The last month of 2021 was brutal for growth stocks, with some names dropping double-digit percentages again. Some companies’ stocks have struggled throughout the year, suffering from a change in investor sentiment after a booming 2020 for all things digital amid economic lockdowns.
But not all growth stocks are in the trash. As of this writing, Nvidia (NASDAQ: NVDA), Fortinet (NASDAQ: FTNT), and Reached (NASDAQ: UPST) are up 125%, 132% and 258% respectively since the start of the year, making them by far my best stocks of 2021 and helping to underpin my portfolio as a whole.
As I explained at the same time last year, in the long term, it pays to keep investing in companies with strong momentum. Here’s why I think Nvidia, Fortinet, and Upstart are still buys to launch 2022 if you plan to stick with them for the next decade or so.
Nvidia: A new industry leader is born
2021 will be the year everyone woke up and realized how much a technological platform Nvidia is – it’s not just a great designer of video game chips. In the first nine months of the company’s current fiscal year, revenue grew 65% to $ 19.3 billion, and free cash flow increased 85% to $ 5.37 billion, helping the stock more than double in the second year of the pandemic.
But Nvidia’s current financial explosion only tells part of the story. The company’s pioneering work in artificial intelligence (AI) – from advanced data center hardware and autonomous automotive training to healthcare and robotics applications – could continue the growth of Nvidia forte for many years to come. For years, Nvidia has talked about this coming wave of innovation, and has steadily invested billions of dollars in research and development each year (at one of the highest rates among tech giants as a percentage of turnover). With many of these projects coming to fruition, suddenly everyone is taking notice.
This is likely why regulators around the world are suddenly pulling the brakes and indicating they could put the brakes on Nvidia’s acquisition of leading chip design licensor ARM Holdings. No worries, though – Nvidia is now one of the best silicon designers itself, gradually expanding its reach into new areas of the semiconductor world and building an incredible software division on top of its cutting edge hardware. He does not need ARM to continue his march higher.
Nvidia stock is down 20% from all-time highs, but still trading 103 times 12-month free cash flow. I don’t expect a repeat triple-digit performance percentage from stocks next year. Rather, be prepared for some serious volatility at some point. However, Nvidia is redefining the semiconductor industry, and I think this will be one of the best stocks to own throughout the 2020s. I’m happy to be a part of it.
Fortinet: An incredible composer of wealth
Cybersecurity has had to undergo rapid changes over the past two years. Cloud computing is on the rise, the workforce has moved away, and criminals are getting smarter to take advantage of a changing world. As a result, young top-flight native cloud security software companies like CrowdStrike Holdings (NASDAQ: CRWD) and Zscaler (NASDAQ: ZS) have received all kinds of attention.
By comparison, Fortinet is largely ignored, and that’s a shame. This year’s successful comebacks only compound what has been an incredible race in the cybersecurity industry. The stock has grown more than 4,000% since its IPO in late 2009. And while Fortinet has chosen to slowly expand its cloud-based offerings through mostly organic development, it is the leader in providing hardware for security for data centers – the very compute units that make the cloud possible in the first place.
In the first nine months of 2021, revenue increased 29% to $ 2.38 billion and free cash flow increased 43% to $ 988 million. This results in an incredible free cash flow profit margin of almost 42%. Given Fortinet’s well-established position in the fabric of the global security ecosystem and its sufficient liquidity to continue to develop new capabilities, I believe the company will experience double-digit percentage growth for a long time to come.
Fortinet isn’t the fastest growing cybersecurity stock, but that’s okay. If slow and steady wins the race, fast and steady can definitely help you reach your financial goals. And at 46 times 12-month free cash flow, stocks are a steal against many of the company’s younger cloud security peers. Fortinet still looks like a fantastic buy for long term investors.
Upstart: A wild year but still profitable
Financial technology has been a hot investment topic for the past two years. As the younger generations born and raised in front of screens begin to mature, digital payments and banking services are becoming the norm. A slew of new IPOs have appeared on the market, all seeking to take advantage of this sweeping shift in consumer banking services.
One of them is Upstart, which made its public debut at the end of 2020. So far, this is an absolute rodeo for this stock. After several top-to-bottom swings, culminating in an almost 70% drop from historic highs in recent months, Upstart stock rose 258% with just a week and a half to 2022.
Will Upstart quickly recover from its peak valuation in the new year? Maybe, but I can’t hold my breath. Instead, I do what I’ve been doing all year and focus on the great job the company is doing. Its AI-powered software is used by a rapidly expanding list of banks and lenders to assess consumers’ creditworthiness for personal and auto loans. It’s still early in the game, but early indications are that Upstart’s increased use of data points not captured by traditional credit scores is helping more households access loans, while helping lenders become more efficient. .
The result has been quarter after quarter of major updates to financial guidance. Specifically, revenue is up 270% to $ 544 million, and free cash flow has gone into positive territory at $ 170 million in the first nine months of 2021. I don’t think so. The firm’s massive outperformance against expectations will continue to the same extent in 2022, but it is certainly poised to expand its expansion into the trillion-dollar-per-year loan business. At 54 times 12 month free cash flow, this isn’t a value stock, but it’s not unreasonably priced if you think this business will stay in growth mode for at least a few years. . I’m still a New Year’s Eve buyer.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.