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2 Growth Stocks That Are Also Generating Billions in Free Cash

By David Jagielski – Jan 8, 2022 at 1:40AM

Key Points

  • AstraZeneca's business has been reporting some strong numbers of late, even when factoring out its COVID-19 vaccine sales.
  • Nvidia has been a growth machine, with its sales rising by at least 50% in each of the past four quarters.
  • Both of these businesses continue to have more growth opportunities on the horizon, and with plenty of free cash, they're in good shape to capitalize on them.

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A cash-rich business can mean less risk of dilution for investors.

It's frustrating for investors when a stock constantly needs to issue shares to raise money so that it can continue growing. Even though sales may be increasing, without positive free cash flow, it can become a risky buy simply due to the potential for dilution, which can drive a company's share price down.

However, for both AstraZeneca (AZN 0.97%) and Nvidia (NVDA -1.51%), free cash flow isn't a problem. These growing companies have been bringing in plenty of cash to support their businesses and could be great buys today. 

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1. AstraZeneca

Healthcare company AstraZeneca generated more than $2.2 billion in revenue from its COVID-19 vaccine through the first three quarters of 2021. However, the company has also generated double-digit growth in most areas of its business, and even without the vaccine, its top line would have totaled $23.2 billion, for a year-over-year increase of 21%.

And this is with the company pricing its vaccine low enough so that it is affordable for low-income countries amid the pandemic, treating its vaccine as a not-for-profit business. But moving forward, that will change as AstraZeneca sees the pandemic becoming endemic, with CEO Pascal Soriot stating that, "we have to learn to live with it."

For investors, that means that at a higher price, AstraZeneca will likely generate more revenue from its vaccine this year. Plus, the company's antibody cocktail, Evusheld, is another growth catalyst this year. The U.S. Food and Drug Administration granted an Emergency Use Authorization for the treatment last month, for certain high-risk individuals (e.g. moderately or severely immuno-compromised) who haven't yet been exposed to the disease.

While it isn't a substitute for a vaccine, Evusheld can be a useful tool in the fight against the omicron variant. The company says a recent study suggests it remains effective against the new COVID-19 variant. In clinical trials (which took place before omicron emerged), Evusheld had an 83% efficacy rate in preventing symptomatic COVID-19.

This year looks like it will continue to be a strong one for AstraZeneca given those catalysts. And with a vast pipeline that includes 175 projects across several therapeutic areas, the future is also full of growth opportunities.

Over the past 12 months, AstraZeneca has brought in $4.3 billion in free cash flow and issued just $29 million worth of shares. That, combined with its strong growth potential, makes this an attractive stock to buy and hold for the long haul.

2. Nvidia

Nvidia is an incredibly fast-growing tech business. In its last four quarters, the company's slowest year-over-year growth rate was 50%, and that was achieved most recently, for the period ending Oct. 31, 2021. However, with $7.1 billion in revenue, it was still a record quarter for the business. And for one of its key segments, data center sales, the company sees continued growth this year as businesses scale their operations.

All this growth has been happening amid a chip shortage that could spread into 2023, according to a recent warning from Intel CEO Pat Gelsinger. Nvidia has been spending plenty of cash to try and keep up with the excess demand; as of last quarter, the chipmaker had $6.9 billion worth of supply-related obligations that were still outstanding.

Another thing that will likely require significant resources is the omniverse, which Nvidia calls the "plumbing" for a metaverse. But it could be well worth the growth potential, as Ark Invest founder Cathie Wood believes that the metaverse may be a multi-trillion market. 

The good news is that Nvidia is well-equipped to deal with all these growth opportunities. In the past four quarters combined, the business has generated $7.2 billion in free cash flow. And as of last quarter, its cash balance stood at more than $19 billion. The potential the stock has over the long haul makes this one of the more exciting growth investments to own right now, even despite its high valuation.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool owns and recommends Intel and Nvidia. The Motley Fool recommends the following options: long January 2023 $57.50 calls on Intel and short January 2023 $57.50 puts on Intel. The Motley Fool has a disclosure policy.

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