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Tired of Talk About the Metaverse? Here Are 3 Great Growth Stocks for 2022

By Daniel Foelber, Scott Levine, and Lee Samaha – Dec 14, 2021 at 7:00AM

Key Points

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These established businesses are balanced choices that are better bets than the metaverse.

The idea of a next-generation internet that bridges the gap between the physical and virtual worlds can leave you with wonder and worry. The metaverse industry will probably grow over time as technology advances in ways we can't even imagine. But for most investors, simply going with existing and established growth stocks can be a better way to build wealth over time and limit downside risk.

Qualtrics International (XM 0.14%), United Parcel Service (UPS -0.58%), and nVent Electric (NVT 0.17%) are three excellent businesses poised to grow well into the future. Here's what makes each a great buy now.

Two workers smile in a warehouse.

Image source: Getty Images.

Time to take a hard look at this software company

Scott Levine (Qualtrics): Since its initial public offering in January, Qualtrics has tumbled about 26%, positioning the software company for an unfortunate stock performance in its first year as a public company. But that suits those of us with long-term investing horizons just fine. Plus, it offers a chance to pick shares of the software company at a discount to its price after the IPO.

Qualtrics may not be a household name, but odds are you've already come across the experience-management company's products as you've visited the websites of your favorite brands. In the third quarter, for example, Qualtrics secured industry leaders DoorDash, Peloton Interactive, and MercadoLibre as customers. Over 13,000 companies rely on Qualtrics to provide exceptional customer experiences, including 85 of the companies found on the Fortune 100 list. Many of us can attest to the fact that dealing with wonky websites is extremely frustrating; in fact, it can lead customers to seek out competitors that offer more streamlined online experiences. The value of Qualtrics' superior experience-management products isn't only something that its customers recognize. SAP (NYSE: SAP), in fact, had acquired Qualtrics back in 2019, and it maintains a significant interest in the success of Qualtrics, owning about 99% of the company's stock. Lauding the power of the partnership between the two companies in 2019, SAP stated, "combining Qualtrics' experience data and insights with unparalleled operational data (O-data) from SAP software will enable customers to manage supply chains, networks, employees and core processes better."

While Qualtrics has achieved significant revenue growth from $408 million in 2018 to a presumed $1.06 billion in 2021 (based on management's recent guidance), there are plenty of opportunities left for future growth. Management estimates the company has penetrated less than 2% of its total addressable market.

One of the most balanced companies out there

Daniel Foelber (United Parcel Service): Few companies can combine growth, income, and value. UPS is one of those companies. UPS spent much of the five years before 2020 underperforming the market, growing slowly, and paying a nice dividend. Then CEO Carol Tomé took the reins in March 2020 and the company hasn't looked back since. Little did Tomé know that she took the job right before the U.S. would fall into a recession and the world would plunge into a pandemic. Yet through it all, UPS was able to post a banner year in 2020, shattering revenue and gross profit records.

UPS Revenue (Annual) Chart

UPS Revenue (Annual) data by YCharts

Fast forward to 2021, and UPS has navigated supply chain challenges, a labor shortage, and inflation with ease. In fact, the company is on track to have yet another record year consisting of 13.8% year-over-year revenue growth and a consolidated operating margin of 13%. Impressively, UPS has been able to expand its domestic and international services, all the while retaining and often growing its operating margin. The company's ability to tap into small and medium-sized businesses looking to grow their e-commerce presence has unlocked a new and fast-growing revenue stream that pairs nicely with its existing business-to-business and business-to-consumer base.

The cherry on top is a 2% dividend yield. Although it doesn't raise its dividend every year, UPS has made meaningful increases to its payout over the past 20 years, including a raise from $0.96 per share per quarter in 2019 to $1.01 in 2020 followed by a small $0.01 raise in 2021. UPS stands to benefit from the growing need to ship more packages faster. If that's a trend you can get behind, then UPS is likely a great growth stock worth buying in 2022.

A way to play the electrification trend

Lee Samaha (nVent Electric): Suppose you will invest in electric vehicles, renewable energy, data centers, smart grids, smart connected buildings and infrastructure, 5G, and so forth. In that case, you will have an investment in electrification. That's music to the ears of nVent shareholders.

The company makes boring but essential products to support electrification. There's nothing sexy about enclosure boxes, electrical and fastening solutions, and thermal management solutions, but they are vital to ensuring the connection and protection of electrical products.

nVent's growth in 2021 was robust, with management estimating full-year organic sales growth of 14% to 15%, but it's more than a simple reopening story. Wall Street analysts expect a further 9% reported sales growth in 2022. Moreover, management is on the acquisition trail and expects to add 1% of growth each year from acquisitions alone. Given that according to management estimates, nVent is a $2 billion player in a highly fragmented $60 billion market, the potential for earnings enhancing acquisitions looks considerable.

Turning to valuation matters, Wall Street analysts have nVent trading on 17 times its 2022 free cash flow. That's a generous valuation for a company with double-digit earnings growth prospects, and the stock has plenty of potential to reward investors in the future.

Daniel Foelber owns MercadoLibre and has the following options: long January 2024 $45 calls on Peloton Interactive and short January 2024 $50 calls on Peloton Interactive. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Fool owns and recommends MercadoLibre and Peloton Interactive. The Motley Fool recommends SAP SE. The Motley Fool has a disclosure policy.

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