This year’s unprecedented market conditions have highlighted some of the problems in making rigid distinctions between growth stocks and value stocks. 2020 has also highlighted the incredible momentum and modeling power of the tech sector market.
Despite hosting many companies with highly growth-dependent valuations, 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 the DJIA to put this in perspective:
^ NDXT data by YCharts
High-quality tech companies that can shape and benefit from influential trends have the potential to deliver explosive long-term growth, and the defensive value that these types of companies can also add to a portfolio has never been so clear. Here’s why investors looking for stocks that can drive great growth and prosper through adversity should consider adding StoneCo (NASDAQ: STNE), CrowdStrike Holdings (NASDAQ: CRWD)and Zynga (NASDAQ: ZNGA) to their wallets.
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1. StoneCo
According to CellPointDigital, 85% of business transactions in Latin America are still done with cash, and only 39% of the region’s population has a bank account. The contrast between cash on hand and banking habits in Latin America compared to those in the United States is staggering. 94% of adults in the US have a bank account, according to the Federal Reserve, and only 26% of the country’s transactions last year were done with cash. However, the disparity is unlikely to remain as stark.
StoneCo is a Brazilian-based payment processing company that is helping to drive the growth of card and application-based payments in Latin America, and looks set for big growth as more people join banks. and adopt payment methods other than cash. The company also operates a financing division that provides business loans.
The financial technology specialist has prioritized growth in its domestic market and has published impressive results, even when the Brazilian economy has been moving through a difficult period. The volume of payments on the company’s platform increased 42% year-over-year in the first quarter, sales increased 38.3% in the period and net income increased 22.6%. Brazil’s sizable population of over 210 million people and a relatively low penetration for payment processing services suggests ample scope 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 solid buy, trading at roughly 71 times this year’s expected earnings.
2. CrowdStrike Holdings
Work-at-home measures taken in response to the coronavirus pushed more businesses into the digital space and increased the need for strong cybersecurity protections. Growth for digital commerce and communications was already increasing at a rapid rate, but the need to curb the spread of respiratory disease COVID-19 substantially raised demand, and it is virtual certainty that the growth of online business will continue. boosting the overall economy much later The need for social distancing and other measures has diminished.
CrowdStrike is a cloud-based cybersecurity company that helps prevent business customers’ computers and mobile devices from being hacked. Sales increased 85% year-over-year to reach $ 178.1 million in the first quarter, and free cash flow for the period increased to $ 87 million, an increase in cash burn of $ 16.1 million in the first quarter of 2019 The company should continue to benefit from the trend of more online business and a rising tide of cyber security threats.
The endpoint security specialist has a high subscription business model with high customer retention and strong gross margins. The company’s gross underwriting revenue margins reached 77% in the 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 Onboard business customers and existing customers increase their expenses.
CrowdStrike has a market capitalization of approximately $ 23 billion and is valued at approximately 30 times the expected sales for this year, but the growth-dependent valuation of the company could end up looking very cheap over time.
3. Zynga
Looking at long-term technology trends, the growing demand for interactive entertainment seems like one of the safest bets out there. Video games are still relatively young as a medium, and their participatory nature leads to higher levels of participation and longer product lifecycles compared to other media.
Zynga is a mobile gaming publisher that launches casual, social media-focused titles, and the company appears poised to reap rewards for the smart moves it has made over the past half decade and the overall growth of the interactive entertainment industry. Zynga has been rolling out content updates and fine-tuning monetization strategies to drive spending on its core franchise portfolio, and has also been on a major takeover push to bring new properties and development studios into the fold.
The company recently made its biggest acquisition, buying Istanbul-based Peak Games in a $ 1.8 billion deal in early June. Zynga expects the developer titles integration to increase its daily mobile active user base by more than 60%. If the company can manage the same monetization magic with Peak video games that it has with other titles, the company should enjoy a major catalyst for new growth. Zynga also has a net cash position of approximately $ 500 million, so it has room to make additional acquisitions and investments to drive growth.
Zynga appears to have returned to post a steady return, with the shares trading at approximately 30 times this year’s expected earnings. The company’s current gaming library should provide reliable sales and profit streams, and stock could skyrocket if the new franchises also prove to be successful.
