Over the past decade, growth stocks have been strong outperformers. Since December 2010, the S&P 500 is up 207%, while the Nasdaq 100, which has a much higher concentration of growth stocks, is up 536%.

Some believe that outperformance in growth stocks could be nearing an end. The main catalyst for this is if long-term interest rates begin rising due to an acceleration in economic growth. This would result in multiple compression in these stocks as investors would be less willing to pay a premium for growth. 

Others believe that growth stock outperformance will continue due to the Fed’s commitment to keeping rates low. Additionally, growth stocks could benefit if/when the US government initiates a second stimulus package. 

However, regardless of economic conditions, growth stocks with certain characteristics should continue to outperform. These include high margins, increasing pricing power, and a sustainable competitive advantage. Three growth stocks with these characteristics are Zillow Group (ZG), Blackstone (BX), and Twilio (TWLO). Three growth stocks that fit this profile and are likely 

Zillow Group (ZG)

Within the growth stock universe, ZG is a unique real estate tech stock. The company has essentially become the “Google of real estate”.  It’s earned this moniker because it has the largest market share for real estate search volume. It also has the largest amount of listings relative to its peers.

Initially, ZG made money by selling leads to real estate agents and ads. Now, it’s moving into a higher-margin offering by letting people buy and sell homes on its platform through the use of its salaried agents.

Real estate services is a $1.2 trillion industry, so there’s plenty of opportunities for disruption. In all sorts of industries, technology has led to increased transparency, smaller transaction costs, and more speed. Due to the entrenched interests, complications, and state-by-state regulations in real estate, this transformation is only beginning, and ZG is at the forefront of this shift.

While this is the primary theme for being bullish on ZG, it also helps that real estate is in a bull market. Housing prices are 6% higher this year compared to last year. Measures like homebuilder sentiment are at all-time highs. All of these factors are indicative of increased real estate activity which will benefit ZG.

And, the bull market is likely to persist given low mortgage rates and low housing supply. Further, the coronavirus has gotten many people comfortable browsing real estate on the Internet with virtual tours and in some cases even making purchases. ZG will thrive as this behavior increases especially with younger buyers.

The POWR Ratings are quite bullish on ZG as well. It has a Strong Buy rating. The stock is rated an “A” across all components including Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. Among Internet stocks, it’s ranked #9 out of 59th.

Blackstone Group (BX)

BX is the largest alternative asset management firm in the world. It invests in all types of asset classes including real estate, private equity, hedge funds, credit instruments, and startups. 

The company has exposure to multiple parts of the economy, and it’s likely to thrive as economic growth increases. Low-interest rates will also help the company with their debt-fueled acquisitions and raising money for funds. Additionally, strong financial markets will mean they will get a healthy return on the companies in their portfolio that go public.

BX’s last earnings report also demonstrates the company’s momentum. It reported $0.63 per share in earnings which topped expectations of $0.57 per share. This was also an 8% increase from the previous year. In contrast, the S&P 500’s cumulative earnings were 3% lower in Q3 compared to 2019. 

BX also reported $3 billion in revenue which was a 74% increase from the previous year. Assets under management reached $584 billion which is a 12% increase from last year. As a result of its strong report, analysts hiked their earnings estimate for BX by 41%. 

As a result, BX’s stock made new highs earlier this month and this trend should continue in 2021. The POWR Ratings are also bullish on BX as it’s rated a Strong Buy. It has an “A” for Trade Grade, Buy & Hold Grade, and Peer Grade with a “B” for Industry Rank. The stock is also ranked #3 out of 55 stocks in the Private Equity industry.

Twilio Inc. (TWLO)

TWLO is a cloud-based communications platform that helps developers build communications tools within applications. Its customer engagement platform allows developers to embed voice, messaging, and video capabilities into their applications.

It has 5 million developers and 150,000 companies using its product. Some of its major customers include Lyft (LYFT), Airbnb (ABNB), Shopify (SHOP), Uber (UBER), and DoorDash (DASH). 

The coronavirus was an accelerant for TWLO as the use of digital apps increased especially with telehealth and food delivery. From the March lows, TWLO is up nearly 400%. For three straight quarters, TWLO has beat earnings, revenue, and guidance expectations. Such strong performance has also made it an institutional darling as it’s owned by 1,305 funds.

The company is set up to continue its momentum in 2021 as more companies use TWLO to handle their back-end communications infrastructure. The company projects guidance of $458 million in Q4 which is above expectations. The company also boosted its estimate of its total addressable market (TAM) from $45 billion to $62 billion. It also has its fastest-growth in its higher-margin products like security, its cloud-based call-center service, and video-conferencing which should all continue to see growth next year.

TWLO is rated a Strong Buy by the POWR Ratings. It has an “A” for Trade Grade and Buy & Hold Grade with a “B” for Peer Grade. It’s ranked #1 out of 11 for Software – SAAS stocks. 

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ZG shares were trading at $138.08 per share on Tuesday afternoon, up $0.43 (+0.31%). Year-to-date, ZG has gained 201.88%, versus a 16.48% rise in the benchmark S&P 500 index during the same period.

About the Author: Jaimini Desai

Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles. More...

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