3 Stocks that Beat the Market in 2021 and Could Do It Again in 2022

When looking for investment ideas for 2022, it pays to look at those stocks that have beaten the market in 2021. Savvy investors know that winners tend to keep on winning, so picking stocks that are already in the market-beating category can increase your odds of investing success.   

We asked three longtime investors to pick their favorite market-beating stock from this year that has a great chance of repeating its performance. They picked Asana (ASAN 5.90%), DigitalOcean (DOCN 0.80%), and Apple (AAPL 0.64%). 

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Asana: Helping coordinate tasks in a hybrid work environment

Brian Withers (Asana): Asana is a software-as-a-service company that helps teams and enterprises coordinate who's doing what and by when. As employers are trying to figure out how to manage a remote or hybrid workforce long-term, this work management software may just be the ticket. The stock has taken off this year, more than doubling since the beginning of the year. Let's take a look at the most recent quarter to see why. 

Data source: Company earnings reports. QOQ = quarter over quarter. YOY = year over year. 

The top line is growing at a blistering 70% year over year and 26% quarter over quarter. The total number of paying customers has grown to 114,000, a 28% gain from the previous year. Since customers aren't growing as fast as the top line, that means existing customers are spending more. That is supported by the large customers (who pay more than $5,000 annually) growing at 58% year over year and Asana's dollar-based net retention rate consistently at 115% or better.

These results are impressive and support the tremendous growth of the stock so far, but what could make this a market beater again in the coming year? First of all, the company is just getting started. Almost 100,000 of its customers are paying less than $5,000 annually. This is a massive opportunity to land and expand with its existing customer base. This should be aided by the fact an effective team-based collaboration tool is more useful when used as part of a larger team effort. With 739 of its customers spending more than $50,000 annually, it's clear that companies have benefited by expanding to more employees across the enterprise.

Secondly, the market for collaborative applications and project and program management tools is huge. Management estimates the market could reach over $50 billion by 2025. With an annual run rate of $400 million, it has less than 1% of the market share.

This stock is not without its risks, though. It has experienced a significant pullback and is now more than 40% off its high from earlier in the year. Even with the pullback, the stock is valued at a 35 price-to-sales ratio. The company will have to continue to put up solid growth numbers to support its valuation. But given the stickiness and growth of its powerful platform, you would be smart to pick up this gem as this market-beater could be up for another year of great performance.

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DigitalOcean: Earn big returns by serving small businesses

Will Healy (DigitalOcean): DigitalOcean has successfully targeted a segment of the cloud industry ignored by the largest players. It offers cloud infrastructure services to small and medium-sized enterprises (SMEs), companies often too small to support a full-fledged IT department.

However, its most compelling competitive advantage may come from the DigitalOcean community. Developers within this community can receive and give support to one another to address various challenges. This is invaluable for the one-person IT departments its product supports and gives these clients a good reason to bypass large providers like Amazon and Microsoft.

Straightforward pricing is another advantage. This makes dealing with DigitalOcean much easier for its nearly 600,000 customers in 185 countries. Also, with the acquisition of Nimbella, DigitalOcean can now offer serverless computing. This will eliminate server management needs and allow one-click deployment of APIs, software that enables apps to communicate with one another.

Investors have also taken to the company. Despite a steep decline in recent weeks, DigitalOcean stock has risen by over 90% since its March initial public offering. The financials have likely helped, with revenue for the first nine months of 2021 coming in at $309 million, 34% higher than in the first three quarters of 2020. Also, it lost $7 million during that period, a considerable improvement from the first nine months of 2020 when the company lost $30 million.

Moreover, the company forecasts between $426 million and $428 million in revenue in 2021. Analysts believe that number could reach $563 million on a consensus basis in fiscal 2022, an increase of 32% if the predictions hold. Thus, the financials could continue to push DigitalOcean stock higher.

Admittedly, even after the stock fell 40% from its high, its price-to-sales (P/S) ratio stands at 19. That comes in higher than the Microsoft sales multiple of 14 or Amazon's ratio of 4.

Nonetheless, even with the higher valuation, selling may be the worst mistake DigitalOcean investors can make right now, as SMEs make up 99.7% of all businesses in the U.S. alone. This leaves the company with a tremendous addressable market that could benefit from a cloud product oriented toward such enterprises.

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Apple: Bucking the tech downtrend

Danny Vena (Apple): In a year when high-growth tech stocks had difficulty keeping pace with the broader market, it seemed there was a flight to bigger, safer, more established companies -- and Apple certainly qualified on all counts.

The tech giant maintained the title of the largest publicly traded company on the planet. Apple's market cap grew to $2.86 trillion (as of this writing) and market watchers are taking bets as to whether or not the stock will surpass the $3 trillion benchmark before the clock winds down on 2021.

There were plenty of reasons investors seeking a safe haven flocked to the iPhone maker. 

Apple has more than 1 billion active iPhones worldwide, giving the company a captive audience for its services, including Apple TV+, Apple Music, Apple News+, and Apple Card. These relatively recent additions join perennial favorites like iTunes, the App Store, and iCloud, just to name a few. This growing list of services generated more than $68 billion last year, up 27%, and representing nearly 19% of Apple's revenue in fiscal 2021. 

iPhone sales were the headline in fiscal 2021, growing 39% year over year and generating revenue of nearly $192 billion. It's also worth mentioning that there are an estimated 25% of active iPhones in the upgrade window, putting Apple squarely in the much-vaunted multi-year "super cycle." Brisk demand for the iPhone 13 suggests it's the device many have been waiting for, which would no doubt push Apple's results higher. The holiday season is often the company's biggest quarter for sales and business is booming, with reports of strong demand and growing wait times.

Not only that, but iPhone accessories are big business. This includes companion products like the Apple Watch and AirPods. The company's wearables, home, and accessories segment has become an important part of its business, generating sales of $38 billion, up 25%, and generating more than 10% of Apple's revenue last year. 

There are other reasons investors sought shelter in Apple this year. It has a rock solid balance sheet with nearly $66 billion in net cash. The company also has a profit margin that exceeds 25%, and its strong net income fuels its ever growing dividend, which has grown more than 130% since 2012. Add to that a payout ratio of just 15% and it's clear that even in tough times, Apple's dividend is as secure as it gets. 

Given the strong, continuing demand for its flagship iPhone and its steadily growing ancillary businesses, it's easy to see why Apple stock gained 31% so far in 2021 (as of this writing), surpassing the 24% gains of the S&P 500. I believe that not only will Apple surpass a $3 trillion market cap in short order, but will beat the market again in 2022.