Growth stocks have outperformed value stocks significantly over the past decade. And thanks to the coronavirus pandemic, 2020 was also a great year for the class of stocks. Growth companies can increase their revenue and earnings at a faster rate than their industry averages. These are qualities that are rewarded by investors.
Though most growth stocks are trading at lofty valuations now, it still makes sense to many investors to pay a premium to own them because they have the capacity to generate huge returns in the long run based on their continued revenue and earnings growth.
We think that Charter Communications, Inc. (CHTR), Applied Materials, Inc. (AMAT), Baidu Inc. (BIDU) and Activision Blizzard, Inc. (ATVI) are four established players that are well-positioned to keep gaining based on their sound business models and compelling growth drivers.
Charter Communications, Inc. (CHTR)
CHTR is a leading broadband connectivity company and cable operator that serves more than 30 million customers in the U.S. Over an advanced communications network, the company offers a full range of state-of-the-art residential and business services, including Spectrum Internet, TV, Mobile and Voice. The company operates through the following segments – Internet, Video, Voice, Small and Medium Business, Enterprise, Advertising sales, and Mobile.
NBCUniversal and CHTR recently announced a multi-year distribution agreement for NBCUniversal’s full portfolio of broadcast, entertainment, news and sports content in Charter’s Spectrum homes and businesses across 41 states. As part of the new deal, Peacock Premium will be available to Spectrum’s broadband and video subscribers for an extended free trial. Charter also intends to distribute the Peacock app via its Spectrum Guide platform in the future.
CHTR’s revenue and EPS grew at a CAGR of 4.6% and 61.1%, respectively, over the past three years. In its last reported quarter, CHTR’s $12 billion of revenue grew by 5.1% year-over-year, driven by residential revenue growth of 4%, mobile revenue growth of 91.8% and advertising revenue growth of 16.8%. Its total residential and SMB customer relationships increased by 457,000, compared to 310,000 during the same period last year. In addition, the company added 363,000 mobile lines. Its EPS for the quarter came in at $3.90, surging 124% year-over-year.
CHTR is up 11.6% in the past three months. Over the last 12 months, its total customer relationships grew by 6.8% as the company added two million customer relationships. Though consumers are cutting the cord on cable in larger numbers with each passing year, CHTR’s internet and mobile segments are holding strong and likely will continue to do so for the foreseeable future. Analysts expect CHTR’s full-year 2020 revenue and EPS to grow 5% and 89.7%, respectively.
How does CHTR stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
B for Peer Grade
B for Industry Rank
A for Overall POWR Rating.
It is ranked #1 of 13 stocks in the Entertainment – TV & Internet Providers industry.
Applied Materials, Inc. (AMAT)
AMAT is one of the world’s largest suppliers of semiconductor manufacturing equipment that also provides services and software to the semiconductor, display, and related industries. The company’s expertise lies in modifying materials at atomic levels on an industrial scale. It operates through three segments – Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets.
Think Silicon S.A., an AMAT company that is a leading provider of ultra-low power GPU IP for embedded systems, recently announced that it is shipping its updated NEMA® pico XS and NEMA pico XL Multi-Core GPU IP-Series to customers. The series offers architectural innovation that brings performance graphics rendering to the smallest and most power-conservative embedded display devices.
Over the past three years, AMAT has grown its revenue and EPS at a CAGR of 5.4% and 6.5%, respectively. For the fiscal fourth quarter ended October 31, 2020, AMAT reported record revenue of $4.69 billion–an increase of 25% year-over-year–on back of strong demand for its semiconductor systems and services. The Semiconductor Systems segment contributed nearly 65% to its l top-line. Its non-GAAP EPS came in at $1.25, rising 56% versus the year-ago value of $0.80.
The stock is up 77.3% in the past three months. AMAT’s management expects to see continued strong demand for its foundry logic, driven by advanced node transitions to support new technologies including automotive, IoT, the 5G rollout, and image sensor markets. Analysts further expect the company’s current year revenue and EPS to grow 14.9% and 21.8%, respectively.
It is no surprise that AMAT is rated “Strong Buy” in our POWR Ratings system. It also has an “A” for Trade Grade, Buy & Hold Grade, Peer Grade and Industry Rank. It is ranked #7 of 99 stocks in the Semiconductor & Wireless Chip industry.
Baidu Inc. (BIDU)
BIDU is a leading Chinese internet search provider often referred to as the “Google of China”. In addition to providing a user-friendly Chinese language search platform, BIDU has several third-party sites in addition to software applications, Japanese search services, online marketing services, and more. In fact, BIDU is expanding its offerings to include electric vehicles (EVs) and has a leading position in artificial intelligence (AI) and cloud computing. The company operates through two segments — Baidu Core and iQIYI.
Blackberry and BIDU have agreed to expand a partnership that aims to give automakers the tools they need to launch next-generation connected and autonomous vehicles in China. Under the deal, BIDU’s high-definition map will be integrated with BlackBerry’s QNX Neutrino real-time operating system. In addition , BIDU teamed up with carmaker Geely Automobile (GELYY), which owns Volvo, to form a joint venture earlier this month. The entity will use Baidu’s autonomous driving software with Geely’s EV modular platform. Geely will handle the vehicle manufacturing while Baidu will contribute the design, tech, and capital to scale production.
BIDU’s revenue and EPS increased at a CAGR of 9.4% and 10.5%, respectively, over the past three years. In the third quarter ended September 30, 2020, BIDU’s revenue increased 8% sequentially to $4.16 billion. The increase in revenue was attributable primarily to growth in cloud services and iQIYI subscriber revenue. iQIYI segment subscribers hit 104.8 million during the quarter, while membership revenue increased 7% year-over-year. Its non-GAAP earnings per ADS increased 61.4% year-over-year to $3.
On January 13, the outgoing Trump administration reportedly decided not to ban American investments in some Chinese tech giants, which included BIDU. Despite ongoing political tensions, the stock has surged a massive 86.8% in the past three months. China has the world’s largest internet user population, and the company may witness substantial upside with the potential monetization of its growing membership, vibrant mobile ecosystem and live streaming services. Analysts expect its full-year 2020 revenues and EPS to grow 7.5% and 26.2%, respectively.
BIDU’s POWR Ratings reflect this promising outlook. It has an overall rating of “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade and Peer Grade, and a “B” for Industry Rank. Among the 103 stocks in the China stocks, it is ranked #4.
Activision Blizzard, Inc. (ATVI)
ATVI is an interactive entertainment company that develops and distributes content on video game consoles, PCs, and mobile devices worldwide through retail and digital channels. As one of the most popular gaming platforms worldwide, ATVI had a monthly active user base of 390 million as of September 30, 2020.
The stock has been largely benefitting from the global stay-at-home norm in which people spend more time online forms of entertainment. This has significantly boosted audiences for its Call of Duty and World of Warcraft game franchises. ATVI recently announced that its eighth expansion, Shadowlands, became the fastest-selling PC game of all time with more than 3.7 million units sold globally. The company’s iconic Call of Duty series has set new franchise records, surpassing $3 billion in net bookings over the last 12 months, with key performance metrics across engagement and premium game sales at all-time franchise highs over the period.
ATVI’s revenue and EPS grew at a CAGR of 3.1% and 25%, respectively, over the past 3 years. The company is scheduled to release earnings results for the fourth quarter ended December 31, 2020 on February 4, 2021. In the third quarter, ATVI’s net revenues climbed 52.4% year-over-year to $1.95 billion. Revenues from digital channels were $1.75 billion, compared to $1.01 billion in the year-ago quarter, on the back of strong execution across three strategic growth drivers – audience reach, engagement and player investment. Net bookings came in at $1.77 billion, versus the year-ago value of $1.21 billion. Its non-GAAP EPS came in at $0.88, surging 131.6% year-over-year.
ATVI is largely benefiting from its market dominance, continued expansion, and growing global user base. The company anticipates bright fourth quarter results and projects a $2 billion quarter. The stock is up 14.8% in the past three months and should keep gaining because analysts expect full-year 2020 revenue and EPS to grow 27.9% and 52.9%, respectively.
ATVI’s strong fundamentals are reflected in its POWR Ratings. It has a “Strong Buy” rating with an “A” for Trade Grade and Buy & Hold Grade, and a “B” for Peer Grade and Industry Rank. In the 22-stock Entertainment – Toys & Video Games industry, it is ranked #1.
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CHTR shares were trading at $648.42 per share on Wednesday morning, down $1.12 (-0.17%). Year-to-date, CHTR has declined -1.98%, versus a 1.32% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...
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