Growth stocks, primarily the ones in the technology space, were the major drivers of the stock market’s stellar performance following the market slump in March. Growth companies typically see revenue and earnings growth at a faster rate than the market average. Thanks to the pandemic-led change in consumer behavior this year, some of the technology companies have witnessed exceptional revenue and earnings growth this year, rewarding investors’ bets handsomely.

Growth stocks have substantially outperformed the broader market this year. This is evidenced by the SPDR Portfolio S&P 500 Growth ETF’s (SPYG) 27.9% gain year-to-date. In comparison, the SPDR S&P 500 ETF Trust (SPY) has returned only 13.9% over this period. Given the progress made by high-growth tech stocks and the changes in consumer and business behavior, their rally is likely might to continue in 2021.

Although most growth stocks are now trading at lofty valuations, it may make sense for investors to pay this premium to own these names because as they have the capacity to generate huge returns in the long-run based on their current and anticipated product innovations. PayPal Holdings, Inc. (PYPL), Adobe Inc. (ADBE), Roku, Inc. (ROKU) and InterDigital, Inc. (IDCC) are four such stocks that are well-positioned to continue their upward momentum  in 2021 based on their sound business models and compelling growth projections.

PayPal Holdings, Inc. (PYPL)

PYPL is one of the most popular digital payment technology platforms. It enables digital and mobile payments on behalf of consumers and merchants worldwide. It has more than 361 million active users globally and is available in more than 200 markets around the world, facilitating payment activity for enabling consumers and merchants to receive money in more than 100 currencies.

In line with the spike in the crypto rates and popularity in recent years, PYPL recently launched a new service enabling its customers to trade cryptocurrencies directly from their PayPal accounts. In addition, in October Moreover, PayPal Ventures invested $50 million in eight early-stage, Black and Latinx-led venture capital funds in October.

In its third quarter report, PYPL said that it added more than 15.2 million new accounts. Its top-line increased 25% year-over-year to $5.46 billion. The company witnessed a total payment volume (TPV) of $247 billion, representing growing 38% growth versus from the year-ago quarter. Merchant Services volume surged 40% and represented 93% of TPV. EPS for the quarter came in at $0.86, rising 121% year-over-year.

PYPL has gained 99% so far this year and is witnessing encouraging progress in the trajectory of domestic spending. Moreover, the shift to digital payments is one of the major trends that is expected to accelerate over the next few couple of two decades. Hence, analysts expect PYPL’s revenue and EPS to grow 18.7% and 19.3%, respectively, next year.

How does PYPL stack up for the POWR Ratings?

A for Trade Grade

A for Buy & Hold Grade

A for Peer Grade

B for Industry Rank

A for Overall POWR Rating.

It is ranked #2 out of 46 stocks in the Consumer Financial Services industry.

Adobe Inc. (ADBE)

ADBE is one of the largest global software companies. It offers content creation, document management, and digital marketing and advertising software and services to creative professionals and marketers. The company operates in with three areas – digital media, digital experience, and publishing for legacy products.

This week, ADBE has completed the acquisition of Workfront, a leading work management platform provider for marketers., this week. The acquisition deal aims to bring efficiency, collaboration and productivity gains to marketing teams that are currently challenged by with siloed or discrete work- management solutions. Moreover, in October, in collaboration with C3.ai and Microsoft (MSFT), ADBE launched the C3 AI CRM, the first enterprise-class, AI-first customer relationship management solution, purpose-built for industries. It that integrates Adobe Experience Cloud and drives customer-facing operations with predictive business insights.

For the fiscal fourth quarter ended November 30,2020, ADBE reported record revenue of $3.42 billion, representing an increase of 14% year-over-year. This was primarily due to a 20% year-over-year revenue growth in its Digital Media segment. The segment generated $2.5 billion in revenues on the back of its Creative and Document Cloud division. Non-GAAP EPS came in at $2.81, rising 22.7% compared to the year-ago value of $2.29.

ADBE has gained 44.6% year-to-date. In its fourth-quarter letter to shareholders, ADBE noted that, “As the undisputed leader in three growing categories – creativity, digital documents and customer experience management – we are well-positioned to capture the massive market opportunity ahead of us in 2021 and beyond.” Analysts expect the company’s revenue and EPS to grow 14.7% and 17.4%, respectively, next year.

So, it is no surprise that ADBE is rated “Buy” in our POWR Ratings system. It also has an “A” for Trade Grade and Industry Rank, and a “B” for Buy & Hold Grade. It is ranked #29 out of 96 stocks in the Software – Application industry.

Roku, Inc. (ROKU)

ROKU offers streaming devices that deliver entertainment content to the televisions. The company also offers a Roku software developer kit that enables developers to build a channel that streams their content to the TV. It provides advertising products and licenses under the Roku TV name and operates through two segments — Platform and Player. It provides its product and services through retailers and distributors, as well as directly to customers through its e-commerce website.

ROKU added Apple’s (AAPL) Airplay to 4K devices last month, which gives users a new workaround to stream HBO Max and other mobile apps. In October, ROKU also introduced the all-new Roku Ultra and unveiled its the Roku Streambar for streamers looking to add powerful streaming and premium sound to any TV. On the software side, ROKU has rolled out Roku OS 9.4 that offers customers new ways to access content quickly with a range of performance enhancements.

ROKU reported an impressive third-quarter results with exceptional account growth. Active accounts rose 43% year-over-year as the company added 2.9 million new accounts during the quarter. Total net revenue It increased its total net revenue 73% year-over-year to $452 million. Its as streaming hours rose 200 million hours to 14.8 billion, and average revenues per user increased 20% year-over-year to $27. EPS for the quarter came in at $0.09, compared to the year-ago loss of $0.22 per share.

ROKU is up more than 140% this year because cord-cutting has seen huge momentum in recent years as Millennials are increasingly streaming content rather than watching it on cable TV. ROKU has delivered strong growth in ad business too, particularly relative to the overall TV ad market, which was down. Analysts expect ROKU’s revenues and EPS to grow 37.7% and 27.3%, respectively, next year.

ROKU’s POWR Ratings reflect this promising outlook. It has an overall rating of “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade, Peer Grade and Industry Rank. Among the 30 stocks in the Technology – Hardware industry, it is ranked #3.

InterDigital, Inc. (IDCC)

IDCC develops mobile and video technologies that are at the core of devices, networks, and services worldwide. The company designs and develops technologies that enable and enhance wireless communications. It develops cellular technologies as well as mobile terminal devices, including 5G wireless networks. Additionally, it provides video coding and transmission technologies, and engages in the research and development of artificial intelligence.

IDCC participated in the AIMM project last month, a research consortium to improve 5G performance through AI and massive MIMO technology. The company also partnered with Plug and Play in October to foster innovative startups and collaborations in gaming. In addition, it launched a new initiative with cloud-gaming specialist Blacknut in the same month to improve and enhance the performance of existing gaming technology.

In its third-quarter report, IDCC claimed total revenue of $87.5 million, an increase of 21% year-over-year. This increase was driven by eight new patent license agreements signed over the last 12twelve months, including Huawei and ZTE. This in- turn led to a fourfold increase in operating income. EPS for the quarter came in at $0.76, a significant gain rising exponentially compared to the year-ago value of $0.07.

IDCC currently holds more than 32,000 patents related to AI, IOT, and 5G. It has Moreover, it has been one of the pioneers of in terms of breakthroughs in wireless technology and research. The stock is up 5.1% in the past six months and will likely see further gains momentum as analysts expect current year revenue and EPS to grow 11.5% and 150%, respectively.

IDCC’s strong fundamentals are reflected in its POWR Ratings. It has a “Buy” rating with an “A” in Trade Grade and Industry Rank, and a “B” in Buy & Hold Grade. It is ranked #54 out of 86 stocks in the Semiconductor & Wireless Chip industry.

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PYPL shares were trading at $213.15 per share on Friday afternoon, down $2.19 (-1.02%). Year-to-date, PYPL has gained 97.05%, versus a 15.40% 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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