Analyzing the 3 Best Growth Stocks to Buy

Capison Pang

The three best growth stocks to buy now include an Israeli defense contractor known for its advanced radar technology, the largest e-commerce platform in Latin America and a startup on the cutting edge of hydrogen fuel cell technology.

There are two major types of stocks: growth and value. However, many companies like Google (NASDAQ:GOOGL), Tesla (NASDAQ:TSLA) and Amazon (NASDAQ:AMZN) straddle the line between both categories. Value stocks are composed of mature companies and household names such as Coca-Cola (NYSE:KO), General Electric (NYSE:GE) and Ford (NYSE:F).

Investors buy value stocks for their current earnings and dividends. Value companies possess relatively low share price-to-earnings (P/E) and high earnings-per-share (EPS) ratios.

Growth stocks like Uber (NYSE:UBER) and Airbnb (NASDAQ:ABNB) can often have little to no profits and are characterized by high P/E and low EPS ratios. In return, growth stocks experience rapid revenue growth, resulting in their value being derived from their potential future earnings and dividends.

Although growth stocks are riskier investments due to their valuations being backed by future earnings, which may or may not materialize, the right investment in growth stocks can yield massive returns, after all, growth stocks are, as their name suggests, in their growth phase and can regularly record year-over-year revenue growth over 30% or 40%.

However, selecting growth stocks is tricky. For every Netflix (NASDAQ:NFLX) or Facebook (NASDAQ:FB), dozens of companies do not realize their full potential. However, we have worked to reduce your risk by discovering the top three growth stocks to invest in now.

3 Best Growth Stocks to Buy Now: #3

Plug Power Inc (NASDAQ:PLUG)

Plug Power Inc (NASDAQ:PLUG), founded in 1997, is an American developer and manufacturer of hydrogen and fuel cell technology. The company possesses a market capitalization (market cap) of $19.3 billion and is headquartered in Latham, New York.

The rise of Tesla has brought the feasibility and attractiveness of electric vehicles (EV) squarely into the public spotlight. The global electric market is expected to rise to $725.2 billion by 2027 from $171.3 billion in 2019. The incredible potential of the electric vehicle market has brought even non-traditional auto manufacturers like Apple (NASDAQ:AAPL) and Sony (NYSE:SONY) into the fray.

Apart from reducing the driver’s carbon footprint, the ability of EVs to diverge from traditional piston-powered internal combustion engines has provided a whole host of benefits. Electric motors are capable of faster acceleration, making EVs feel lighter to drive. EVs are quieter, making them the preferred choice for individuals seeking comfort.

Tesla even used the electric battery to make its Model X the first-ever vehicle to garner a perfect safety rating from the National Highway Traffic Safety Administration (NHTSA). The battery permitted the Model X to possess a lower center of gravity, making it less prone to tip over.

However, electric motors and rechargeable batteries are also the most significant challenges surrounding the development and adoption of EVs. Most electric vehicles, such as the Tesla models, rely on traditional battery power. Although newer EVs have begun closing the gap, traditional gas-powered automobiles still outrange most battery-powered electric vehicles. Additionally, battery-powered electric cars take hours to achieve a full charge. It can require up to 12 hours to fully charge a Tesla. However, there is a powerful potential solution: hydrogen.

Hydrogen fuel cells mix the most abundant element in the universe, hydrogen, with oxygen from the air to produce electricity. The byproduct, water vapor, is emitted from the tailpipe. Instead of “charging,” Hydrogen-powered vehicles are refueled with hydrogen using nozzles. Hydrogen electric vehicles contain many of the same benefits as battery EVs, but possess some key advantages.

Hydrogen fuel cells permit electric vehicles to provide the same range and charging speeds as gas-powered cars. The abundance of hydrogen also makes supplying fuel to remote locations easier and much less expensive. Finally, hydrogen fuel cells do not suffer deteriorated performance in cold weather like traditional EVs. The global hydrogen fuel cell market is projected to reach $49.5 billion by 2027 from $10.5 billion in 2019 for a compound annual growth rate (CAGR) of 21.4%.

Technology startup Plug Power is a global leader in hydrogen fuel cell development. However, the startup does not produce hydrogen products for consumer cars. Instead, the company primarily focuses on commercial applications of hydrogen fuel cells, a much less saturated market.

Plug Power’s first product was hydrogen-powered forklifts, which remains a major success with regular purchases from corporations like Whole Foods, Home Depot (NYSE:HD), Kroger (NYSE:KR) and Nike (NYSE:NKE).

In 2017, the company began the sale of its ProGen hydrogen engines for electric delivery vehicles. Rather than requiring the purchase of entirely new automobiles, Plug Power’s ProGens engines allow companies to refit their existing vehicles with a hydrogen engine, dramatically reducing the cost and time to go electric.

Plug Power also produces and develops hydrogen technology for industrial robotics and stationary power, where many of the same advantages of hydrogen fuel cells still apply. The company recently announced a partnership in October 2021 with renewable energy producer Lhyfe to build green hydrogen generation plants throughout Europe.

Although still unprofitable, Plug Power has seen explosive growth in recent years. The company saw its revenue skyrocket from $64 million in 2014 to $230 million in 2019, a CAGR of 29.2%. As a result, Plug Power has seen equally significant increases in its share price, including by 138.1% over the past year. The growth in PLUG is shown below alongside a 50-day moving average.

Chart provided by Stock Rover.

Plug Power, on paper, suffered an extremely harsh 2020. Not only did its sales decrease, but they also went negative. The company recorded negative $93 million in revenue, alongside negative $596 million in net income. However, these figures are misleading. After all, PLUG investors have netted a 1,780.3% return over the past three years.

Plug Power’s gross billings were around $337 million in 2020, a 46.5% increase from 2019. The disparity between 2020 revenue and gross billings was due to Amazon vesting 55.3 million common shares worth of warrants at $1.20 per share. Amazon received the warrants in 2017 in exchange for a promise to purchase $600 million worth of products from Plug Power.

Plug Power’s meteoric rise in stock price over the past few years caused the 55.3 million shares to become worth much more than the $600 million worth of goods of services. As a result, the company incurred an accounting loss of $93 million in revenue, despite experiencing a significant increase in gross billings. Plug Power did not lose cash flow. With Amazon’s warrants fully exercised and Plug Power’s revenue projected to grow by 46.4% in 2021 and 64.2% in 2022, PLUG is a fine investment with significant upside potential.

A discounted cash flow (DCF) analysis, using Stock Rover, values the stock at $42.23, 22.7% higher than its latest closing price of $34.41, earning PLUG a “BUY” recommendation from Stock Rover and a place among our three best growth stocks to buy now.

3 Best Growth Stocks to Buy Now: #2

Mercadolibre Inc (NASDAQ:MELI)

Mercadolibre Inc (NASDAQ:MELI) is an e-commerce company headquartered in Buenos Aires, Argentina. Founded in 1999, the company has since grown into the most extensive digital marketplace in Latin America, with a market cap of $74.6 billion. Mercadolibre also possesses major business segments in shipping services (Mercado Envios), financial services (Mercado Pago) and advertisements (Mercado Clics).

Although Mercadolibre is not a household name for most families in the United States, the company is one of the world’s largest online service and retail platforms. The company operates two primary business segments: e-commerce and online financial services, both leaders in their respective industries in Latin America. Mercadolibre sold $20.9 billion in gross merchandise volume and processed $20.0 billion worth of payments in 2020. Between its various online services, Mercadolibre garnered over 132.5 million unique monthly visitors in 2020, up by 78.6% from 2019.

Mercadolibre has consistently outperformed the rest of the internet retail industry. MELI has seen an average revenue growth rate of 48.3% and a return rate of 788.2% over the past five years. The industry average, meanwhile, sits at 30.7% and 194.8%, respectively. MELI, however, has likely only discovered the tip of the iceberg and has a long runway to grow.

The developing economy of Latin America has positioned Mercadolibre to become the second coming of Alibaba (NYSE:BABA). Despite Latin American retail e-commerce reaching $85 billion in sales in 2020, it only accounted for 5.6% of total retail sales in the region.

Furthermore, only 54% of individuals in Latin America have a bank account. The Latin American economy is expected to rebound from COVID-19 in the near future, including 6.5% growth in the gross domestic product (GDP) in 2021. The retail e-commerce industry is expected to reach $160 billion and Mercadolibre is projected to benefit immensely. The company is forecast to see a 53.7% year-on-year jump in revenue in Q4 2021 and a 36.9% increase in 2022.

Like any growth stock, Mercadolibre has experienced hiccups. Unlike Amazon, eBay (NASDAQ:EBAY) or Alibaba, Mercadolibre is currently unprofitable. The company recorded positive net income until 2018 but has since experienced three straight years of losses. However, Mercadolibre is projected to return to profitability after just missing it in 2020, with an earnings-per-share (EPS) of $2.44 in 2021.

MELI has experienced a rough 30 days, with the company seeing a 19.8% drop in share price over the past month. The decline in share price was due to market forces rather than Mercadolibre itself. A combination of global supply chain disruptions and shortages, combined with a rise in interest rates in late September, has put a damper on the company’s share price. As a result, MELI has only seen a 17.1% increase in stock price over the trailing 12 months. The change in share price over the past year with a 50-day moving average is graphed below.

Chart provided by Stock Rover.

However, the negative market forces will likely have little to no impact on Mercadolibre’s long-term outlook. The global supply-chain disruptions are not expected to last beyond 2022, and interest rate hikes are projected to be primarily gradual due to the worldwide economy still recovering from COVID-19. Since a growth stock’s value is largely derived from its long-term growth instead of its current profits and dividends, Mercadolibre’s hiccups are short-term growing pains. With a 25.4% market share of the Latin American e-commerce industry and $1.2 billion in cash on its balance sheet, Mercadolibre has more than enough leeway to weather a few rainy days.

A discounted cash flow (DCF) analysis, using Stock Rover, values the stock at $2,015.38, 34.4% higher than its latest closing price of $1,500.00, earning MELI a “STRONG BUY” recommendation from Stock Rover and a place among our three best growth stocks to buy now.

3 Best Growth Stocks to Buy Now: #1

Rada Electronics Industries Ltd (NASDAQ:RADA)

Rada Electronics Industries Ltd (NASDAQ:RADA), headquartered in Netanya, Israel, is a defense and aerospace company specializing in electronics. Since its founding in 1970, the company has contracted its radar, software and avionics systems to Israel and various North Atlantic Treaty Organizations (NATO) member states, including the United States and Great Britain. Rada, which has a market cap of $497 million, also operates three subsidiaries in the United States: Rada Technologies, Rada Innovations and Rada Sensors.

The shocking test of a hypersonic missile by China in August 2021 stunned Western military analysts. Hypersonic missiles can travel at speeds of Mach 5 or above and circle the Earth before striking, making them difficult to predict and even harder to intercept.

The late-summer missile test has only added fuel to rising tensions between the United States and China. The two superpowers have become increasingly at odds over China’s controversial “nine-dash line” in the South China Sea, hostility towards Taiwan and 2049 plan.

In a sign of shifting focus, the United States Marine Corps announced in March 2020 that it would be disbanding all Marine tank units, a clear signal of its intent to better position itself for island warfare in the Pacific to counteract the Chinese military.

China now possesses the second-largest military budget globally, with $209.2 billion earmarked for its armed forces in 2021. President Joe Biden has proposed a $753 billion national defense budget for 2022, 2% higher than 2021 and $38 billion greater than the $715 billion the Pentagon initially requested. With a second global arms race seemingly on the horizon between the United States and China, defense contractors have an opportunity to improve their bottom lines.

China’s hypersonic missile test, along with the United States’ withdrawal from Intermediate-Range Nuclear Forces Treaty in 2019, solidified the notion that rockets and air combat are the future of warfare. Rada Electronics specializes in radar and aerial warfare.

Rada’s tactical radars have been utilized in a multitude of roles by NATO and Israeli forces. The company’s radars have been stationed at military bases as early warning systems, fitted on tanks and armored vehicles to provide active defense against anti-vehicle armaments and used to spot targets for short-range mobile air defenses.

Rada Electronics also develops advanced Digital Video and Data Recorders (DVDR) and Ground Debriefing Systems (GDS) for Western military aircraft and fighter jets. The two systems allow pilots to record and capture video and audio information while in the air.

The growing military budgets of countries around the globe have provided Rada Electronics with a bright future. The company recently announced a partnership with Alpha Design Technologies in India to sell Rada’s radars to the country’s armed forces. The company is forecast to experience a 59.0% increase in sales in Q4 2021 and a 30.7% growth in revenue in 2022.

The positive outlook is only the latest in a consistent string of financial performances. Rada has an average annual sales growth of 53.1% over the past five years alongside a 707.8% return rate over the same period. As a result, RADA has seen its share price surge by 65.4% over the past 12 months. The change in stock price is displayed alongside a 50-day moving average below.

Chart provided by Stock Rover.

Rada Technologies may not be a household name like Raytheon (NYSE:RTX) or Lockheed Martin (NYSE:LMT), but it has the potential to become one. The company announced in July 2021 that it has already received $56 million in new orders on the year, a 37% year-on-year growth from the first half of 2020. Simply put, aerial combat through the use of short, medium and long-range rockets and missiles are the future and Rada is perfectly positioned with its advanced radar and avionics technology to capitalize.

A discounted cash flow (DCF) analysis, using Stock Rover, values the stock at $16.33, 60.8% higher than its latest closing price of $10.16, earning RADA a “STRONG BUY” recommendation from Stock Rover and a place among our three best growth stocks to buy now.

 

Capison Pang is an editorial intern who writes for www.stockinvestor.com and www.dividendinvestor.com.

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