry platform specifically targets enterprise customers and aims to help them visualize big data in order to streamline their operations.
At the moment, Gotham is the company's primary revenue generator and growth driver. A handful of large government contract wins helped push Palantir to 47% revenue growth in 2020. However, Foundry is the company's future. It's only begun to scratch the surface regarding the potential utility of its analytics platform for big businesses.