A popular phrase among growth investors is that "winners keep winning." That's often true; companies with great products, management teams, and large growth opportunities tend to create shareholder value more easily than companies going through difficulties.
Of course, you can't just pay any price for a stock that's done well (internet bubble, anyone?). You still have to assess whether recent winners are still reasonably priced based on their potential.
Putting on those dual filters, the following three stocks all have that magic combination of strong growth, price momentum, and valuations that still make sense. Consider putting them on your buy list for 2022.
Image source: Getty Images.
Alphabet
Good old Google parent Alphabet (GOOG -1.10%) (GOOGL -1.23%) has had a very fine 2021 -- up nearly 70% on the year. But since Alphabet was perhaps the FAANG stock that struggled the most during the initial phases of the COVID-19 pandemic when ad revenue plunged, it merely caught up to its peer group this year.
Amid strong recent earnings results, Alphabet's shares still look reasonably priced. Management has done investors a service this year by breaking down Alphabet's segments into Google Services, Google Cloud, and "other bets."
Google Services incorporates all of Google's ad revenue across Google search, Google ad networks, and YouTube, as well as things like Pixel phones and the Google Play store for Android apps. Last quarter, that segment rocketed upward by 40.6%, and segment operating income rose an even higher 65.8% to $24 billion.
Figuring higher seasonality in the fourth quarter and continued growth, and annualizing that figure going forward, it would come to over $100 billion, with net income conservatively around $80 billion after taxes. An earnings multiple of just 25 would give Google Services alone a market cap of $2 trillion -- roughly equivalent to Alphabet's entire market cap now.
Meanwhile, Alphabet has an exciting Google Cloud segment that grew 45% last quarter, as well as a handful of "other bets" in start-ups like Waymo, its self-driving car division, or Verily, its life sciences division. Both Cloud and "other bets" are still generating operating losses, but likely have significant positive value -- especially Cloud.
Add in GV (formerly Google Ventures), late-stage growth investments through CapitalG, and another $142 billion in cash on the balance sheet, and you can see how Alphabet's parts could add up to much more than its share price today, even after the stock's impressive 2021 run.
LendingClub
Neobank and loan platform LendingClub (LC 3.81%) is up a stunning 320% on the year. But the stock is still well below the levels it hit after coming to market in 2015, and it's not expensive when compared to other similar fintechs.
LendingClub only has a $4.4 billion market cap, even after its recent run. But similar companies that earn comparable revenue such as Upstart Holdings (UPST -1.97%) or SoFi Technologies (SOFI -0.28%) each have market caps around $19 billion.
That disparity doesn't seem justified in light of LendingClub's booming financial results. Last quarter, LendingClub originated $3.1 billion in loans, up 14% over the prior quarter; that generated $246.2 million in revenue and $27.2 million in net income, beating analyst estimates. Compare those figures with Upstart, which had $3.13 billion in originations, up 18% over the prior quarter, generating revenue of $228 million and net income of $29.1 million. Meanwhile, SoFi had $3.4 billion in originations and adjusted net revenue of $277 million, but a $30 million net loss.
Sure, there are differences among these three companies, but nothing that should really warrant such a large difference in valuation. In fact, LendingClub may even have the more profitable model, since it now has a banking license after acquiring Radius Bank last February. That gave LendingClub access to lower-cost deposits, and the flexibility to hold a greater portion of its loans on its own balance sheet. It also helps de-risk its model, since LendingClub doesn't need to find as many third parties to fund its loans in case of a downturn.
As LendingClub increases its originations of auto loans -- a product it has been developing for years -- and adds other products beyond personal loans to its platform, look for its stock to reach the levels of its more popular peers. This year's performance could be just the beginning.
Green Thumb Industries
Green Thumb Industries (GTBIF -4.33%) is one of the largest U.S. cannabis multi-state operators, and just reported another set of quarterly earnings that impressed analysts. Revenue surged 48.7% year over year and was up 5.3% sequentially to $233.7 million. While the company continues to add new stores, comparable-store sales were up a strong 14% year over year and 1% sequentially. While Green Thumb generated revenue from all 14 of its end markets, it's just getting started in key large states like New York, New Jersey, and Virginia.
New York is still medical-only, but just legalized adult-use cannabis in September, and would obviously be a massive market once that's implemented. Neighboring New Jersey just officially legalized adult-use cannabis in August. Meanwhile, Virginia is an attractive medical market with only five zones statewide, each dominated by a single licensee. Green Thumb bought its way into southwest Virginia with the acquisition of Dharma Pharmaceuticals back in July.
CEO Ben Kovler believes that the U.S. cannabis market can triple within the decade, and many analysts agree. Meanwhile, Green Thumb's shares have risen strongly after earnings and are up a stunning 50% just this month, but the stock is actually flat year to date and down about 30% from its highs. A recent catalyst has been a cannabis decriminalization bill put forward by Rep. Nancy Mace (R-S.C.) this month, which renewed hope for legalization advocates after a frustrating year of inaction.
If cannabis is decriminalized, companies like Green Thumb will get a huge amount of tax relief as well as lower financing costs, and larger institutions will be able to buy the stock. That could spell big things for Green Thumb and its peers, even after its recent run.
