This year’s unmatched market conditions have highlighted some of the problems of making stiff differences between growth shares and value stocks. 2020 has also highlighted the incredible driving force and market shaping power in the technology sector.
Although they have hosted many companies with very growth-dependent values, the technology has proven to be more resilient than any other industry amid the uncertainty and volatility created by the coronavirus pandemic. Take a look at the performance of the Nasdaq 100 Technology Sector index compared to the S&P 500 index and DJIA to put this into perspective:
^ NDXT data by YCharts
High-quality technology companies that can shape and benefit from influential trends have the potential to publish explosive growth in the long run, and the defensive value that these types of companies can also add to a portfolio has never been more clear. Here’s why investors looking for stocks that can deliver great growth and thrive through resistance should consider adding StoneCo (NASDAQ: STNE), CrowdStrike Holdings (NASDAQ: CRWD), also Zynga (NASDAQ: ZNGA) to their portfolios.
According to CellPointDigital, 85% of Latin American business transactions are still conducted with cash and only 39% of the region’s population have a bank account. The contrast between Latin America’s cash and banking habits compared to those in the United States is astounding. According to the Federal Reserve, 94% of adults in the United States have a bank account, and only 26% of the country’s transactions last year were made with cash. However, it is unlikely that the difference will remain so strong, however.
StoneCo is a Brazil-based payment company that helps drive the growth of card and app-based payments in Latin America, and it looks good for high growth as more people join banks and take up payment methods other than cash. The company also runs a finance department that provides loans to companies.
The Fintech specialist has prioritized growth in its domestic market and published impressive results, even when the Brazilian economy has gone through a rough correction. The payment volume on the company’s platform jumped by 42% year-on-year in the first quarter, sales increased by 38.3% during the period and net profit increased by 22.6%. Brazil’s significant population of more than 210 million people and relatively low penetration for payment services suggests plenty of room for long-term growth, and the company could also see strong growth in other Latin American countries.
StoneCo is already consistently profitable, and the shares look like a strong buy and are trading at about 71 times the expected earnings for the year.
2. CrowdStrike Holdings
Work from home taken in response to the corona virus drove more business into the digital space and increased the need for strong protection against cyber security. Growth for digital commerce and communications was already growing at a rapid pace, but the need to prevent the spread of COVID-19 respiratory disease significantly increased demand, and it is a virtual certainty that online growth will continue to drive the overall economy long after the need for social distance and other measures have decreased.
CrowdStrike is a cloud-based cybersecurity company that helps prevent corporate customers’ computers and mobile devices from being hacked. Sales increased by 85% during the year to $ 178.1 million in the first quarter, and free cash flow for the period jumped up to $ 87 million – up from a cash burn of $ 16.1 million in the first quarter of 2019. The company would continue to take advantage of the trend of more business being conducted online and an increasing stream of cyber security threats.
The endpoint security specialist has a subscription-heavy business model with high customer retention and strong gross margins. The gross margin on the company’s subscription revenues was 77% last quarter (up from 72% in the first quarter of 2019), and there is plenty of room for sales and profit expansion as the business brings new business customers on board and existing customers increase their expenses.
CrowdStrike has a market capitalization of about $ 23 billion and is valued at about 30 times expected sales this year, but the company’s growth-dependent valuation may ultimately look very cheap over time.
When it comes to long-term technical trends, increasing demand for interactive entertainment looks like one of the safest efforts. Video games are still relatively young as a medium and their participatory nature leads to higher engagement and longer product life cycles compared to other media.
Zynga is a mobile game publisher that releases casual and socially focused titles, and the company looks ready to reap the rewards of smart moves that it has made over the past half decade and the overall growth of the interactive entertainment industry. Zynga has released content updates and utilized revenue generation strategies to drive spending in its core franchise portfolio, and has also been a major acquisition force for putting together new real estate and development studios.
The company recently made its biggest acquisition ever and bought Istanbul-based Peak Games for $ 1.8 billion in early June. Zynga expects the integration of developer titles to increase their mobile daily active user base by more than 60%. If the company can handle the same monetization magic with Peak’s video games as it has with other titles, the company should enjoy a major new growth catalyst. Zynga also still has a net cash position of approximately $ 500 million, so it has room to conduct additional acquisitions and investments to drive growth.
Zynga seems to have returned to a steady profitability and the shares are trading about 30 times the expected earnings for the year. The company’s current gaming library should provide reliable sales and revenue streams, and the stock could skyrocket if new franchises also prove to be hits.