The smartest investors tend to take a thematic approach to investing. They concentrate on megatrends that have the power to drive outsized growth over the long term.
Two of the biggest megatrends that are already underway are decarbonization and digitalization. Companies will spend trillions of dollars to reduce their carbon footprints and digitize their businesses in the coming years. Three leaders in these fields are Brookfield Renewable (BEPC 2.75%) (BEP 2.85%), Equinix (EQIX 0.95%), and Palo Alto Networks (PANW 4.19%). That makes them great growth stocks to buy with high conviction right now.
Positioned for powerful returns
The management team at Brookfield Renewable estimates that the global economy will need to invest $150 trillion over the next 30 years to fully decarbonize. It's in an excellent position to capitalize on this megatrend. The company has built a leading global clean energy business focused on all aspects of decarbonization.
Brookfield's base business is renewable energy generation. It has a 24-gigawatt (GW) portfolio of operating assets across hydroelectric, wind, solar, and storage. It sells the bulk of the power it generates under long-term agreements with utilities and large corporate buyers. Those agreements provide it with lots of stable cash flow. Brookfield also has a growing clean energy and transition business with investments in nuclear services and carbon capture and storage.
The company has a massive backlog of development projects that will power its growth, including 102 GW of new renewable energy capacity. In addition, the company expects inflation-linked rate increases on existing contracts and higher power prices as legacy agreements expire to drive growth. Combined with the impact of acquisitions, Brookfield's funds from operations (FFO) could increase by as much as 20% per share annually. It has already secured and funded 8% annual growth through at least 2027. Factor in the company's attractive and growing dividend (which at the current share price yields 4.2%), and the stock could produce powerful total returns in the coming years.
Building the infrastructure for digitalization
Digital transformation is bringing more business processes online. And as companies make that shift, they need to secure space to store all their information in data centers, which has been driving rising demand for this crucial digital infrastructure.
Equinix is a leading data center REIT and well-positioned to capitalize on this opportunity. The company's revenue grew 10% last quarter, its 79th straight period of top-line growth.
Management expects that pattern to continue. It currently has 46 major data center builds underway across 31 global markets. These projects will expand its already sizable global platform, which currently consists of more than 245 data centers in more than 70 markets. The company should also benefit from rising rates at its existing data centers and its ability to continue acquiring new locations. Equinix purchased MainOne last year, spending $320 million to enter the African market. These catalysts should enable the company to continue growing briskly in the coming years, supporting management's ability to keep increasing its dividend, which at the current share price yields 1.7%.
Securing the digital transformation
With more business processes and more data heading online, the threats from cybercriminals and hackers are increasing. Because of that, companies undergoing digital transformations need more than ever to enhance their cybersecurity.
Palo Alto Networks is a global cybersecurity leader. It has invested heavily in building an integrated three-platform strategy to enable customers to consolidate and simplify their security architectures with its solutions.
Management expects Palo Alto Networks' revenue will grow by 20% to 22% this year, led by a 40% to 43% jump in annual recurring revenue from its Next-Gen Security business. Its increasing scale should drive faster earnings growth while enabling the company to produce more free cash flow. That's giving it the funds to continue investing in innovation and strategic acquisitions to bolster its capabilities. These catalysts should drive continued robust growth.
Capitalizing on some of the biggest trends
The global economy is racing to decarbonize and digitize. That's driving growth opportunities for companies focused on supporting those trends like Brookfield Renewable, Equinix, and Palo Alto Networks. Because of that, they should be able to grow their revenue and earnings at above-average rates for years to come, which should power strong returns for their investors. These significant upside opportunities make their stocks extremely attractive buys right now.
