These growth stocks have what it takes to win in 2022.
Growth stocks have been top market performers for many years now. The Nasdaq-100 index, in fact, hasn’t had a single down year since the Great Recession in 2008. And 2021 delivered another solid year, at least for investors that heavily allocated to large tech companies. Beneath the surface, however, cracks in growth stocks began to appear. Many smaller and unprofitable software companies suffered tremendous losses in the back half of 2021. And a large number of companies in emerging industries such as electric vehicles, fintech and renewable energy witnessed steep declines over the past few months. With inflation and rising interest rates starting to overshadow other concerns, growth investors should be careful in 2022. That said, there’s always an opportunity to be found. Here are 10 of the best growth stocks to buy for 2022.
Meta Platforms Inc. (ticker: FB)
Meta Platforms, the parent company of Facebook, had a transitional year. The company’s core advertising business enjoyed tremendous growth in 2021 as key sectors of the economy reopened, offering a strong tail wind for many of the firm’s key advertisers. However, founder Mark Zuckerberg isn’t content just running Facebook and Instagram. He’s pushing into what’s called the metaverse, or a digital world that unites work, gaming and communications. Meta Platforms will invest tens of billions of dollars in this effort. If successful, Meta could end up dominating the next big interface device, finally giving the smartphone a run for its money. In the meantime, Facebook’s social media platforms remain cash machines, giving the firm a long runway for share buybacks and investments in emerging new industries.
Unity Software Inc. (U)
If Zuckerberg is going to succeed with his metaverse ambitions, he’ll need powerful tools and partners to help build out the ecosystem. Unity is the first name that jumps to mind. Years ago, Zuckerberg reportedly attempted to acquire Unity to have it serve as the operating system for virtual and augmented reality functions. Today, Unity is primarily a gaming engine that allows developers to make games that work seamlessly across consoles, computers, phones and virtual reality. This large but profitable niche makes Unity one of the best growth stocks to buy now. As more games take place in the metaverse, Unity should be able to gobble up a larger share of the engine market for the gaming industry. In addition, the company is using its graphics capabilities for other purposes such as animation, architecture, design and e-commerce. Unity stock soared following Zuckerberg’s metaverse announcement but pulled back a quick 25% to end 2021. That gives investors that missed the first run-up a second shot at this leading metaverse firm.
BigCommerce Holdings Inc. (BIGC)
BigCommerce is an e-commerce software company focused on providing tools for small and mid-sized merchants. The company provides services including store design, catalog management, accounting and reporting requirements, hosting, checkout, and handling orders for its merchants. The big draw to BigCommerce is that it has fallen to 14 times revenue with the recent tech correction. At the same time, key rival Shopify Inc. (SHOP) continues to sell for more than 40 times revenue. Despite the way lower valuation, BigCommerce is still growing its revenues around 30% annually. The stock price was hit with fading pandemic e-commerce tail winds, but the underlying business remains strong. Analysts agree. In December, Goldman Sachs, Wedbush and Bank of America’s research teams all either initiated coverage or upgraded BIGC stock with favorable outlooks for 2022.
C3.ai Inc. (AI)
Next on the list of top 2022 growth stocks, C3.ai is a leading artificial intelligence company. Like Palantir Technologies Inc. (PLTR), C3.ai offers big data and analytics to the military and numerous private clients. Unlike Palantir, however, C3.ai’s valuation got hammered in 2021, with shares down 75% versus a 20% decline for Palantir. C3.ai’s sales momentum slowed dramatically during the pandemic, as it sells high-ticket software that’s hard to pitch via video calls. With travel restarting in 2021, however, the company’s business picked back up in the latter half of the year, and it just inked a new $500 million five-year contract with the Department of Defense. Given that C3.ai’s annual revenues were just $212 million over the past 12 months, this could be a transformational moment. The firm is headed by tech legend Tom Siebel, AI is a growing category in the tech industry and C3.ai is announcing large new contracts. The stock price could heat right back up in 2022.
Texas Instruments Inc. (TXN)
Texas Instruments is one of the leading growth firms in the semiconductor industry. The company focuses primarily on analog semiconductors. This has given the company a strategic advantage, as analog semiconductors are a more durable category than fast-evolving chips for smartphones and other consumer electronics. Texas Instruments makes chips that go into more steady uses such as sensors, monitoring equipment and other real-world applications that take physical information and make it readable to digital devices. Analog semiconductors are now leading a massive structural shift as everything is becoming connected to the internet. The “internet of things” is a megatrend, and each new smart device needs more and more computing gear. Texas Instruments’ particular focus on smart cars should pay off throughout the 2020s. For now, after a quiet 2021 where TXN stock was range-bound, shares are on offer at just 22 times forward earnings.
IonQ Inc. (IONQ)
IonQ is one of the first publicly traded quantum computing companies. Quantum computing is a pioneering field that intends to reshape the idea of computing altogether. This field utilizes the unique properties of quantum states to perform calculations at a much higher rate than a classical computer. The idea isn’t simply to improve existing computing marginally, but rather develop a whole new range of technologies. Computers that are orders of magnitude faster than existing ones could unlock whole new approaches to fields such as meteorology, computational chemistry and pharmaceutical research. IonQ is still a small firm and will likely only generate a few million dollars of revenue in 2022. However, if the company can scale its technology from its current state to a broad platform, it could be one of the giant tech companies of the next 25 years. IonQ is still highly speculative, but it’s potentially an industry-changing firm that is currently selling for a market capitalization around $3.4 billion.
Duolingo Inc. (DUOL)
It’s the season for New Year’s resolutions. For a lot of people, that will include starting or resuming progress on learning a second language. Duolingo gives investors access to arguably the world’s best-known software app for language learning. Are most people going to become fluent solely from using Duolingo? Probably not. But it’s a great tool to help teach people vocabulary and grammar to a reasonable degree. A complaint about the company is that it might be hard to monetize. Certainly, the app gives a lot away for free to ordinary users. However, the company has started developing much more solid revenue streams such as institutional licensing and placement tests for academic and career uses. In this way, Duolingo should be able to turn its fervent user base into a growing and profitable business. DUOL stock has declined nearly 50% from its recent highs, giving investors a chance to buy in at a solid holiday discount.
AvePoint Inc. (AVPT)
AvePoint is a specialized software firm focused on providing broad platform support for Microsoft Corp. (MSFT) products. When companies need a specialist to manage specific functions on Microsoft 365 such as data migration, management and security, AvePoint is the leading name to call. Some may view AvePoint’s close ties to Microsoft as a risk, but Microsoft has shown tremendous growth in recent years, and AvePoint is a key partner that handles business for more than 15,000 organizations using Microsoft products. As long as Microsoft keeps growing, AvePoint should ride along with it. But unlike Microsoft, AvePoint is selling at an attractive valuation. With the recent pullback, AVPT stock is now selling for less than six times estimated 2022 revenues, meanwhile, those revenues are growing at 30% per year — two facts that helped earn it a spot among the best growth stocks to buy for 2022.
nCino Inc. (NCNO)
Fintech has been one of the big investing trends recently. Unfortunately, high valuations and spotty business execution caused many high-profile stocks in this category to underperform in the back half of 2021. For investors wanting a safer play on this sector, consider cloud computing firm nCino. It offers the nCino Banking Operating System, which gives banks an all-in-one cloud-based software platform. The firm’s product can handle client onboarding, account management, loan underwriting and regulatory compliance, among other uses. This software is vital to small community and regional banks that don’t have the financial resources to build their own internal tools. As small banks evolve to stay relevant in the digital future, tools like nCino’s platform will be an indispensable part of their workflow. Thanks to strong earnings in the banking sector recently, IT budgets are healthy right now, which is powering nCino’s estimated 31% revenue growth rate for fiscal 2022.
Avalara Inc. (AVLR)
Specialty cloud computing companies are a great hunting ground for tech investors right now. Turning from banking to tax compliance, there’s Avalara. The company is the leader in software to help online retailers effortlessly track and collect sales tax. This is a burden to small businesses that have to deal with different tax rules and rates in each jurisdiction that they serve. With Avalara, all that calculation can be automated. The company continues to add to its product offering with cross-border integration and support for goods such as liquor that have distinct tax codes. Avalara has come into its own over the past few years following a Supreme Court ruling that made it easy for states to collect sales tax on digital transactions regardless of where a retailer operates. Thanks to that, plus the e-commerce tail winds from the pandemic, Avalara has enjoyed more than 30% annualized revenue growth in recent years. Meanwhile, the company’s share price slid from $190 to $135 amid the recent tech correction.
10 best growth stocks to buy for 2022:
— Meta Platforms Inc. (FB)
— Unity Software Inc. (U)
— BigCommerce Holdings Inc. (BIGC)
— C3.ai Inc. (AI)
— Texas Instruments Inc. (TXN)
— IonQ Inc. (IONQ)
— Duolingo Inc. (DUOL)
— AvePoint Inc. (AVPT)
— nCino Inc. (NCNO)
— Avalara Inc. (AVLR)
