HHistorically, value stocks have outperformed growth stocks. But there has never been a time in history when the conditions were so perfect for growth stocks to thrive.
Since the end of the Great Recession, lending rates have hit all-time lows and the Federal Reserve has used quantitative easing measures to weigh on long-term yields. In other words, there has been abundant access to cheap capital that fast-paced companies have been able to use to hire, acquire and innovate.
With lending rates set to stay low for the foreseeable future and the US economy in recovery mode, the next three growth stocks look set to enrich investors in July and well beyond.
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Palo Alto Networks
While there are a number of supercharged trends that offer double-digit growth potential this decade, none seem more secure than cybersecurity. It doesn’t matter how good or bad the economy is, we’ve learned that hackers and bots don’t take a day off. With the coronavirus pandemic pushing businesses online and into the cloud more than ever, the responsibility for protecting the data of businesses and consumers is greater than ever. It’s here that Palo Alto Networks (NYSE: PANW) join the game.
For years Palo Alto has been in full metamorphosis. Once a company that relied on physical firewall products, Palo Alto now promotes cloud-based subscription services. He made this decision for two main reasons.
First, cloud-based cybersecurity platforms are considerably more agile at detecting and responding to a potential threat. Palo Alto’s services are powered by artificial intelligence, which is a fancy way of saying that its solutions use machine learning to become smarter at identifying possible issues over time.
The second reason Palo Alto has placed an emphasis on subscription services is that they help build customer loyalty, have enabled more consistent revenue recognition, and lead to significantly higher margins than you would find. with physical or on-site solutions. In the quarter ended in April, the company made 73% of its revenue from subscriptions and support services. This compares to less than 68% of total sales for the quarter of last year.
Palo Alto Networks is also not afraid to go shopping. It is a company that regularly makes targeted acquisitions to expand its service portfolio and make itself more attractive to small and medium-sized businesses.
Investors can probably expect a fairly constant annual growth rate of 15-20% through the middle of the decade. With Palo Alto valued at a multiple of about seven times Wall Street’s projected sales for the next fiscal year, this is also something of value among cybersecurity actions.
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As I have said time and time again, cannabis is another high growth trend that may give investors some serious green this decade. But you have to be careful with your focus on cannabis.
For example, Canadians marijuana stocks were ridiculously bad. The big bucks will be earned in the United States, which is why the multi-state operator (MSO) Jushi Holdings (OTC: JUSHF) is an action that will make you richer.
At the moment, Jushi is a small player in a big pond. Once Trulieve Cannabis finalizes its purchase of Harvest Health and leisure, he, Curaleaf, and Green thumb industries will each have nearly or more than 100 combined dispensaries or retail licenses. For comparison, Jushi recently opened its 20th store nationwide.
What makes Jushi such an intriguing company is the smart way management has chosen to expand. Even though 36 states have legalized cannabis to some extent, Jushi focuses on three main markets: Pennsylvania (where he currently has 13 stores), Illinois, and Virginia. Why these states? The first two limit the number of retail licenses they issue, while Virginia assigns its dispensary licenses by jurisdiction.
In short, Jushi chooses to develop his brand in countries where competition will be deliberately reduced. This ensures that a pot stock with deeper pockets doesn’t try to roll it into potential billion dollar markets.
Yet despite his size (his market cap is only $ 933 million), Jushi has been willing to pull the trigger on a number of bolt-on acquisitions. On May 5, the company acquired a growing facility in Virginia for approximately $ 22 million. Just a day before that, he finalized the purchase of two dispensaries in California, which happens to be the world’s largest marijuana market in terms of annual sales.
After $ 80.8 million in sales in 2020, Jushi provided a mid-term forecast of $ 230 million in annual revenue for this year. By 2024, Wall Street is aiming for nearly $ 1 billion in annual sales. This is growth that investors would be foolish to ignore.
Image source: Getty Images.
Who would have thought that you would see a furniture company on a list of growth stocks that can make you rich? The thing is, Lovesac (NASDAQ: LOVE) is not like traditional furniture companies. Its innovation, customization and dynamic operating model are redefining the way millennials buy furniture.
For starters, furniture from Lovesac does not look like what you find in traditional furniture salons. More than 80% of the company’s sales come from “partials”. They are modular sofas that can be rearranged in dozens of ways to fit any living space.
Want a choice? Lovesac offers over 200 different coverage choices for its shareholders. Want to feel good about your purchase? The yarn used in these covers is made entirely from recycled plastic water bottles. This company offers functionality, choice and ESG investment everything at once.
It is also a business that understands its buyer base. While most furniture companies rely almost entirely on foot traffic in physical stores, Lovesac changed its operating model during the pandemic to a more direct approach with the consumer. In fiscal 2021, 47.1% of net sales were made online, with an additional 7.3% coming from pop-up showrooms. That’s more than half of the company’s net sales coming from very low overhead segments, and that’s precisely why the company became profitable about two years earlier than Wall Street expected.
What has become evident is that Lovesac customers love the brand. About 3 in 8 purchases are from repeat customers, and the number of new customers buying from Lovesac has more than doubled to 105,336 in the past three years. In fact, during the pandemic year, Lovesac garnered over 26,000 new clients.
Typically, you don’t see furniture inventories increasing their sales by a double-digit percentage – but that’s Lovesac’s expectation until fiscal 2026, Wall Street estimates show. With recurring profitability now on the books, the sky is the limit.
10 stocks we prefer at Palo Alto Networks
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Sean williams owns shares of The Lovesac Company. The Motley Fool owns shares and recommends Green Thumb Industries, Jushi Holdings, Palo Alto Networks and Trulieve Cannabis Corp. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.