These are the best growth stocks to buy for 2021.
Excluding areas like private equity and distressed assets, most investors are looking to back businesses that are expanding. But above-market growth prospects command above-market prices, and sometimes there’s little margin for error if a business doesn’t progress as quickly as the free market expects. The best growth stocks to buy for 2021 are no exception, and some carry higher-than-average risk due to high expectations. Still others carry less risk than peers due to their market positioning, size, competitive advantages or some combination of the three. Regardless, the following 10 names have a certain business momentum and long-term potential that make them the top growth stocks to buy for 2021 and beyond.
Square (ticker: SQ)
Payments and point-of-sale solutions company Square has been an out-and-out growth stock for a number of years. Its revenue has grown at a compound annual growth rate of 40.9% over the last five years. Last quarter, its numbers were even more stellar, with sales up about 140% year over year. A big chunk of Square’s current growth comes from Cash App, its Venmo-like peer-to-peer mobile payments app. In the third quarter, Cash App’s gross profits jumped 212% year over year, accounting for $385 million, or 48.5%, of Square’s total $794 million gross profit. Just a year earlier, Cash App’s gross profits of $123 million accounted for just 24.6% of total gross profit. Square is now worth more than $100 billion, and analysts expect earnings per share to grow 38% annually over the next five years.
While indeed one of the biggest companies on earth, Amazon has proven its uncanny ability to post spectacular growth rates despite its size, making it a natural member of 2021’s best growth stocks to buy. For many years, Amazon denied itself profitability, choosing instead to expand its market share through razor-thin margins while plowing every dollar back into long-term investments. Heading into 2021, AMZN remains a glorious tale of margin expansion combined with rapid top-line growth. Its international business just turned profitable in 2020, and for a company with $348 billion in trailing sales, Amazon’s 37% growth rate last quarter is stunning. AMZN is still looking to disrupt other parts of the economy, reportedly planning its own primary health care services business it will offer to large employers. With health care spending accounting for more than 17% of the U.S. economy, Amazon has its eyes on the prize.
Chinese online gaming company NetEase may not be expanding as quickly as Square or Amazon, but its strong track record of growth, pipeline and valuation make it an attractive growth stock to buy for 2021. Sales growth over the last five years has clocked in at more than 38% annually and remains impressive with a 27.5% growth rate just last quarter. In development are games based on already-popular franchises such as “Harry Potter,” “The Lord of the Rings,” “Diablo” and “Pokemon.” One of several more modestly priced stocks on this list, NTES trades for just 21 times forward earnings. In 2019, the company began a policy of paying out between 20% and 30% of earnings as a dividend each quarter, a practice that currently yields 1% for investors in the Asian growth stock.
Peloton (PTON) is thought of as the high-end home exercise bike company, but for the money, competitor Nautilus is a better stock to buy. Nautilus doesn’t just make its namesake workout equipment. The company owns Bowflex and Schwinn, and it’s following Peloton’s lead by getting into the subscription trainer-led workout business. Last quarter, Nautilus revenue jumped 152% year over year. This sort of pandemic-fueled growth can’t last forever, but at about 13 times forward earnings, NLS looks like a steal, especially with high-margin recurring subscription revenue set to make up a larger slice of Nautilus’ overall business. Nautilus was also picked as one of U.S. News & World Report’s 10 best stocks to buy for 2021 overall.
Alibaba Group (BABA)
Investors shouldn’t be entirely focused on the U.S. in their portfolios. When looking abroad, the single-largest market and most attractive investment landscape has to be China, with a population around 1.4 billion. Importantly, the Chinese middle class has been expanding rapidly, too — it’s likely China’s middle class already exceeds the entire population of the U.S. This is an enormous secular tailwind for the country’s largest e-commerce company, Alibaba, which, despite doing roughly $90 billion in annual sales, grew revenue by 30% last quarter. In late December, the Chinese government announced an antitrust probe into the business, leading to a sell-off — and a nice opportunity for investors to buy BABA on the dip going into 2021 at just 17 times forward earnings.
Fiverr International (FVRR)
Fiverr is an e-commerce marketplace matching buyers and sellers in the fast-growing gig economy. Freelancers can seamlessly connect with parties looking to hire someone for a wide range of services, including design, marketing, translation, animation, programming, website creation, data entry and more. The “flywheel effect” is hard at work with FVRR. As more buyers use Fiverr to find freelance talent, growing demand attracts more sellers to the platform, bringing deeper talent and a wider range of services, in turn attracting more buyers. Fiverr is expected to break into the black and not look back when full 2020 results are in, and top-line growth is bonkers, with revenue jumping 88% year over year last quarter. Expect FVRR to be volatile. Shares have roared about 750% higher in 2020, and at more than 40 times sales, the stock isn’t cheap. But with momentum and exploding profitability, FVRR is a risky growth stock worth the stretch for more aggressive investors.
Editas Medicine (EDIT)
Editas is arguably the most speculative of the best growth stocks to buy for 2021, as its value is wholly derived from its potential to successfully spearhead a futuristic groundbreaking technology. One of the few pure plays on the CRISPR gene-editing technique, one of Editas’ scientific founders, Feng Zhang, conducted pioneering research critical to the development of CRISPR technology, which essentially allows humans to edit DNA. The $5 billion Editas has a leading candidate in clinical trials for the treatment of the top cause of childhood blindness and filed with the U.S. Food and Drug Administration to begin clinical trials for a treatment of sickle cell disease. Although Editas’ long-term prospects look promising, investors seeking to bet on the future of CRISPR in a more diversified way may consider owning a piece of Crispr Therapeutics (CRSP) as well.
iRobot Corp. (IRBT)
iRobot might strike some as a silly name, but take one look at the company’s financials and you’ll realize it’s no joke. Founded in 1990, the company makes robotic cleaning products that automate the home-cleaning process. Its two leading products are the Roomba automatic vacuum and the Braava automatic floor mop. Business is on the upswing, with revenue jumping 43% year over year last quarter as consumers placed more importance on their home surroundings amid widespread lockdowns. At about 16 times earnings, iRobot’s 18% annualized earnings growth, which analysts expect in the next five years, comes at a discount. IRBT is also venturing into a new product line of educational coding robots aimed at teaching children to program.
Among the best growth stocks to buy for 2021 is Twitter, which has enjoyed a unique position in the market for years as a live, crowdsourced tool for unearthing current events on a real-time basis. Twitter played an important role in the Arab Spring in 2011, and 10 years later, it remains a unique technological tool and increasingly vital part of modern society. Growth in Twitter’s monetizable daily active users has increased sharply in the last two years. For the first four quarters, mDAU growth ranged from 9% to 17%, while the last four quarters each saw growth between 21% and 34%. Revenue is expected to jump by roughly 22% in 2021 as advertising revenue recovers from the 2020 recession. And if talk of testing a subscription model for some aspects of Twitter manifests into action, investors will likely applaud the effort to diversify its revenue streams.
Lastly, streaming TV platform Roku is an unapologetically priced growth stock, and it’s not for the faint of heart. Trading at more than 28 times sales, Roku is not yet profitable, and analysts expect 2022 to be the first full year of profitability. In the meantime, growing Roku’s share of the TV streaming platform market is the name of the game. Last quarter, active accounts grew 43% to 46 million while streaming hours grew 54% year over year to 14.8 billion. Advertising on the Roku platform makes up the bulk of company revenues, as platform revenue — which includes advertising — jumped 78% last quarter. The recent addition of HBO Max to Roku’s platform illustrates how the company’s rapid growth makes it more desirable to streaming apps, which makes Roku more useful to consumers, powering a feedback loop that drives its business.
Ten top growth stocks to buy for 2021:
— Square (SQ)
— Amazon.com (AMZN)
— NetEase (NTES)
— Nautilus (NLS)
— Alibaba Group (BABA)
— Fiverr International (FVRR)
— Editas Medicine (EDIT)
— iRobot Corp. (IRBT)
— Twitter (TWTR)
— Roku (ROKU)
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Update 12/29/20: This story was published at an earlier date and has been updated with new information.