With many growth stocks getting hit with one final sell-off in the final weeks of 2021, deals now abound. Tech businesses are doing more than just fine in year two of the pandemic and are poised to continue expanding their reach into the global economy into the new year and beyond.
Thus, three Fool.com contributors made some stock purchases headed into the new year. The shopping list? Marvell Technology Group (MRVL -1.86%), Coinbase Global (COIN 2.01%), and LendingClub (LC).
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A chip company transforms itself for the next generation of computing needs
Nicholas Rossolillo (Marvell Technology Group): Not to be confused with Disney's (DIS -0.45%) superhero franchise with a similar name (Marvel, not Mar-VELL), this suddenly emergent semiconductor designer is popping on all sorts of Wall Street analysts' radar as of late. And for good reason. After a string of acquisitions over the last few years, Marvell has transformed itself into a leader in data-center hardware solutions that can handle increasingly complex workloads like artificial intelligence (AI).
It doesn't end with data centers, though. On the last quarterly earnings call, Marvell discussed its opportunity in the auto industry, given that the modern car is like a mini-supercomputer on wheels. Tech is gobbling up a share of the cost to produce a vehicle, and Marvell's diverse mix of data-computing chips and networking gear puts it in a prime position to benefit from increasingly advanced auto tech. Currently, the company's auto segment is generating annualized sales of about $140 million but sees that growing to a multihundred million-dollar per-year business in the coming years.
At the moment, Marvell's financials look a bit messy due to all the acquisition activity. Revenue in the third quarter was up 61% year over year to $1.21 billion; net losses were $61 million; but free cash flow was positive $185 million. However, in the next year, some of these confusing profitability signals will start to converge. And along the way, Marvell has indicated it expects to remain in double-digit sales growth mode as data-center upgrades supporting new cloud-computing services and auto-industry growth continue.
At this point, the cat's out of the bag. Marvell is no longer an under-the-radar semiconductor industry bet. Shares trade for 20 times trailing 12-month sales-to-enterprise value and 166 times trailing 12-month free cash flow to enterprise value. Free cash flow was in negative territory for one quarter earlier this year. However, the premium price tag will moderate as the company digests its recent purchases and scoops up greater share of the data center and auto tech market. Given the strong momentum Marvell is riding right now, I recently bought more before the start of 2022.
The closest thing to a cryptocurrency index fund
Anders Bylund (Coinbase): I started a position in cryptocurrency trading specialist Coinbase Global a week ago. As the digital currency sector recovers from the recent downturn, Coinbase strikes me as the safest way to increase my exposure to this sector -- without selecting any particular cryptocurrencies.
I do own a basket of hand-picked crypto tickers and will surely add to that portfolio over time. Including a robust stake in Coinbase is a more foundational investment, much like building your retirement portfolio around an index fund.
Let's imagine that all of the leading cryptocurrencies in today's market are about to be made obsolete by brand new projects that do the same things much better. I would miss my Ethereum (ETH 3.57%) and Bitcoin (BTC 5.17%) holdings at first, of course, but the Coinbase investment would simply keep on ticking higher.
In fact, Coinbase also works as a hedge against sudden cryptocurrency upheavals. When everyone sells their old-school digital coins to embrace the Next Big Thing, this company will be happy to help while pocketing transaction fees for every Bitcoin sale. Trading platform operators love volatility, especially in the cryptocurrency market where brokers haven't abandoned trading fees like stock brokerages did in 2019.
And of course, Coinbase still benefits if the current leaders stay on top for the long haul. I see this stock as a broad investment in the cryptocurrency market with a couple of bonus features, as outlined above. I see great things ahead for this ticker regardless of how the cryptocurrency sector shapes up in the long run.
This market-beating fintech just sold off more than 50% on no relevant news
Billy Duberstein (LendingClub): I haven't been buying much recently but have been adding to a few favorites, including LendingClub, that have been particularly beat up amid the omicron/rate hike sell-off.
In early November, all was going right for LendingClub. The company posted a strong earnings report that smashed expectations, and the stock soared from the low $30 range to over $49 per share in short order.
Yet even in the absence of any company-specific news since then, LendingClub has sold off over 50% to around $24.30 per share. That's a massive sell-off for a company doing so well as of its last public disclosure. It appears omicron fears as well as fears of higher rates have caused investors to rethink LendingClub's business, which centers around unsecured personal loans.
But that doesn't seem particularly rational to me. After all, management disclosed that its fourth quarter 2019 vintage, or loans made on the eve of the pandemic, has outperformed the overall industry and is projected to achieve a 6% total net return. Recent employment and growth numbers have remained strong even amid the omicron surge. Inflation is a concern, but I don't think anything that might cause a recession may materially affect charge-offs. While interest rates used to pressure LendingClub's cost of funds, the company now has access to low-cost deposits as a result of its acquisition of Radius Bank back in February. The Radius acquisition also allows LendingClub to hold more of its loans on its balance sheet, allowing the company to reap greater profits from each loan it originates.
After the sell-off, LendingClub actually trades for a bargain valuation of 14 times 2022 earnings estimates. And with the company just coming into its own with this new model and growing new products such as auto loan refinancing, LendingClub should still be growing at a healthy clip in 2022, making it a growth stock at a value price heading into next year.
