Looking for a new growth holding? Finding one that's worth its price is easier said than done at this time. Most of the market's favorite go-to options just feel too expensive.
Data from Yardeni Research, in fact, indicates that the average forward-looking price-to-earnings ratio of the so-called "Magnificent Seven" stocks right now is uncomfortably high at just under 28. As Warren Buffett reminds us, "you can't buy what is popular and do well." Your most productive positions will usually be the ones few other people were thinking about when you stepped in.
With that as the backdrop, if you've got $1,000 you're ready to put to work for a while in a growth investment, the smartest option is arguably off-the-radar Vertiv (VRT 1.09%). Here's why.
Image source: Getty Images.
What's Vertiv, and why Vertiv?
It's not a household name. Its market cap of less than $70 billion is relatively small compared to the trillion-dollar titans that make up the aforementioned Magnificent Seven. And the company doesn't make any consumer-oriented products you have in your home. Nevertheless, there's a good chance you or someone living in your household regularly benefits -- albeit very indirectly -- from the service it provides.
Simply put, Vertiv helps companies build long-lived, power-efficient artificial intelligence (AI) data centers. It's become a surprisingly important component of the business. While electricity consumption and cooling wasn't too much of a concern in data centers' early days, the more the industry's grown, the more it's mattered. For perspective, S&P Global's 451 Research suggests data centers' consumption of grid-supplied electricity grew 22% last year, and is on pace to almost triple between now and 2030. If nothing else, it's just getting expensive for every involved party. The utility industry (and data center operators themselves) are doing what they can to secure more of this increasingly required power.
However, that can be a lengthy and capital-intensive initiative. The low-hanging fruit here is just better power-management technology, like Vertiv's recently unveiled battery-based energy storage system called the EnergyCore Grid. The modular system can be configured to deliver more than 200 megawatts' worth of power, "while supporting functions such as peak-demand optimization, load shifting, black-start operation, and ancillary grid services." Vertiv's other power management solutions often boast efficiency in the ballpark of an incredible 98%.
NYSE: VRT
Key Data Points
Perhaps the company's game-changing offering, however, is data center cooling. This, too, seems to have caught the data center industry a bit off-guard. Operators have always known that processors, boards, and connectivity equipment tethered into a single network generate heat. What they didn't fully plan for was the sheer amount of heat that would be produced. If left unmanaged, it can quickly crimp performance, if not outright permanently damage computing hardware.
That's why Global Market Insights expects the planet's data center cooling business to grow at an average pace of more than 10% per year through 2034. Vertiv stands ready to win at least its fair share of this growth, offering everything from liquid cooling solutions to chillers that function like the refrigerator in your kitchen to equipment that just takes indoor data centers' heat outdoors.
None of it is particularly complicated. But few others are doing it as well as Vertiv. Credit the company's data-center-customized solutions.
The bull case for VRT stock
But what makes this name a must-have growth stock right now? The company isn't just in the right place at the right time with the right products. Its potential isn't fully reflected in the stock's current price. On quick glance, this may not seem to be the case. Shares are currently valued at more than 40 times their trailing earnings, and over 30 times this year's projected per-share profit of $5.33. That's not outrageously overvalued, but it's certainly more than the average Magnificent Seven ticker costs these days.
What's missing from the discussion, however, is just how quickly this company is ramping up its top and bottom lines, and how long it's expected to continue growing at this pace. Analysts with Morningstar (and others) predict Vertiv's top line will grow from just over $10 billion last year to nearly $18 billion in 2029.
Data source: Morningstar. Chart by author.
For perspective on these numbers, Vertiv's current backlog of business grew to a hefty $9.5 billion during the three-month stretch that ended in September, when the company reported year-over-year revenue growth of 29% to nearly $2.7 billion. Moreover, this long-term growth forecast jibes with Global Market Insights' forecast for the worldwide data center cooling market, and also with Straits Research's belief that the global data center power system business is poised to grow from just over $10 billion in 2025 to $17.5 billion by 2033.
Well-balanced
Is Vertiv the safest growth stock you can buy right now? Probably not. It's not the cheapest either, and for the matter, it isn't growing as fast as other growth names you may already have on your radar. You could certainly find a reason to choose another name over this one.
On balance though, there's a whole lot to like about Vertiv Holdings, and very little not to like (such as ongoing losses or a fickle and unproven opportunity, which are fairly common with many growth prospects). The entire, all-around package is very attractive here. That's particularly true in light of the stock's stagnation since October.
It wouldn't take much to rekindle this stock's rally that was in place right before then, especially if the economy eases its way back into stable growth mode, which is looking increasingly likely following the third quarter's surprisingly solid GDP growth rate of 4.3% and the handful of other economic green flags that have been waving in the meantime.
