Historically, value stocks have outperformed growth stocks. But there's also never been a time in history where the conditions were so perfect for growth stocks to thrive.
Since the end of the Great Recession, lending rates have moved to all-time lows and the Federal Reserve has used quantitative-easing measures to weigh down long-term yields. In other words, there's been abundant access to cheap capital that fast-paced companies have been able to use to hire, acquire, and innovate.
With lending rates expected to remain low for the foreseeable future and the U.S. economy in recovery mode, the following three growth stocks look as if they'll make investors richer in July, and well beyond.
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Palo Alto Networks
While there are a number of supercharged trends that offer double-digit growth potential this decade, none looks to be safer than cybersecurity. No matter how well or poorly the economy is performing, we've learned that hackers and robots don't take a day off. With the coronavirus pandemic pushing businesses online and into the cloud more than ever before, the onus of protecting enterprise and consumer data is greater than ever. This is where Palo Alto Networks (PANW 0.11%) comes into play.
For years, Palo Alto has been undergoing a metamorphosis. Once a company that leaned on physical firewall products, Palo Alto now promotes cloud-based subscription services. It made this move for two key reasons.
First, cloud-based cybersecurity platforms are considerably nimbler at spotting and responding to a potential threat. Palo Alto's services rely on artificial intelligence, which is a fancy way of saying its solutions use machine learning to grow smarter at identifying possible issues over time.
The second reason Palo Alto emphasized subscription services is that it helps with client loyalty, has provided more consistent revenue recognition, and leads to substantially higher margins than you'd find with physical or on-premises solutions. In the company's April-ended quarter, it brought in 73% of its revenue from subscriptions and support services. This compares to less than 68% of total sales in the year-ago quarter.
Palo Alto Networks is also not afraid to go shopping. This is a company that regularly makes bolt-on acquisitions to expand its portfolio of services and make itself more appealing to small- and medium-sized businesses.
Investors can likely expect a fairly consistent annual growth rate of 15% to 20% through mid-decade. With Palo Alto valued at a multiple of roughly seven times Wall Street's projected sales for the next fiscal year, it's also something of a value among cybersecurity stocks.
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Jushi Holdings
As I've stated time and again, cannabis is another high-growth trend that can net investors some serious green this decade. But you have to be careful with your cannabis focus.
For example, Canadian marijuana stocks have been laughably bad. The big money will be made in the United States, which is why multistate operator (MSO) Jushi Holdings (JUSHF 0.89%) is a stock that'll make you richer.
For the time being, Jushi is a smaller player in a big pond. Once Trulieve Cannabis completes its purchase of Harvest Health & Recreation, it, Curaleaf, and Green Thumb Industries will each have close to or over 100 combined dispensaries or retail licenses. For comparison, Jushi recently opened its 20th store nationally.
What makes Jushi such an intriguing company is the smart way management has chosen to expand. Even though there are 36 states that have legalized cannabis in some capacity, Jushi is focused on three core markets: Pennsylvania (where it currently has 13 stores), Illinois, and Virginia. Why these states? The former two limit the number of retail licenses that they issue, whereas Virginia assigns its dispensary licenses by jurisdiction.
In short, Jushi is choosing to build up its brand in states where competition will be purposefully dialed back. This ensures that a pot stock with deeper pockets doesn't try to steamroll it in potential billion-dollar markets.
Yet in spite of its size (its market cap is only $933 million), Jushi has been willing to pull the trigger on a number of bolt-on acquisitions. On May 5, the company acquired a cultivation facility in Virginia for about $22 million. Just a day before that, it completed the purchase of two dispensaries in California, which happens to be the largest marijuana market in the world by annual sales.
Following $80.8 million in sales in 2020, Jushi has provided midpoint guidance of $230 million in full-year revenue for this year. By 2024, Wall Street is looking for nearly $1 billion in annual sales. That's growth investors would be silly to ignore.
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Lovesac
Who would have ever thought that you'd see a furniture company on a list of growth stocks that can make you rich? The thing is, Lovesac (LOVE 1.77%) isn't like traditional furniture companies. Its innovation, personalization, and dynamic operating model are redefining how millennials shop for furniture.
To start with, Lovesac's furniture isn't similar to what you'd find in traditional furniture expos. More than 80% of the company's sales are derived from "sactionals." These are modular couches that can be rearranged dozens of ways to fit any livable space.
Want choice? Lovesac offers more than 200 different cover choices for its sactionals. Want to feel good about your purchase? The yarn used in these covers is made entirely from recycled plastic water bottles. This company is offering functionality, choice, and ESG investing all at once.
It's also a company that understands its buyer base. While most furniture companies are almost entirely reliant on foot traffic into brick-and-mortar stores, Lovesac shifted its operating model during the pandemic to a more direct-to-consumer approach. In fiscal 2021, 47.1% of net sales derived online, with another 7.3% from pop-up showrooms. That's more than half the company's net sales coming from very low overhead segments, and it's precisely why the company turned profitable about two years earlier than Wall Street had expected.
What's become plainly obvious is that Lovesac's customers love the brand. Approximately 3 out of every 8 purchases are from repeat customers, and the number of new customers buying from Lovesac has more than doubled to 105,336 over the previous three years. In fact, during the pandemic year, Lovesac picked up over 26,000 new customers.
Typically, you don't see furniture stocks grow their sales by a double-digit percentage -- but that's the expectation with Lovesac through fiscal 2026, according to Wall Street estimates. With recurring profitability now in the books, the sky's the limit.
