2020 has been a year driven by growth… the growth of digital trends, e-commerce, and the millennial trader. So it’s not surprising that investors, especially younger ones, have been searching for growth stocks to capitalize on the surging stock market.
An ETF named the Direxion High Growth ETF (HIPR) was launched on June 11th, 2020 that offers exposure to US stocks with strong historical growth rates. The stocks that this ETF holds are financially sound companies based on various quality, momentum, value, and volatility factors. In other words, they offer consistent and sustainable growth.
HIPR has performed well in the past 4 months, up 20.5%. That’s impressive, especially compared to the 16.4% return for the SPDR 500 Growth ETF (SPYG) over the same time period.
In this article, I have chosen to highlight four of the top stocks in HIPR that I believe are poised for high growth and strong return potential. These companies are Berkshire Hathaway (BRK.B), Mastercard (MA), Visa (V), and Vertex Pharmaceuticals (VRTX).
Berkshire Hathaway (BRK.B)
BRK.B is well known as Warren Buffet’s investment vehicle, but it is also one of the largest property and casualty insurance companies measured by premium volume. The company is a conglomerate with more than 90 subsidiaries engaged in a wide array of businesses. The company has grown through strategic acquisitions and currently has a strong cash position to support future buyouts.
When you think of consistency, you think of Buffett and Berkshire. BRK.B has returned an average of 20.3% per year over the past 55 years. The stock is currently up 31% since March 23rd. Analysts expect revenues to grow 15% and earnings to increase 15.8% next year. The company’s property and casualty insurance businesses have performed quite well and have driven growth for the company.
Its Utilities and Energy business has grown with increased revenue from Burlington Northern Santa Fe Corp., railway acquired by BRK.B in February 2010. The stock is rated a “Strong Buy” in our POWR Ratings system. It holds grades of “A” in Trade Grade, Buy & Hold Grade, and Peer Grade, which are three out of the four components that make up the POWR Ratings. The stock is also ranked #3 out of 59 companies in the Insurance – Property & Casualty industry.
This financial company has undoubtedly benefited from the pandemic as more and more consumers are opting to pay by credit card through e-commerce and in person at the supermarket to avoid contracting the virus from cash. The company has made several acquisitions to supplement growth and diversify its revenues. These acquisitions have been focused in areas such as data analytics, cyber, and intelligence that has helped MA expand its market and drive new revenue streams.
MA is set for robust growth based on its market share and core business model that should continue to be driven by new acquisitions and an expansion of its service offerings. Analysts expect revenues to grow 19.4% next year and earnings at a whopping rate of 29.9%. MA’s expansion into international regions such as the Asia-Pacific, Europe, Canada, Africa, and the Middle East and Latin American has contributed to its revenue growth.
The shift to digital payments is poised to be a growth driver going forward as the company has seen increased demand for digital and contactless payment solutions. Its Data & Analytics and Cyber solutions should also add to top-line growth. MA is rated a “Strong Buy” in our POWR Ratings system. The company has grades of “A” for Trade Grade, Buy & Hold Grade, and Peer Grade, and a “B” for Industry Rank. MA is also ranked #4 out of 46 companies in the Consumer Financial Services industry.
We should learn more about MA’s most recent quarter when it announces its latest financial results on October 28th.
Another player in the consumer finance space is V. Similar to MA; the company has grown through numerous acquisitions and deals that have driven long-term growth and consistent revenues. The company has seen revenue grow an average of 10.5% per year over the last five years, and earnings grow an average of 23.3% over the past three years.
V’s growth should continue through new deals and increased spending via cards and digital payments. The COVID-driven growth of digital payments should continue for the foreseeable future, as more consumers are using smartphones to make purchases. Plus, the global e-commerce market is still in its early stages.
The company’s technological upgrades have enabled the company to strengthen its leading position in the payments market. The firm’s acquisition of Visa Europe in 2016 has been a stunning success for the company. V projects Europe to be a $3.3 trillion payments market in the future. This potential for growth and recent price performance has led to a “Strong Buy” rating for the stock in our POWR Ratings. V has a grade of “A” for Trade Grade, Buy & Hold Grade, and Peer Grade, and a “B” for Industry Rank. It is also ranked #3 in the Consumer Financial Services industry.
It seems that October 28th is a popular day for earnings reports, as V is also scheduled to release its latest financial results on this day.
Vertex Pharmaceuticals (VRTX)
While all the rage in healthcare this year has centered around companies searching for a vaccine for COVID, VRTX has quietly been posting robust revenue figures. The company has grown sales at an average rate of 48% over the past five years. Earnings have grown at a rate of 116.4% over the past three years, and EBITDA has grown at a sky-high rate of 409.3% over the same time period.
The company’s growth can largely be attributed to its cystic fibrosis treatments. Cystic fibrosis has enormous revenue potential. The rare yet life-threatening disease is estimated to affect 75,000 people in North America, Europe, and Australia. VRTX was the first company to successfully develop a drug (Kalydeco) that treats cystic fibrosis’s underlying cause.
The company has seen consistent regulatory approvals for its medications. Last year, VRTX received nine new regulatory approvals or label expansions for its cystic fibrosis medicines. Its Trikafta drug, which was approved early, has seen rapid uptake. Trikafta is going to be a big growth catalyst for the company as it has the potential to treat 90% of cystic fibrosis patients.
The financial strength of VRTX’s cystic fibrosis portfolio should support the continued development of its pipeline of non-cystic fibrosis drugs that treat issues such as AAT deficiency, sickle cell disease, and beta-thalassemia. Its recent near and mid-term momentum has led to a “Buy” in our POWR Ratings system. It holds grades of “B” in Trade Grade, Buy & Hold Grade, and Peer Grade. The stock is also ranked #15 out of 384 stocks in the Biotech industry.
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BRK.B shares fell $0.01 (0.00%) in premarket trading Wednesday. Year-to-date, BRK.B has declined -6.27%, versus a 10.39% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers. More...
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