For the past 12 years, growth stocks have shone brightly on Wall Street. Historically low lending rates, coupled with dovish Federal Reserve policy, have allowed fast-paced companies access to cheap capital, which they’ve used to hire, acquire, and innovate.
But even with the nation’s central bank expected to begin raising rates this year, growth stocks still have a clear path to success. Below are five growth stocks with all the tools and catalysts necessary to make you richer in 2022 (and likely well beyond).
I’ve not previously been a fan of Nio. This is a company that was bestowed a roughly $90 billion valuation while producing only 20,000 vehicles annually. It didn’t make sense. But after watching Nio evolve, even with supply chain challenges, I’ve come away impressed by its management team and innovation.
Last year, Nio delivered 91,429 EVs. That might not sound like a lot, but the company’s production ramp-up is beginning to kick into high gear now that supply chain concerns are being pushed to the rearview mirror. The company ended the year by delivering almost 10,900 EVs in November and just shy of 10,500 in December. It’s effectively operating at an annual run rate of 130,000 EVs and has plans to push its run rate to 600,000 EVs by the end of this year.
On the innovation side of the equation, Nio is tackling growth on two fronts. First, it’ll be launching three new EVs this year, which should attract new buyers. And second, the company will continue to lean on its battery-as-a-service (BaaS) program, which was introduced in August 2020.
The BaaS program allows buyers to charge, swap out, or upgrade their batteries, as well as reduces the initial purchase price of Nio EVs. In exchange, buyers pay a monthly subscription fee for the program. Nio is wisely exchanging some lower-margin, near-term revenue for higher-margin, long-term revenue that’ll boost brand loyalty.
It’s an outside shot, but we could see Nio push to quarterly profits by the end of the year.
Bark is a dog-focused products and service company that went public in late 2020 via a special-purpose acquisition company (SPAC). As with most SPACs, it was beaten down throughout much of last year. However, a little digging shows that pet industry and company-specific growth metrics are promising.
Let’s start with the basics: People love their pets. According to the American Pet Products Association, 69 million households own a dog, and spending on companion animals hasn’t declined on a year-over-year basis in at least a quarter of a century. No matter how steep the recession, owners are willing to open up their pocketbooks for their furry friends.
Bark runs a predominantly subscription-based operating model. Though its products can be found in approximately 23,000 retail doors throughout the U.S., almost 90% of its sales originate from its 2.1 million subscribers. The beauty of the online subscription model is it results in less overhead than brick-and-mortar retail and provides better cash flow transparency. Having close to 90% of its revenue derive from subscriptions is why the company’s gross margin has hovered between 58% and 60%.
Like Nio, Bark is also using innovation to its advantage. It introduced Bark Home and Bark Eats in 2020 to encourage add-on sales and provider better value to its subscribers. Bark Home retails basic accessories like collars and beds, whereas Bark Eats works with owners to craft personalized dry food diets for their pooch. Look for these new services to help Bark deliver close to 40% sales growth this year.
Another well-known growth stock that can make investors richer in 2022 (and well beyond) is social media platform Pinterest (NYSE: PINS).
Wall Street had quite the fit when this pandemic darling reported sequential quarterly declines in its monthly active user (MAU) count in the second and third quarters. But focusing on this very short-term decline in MAUs overlooks so many other things working in Pinterest’s favor over the long run.
For instance, even though Pinterest’s MAUs grew by less than 1% on a year-over-year basis in Q3, the company still saw global average revenue per user (ARPU) rocket higher by 37%, with international ARPU jumping by an even more impressive 81%. These figures demonstrate that advertisers are willing to pay top dollar to reach Pinterest’s potentially motivated base of consumers.
It’s not as if Pinterest’s MAUs are in free fall, either. User growth accelerated during the early stages of the pandemic when folks were stuck in their homes and has tapered off with vaccination rates ticking up. Over a four-year stretch, MAU growth remains well within historic norms.
As a shareholder, I especially like Pinterest’s operating model, which is designed to funnel in ad revenue and make the company a competitive e-commerce platform of the future. The entire premise for Pinterest is to have its users share the things, places, and services that interest them. With no guesswork involved, merchants can effectively target their ad dollars.
With a price/earnings-to-growth (PEG) ratio of around 1, Pinterest is too good of a deal to pass up.
Marijuana stocks were nothing short of a buzzkill since mid-February of last year. The expectation had been that President Joe Biden and a Democrat-led Congress would have no trouble passing cannabis reforms. However, this hasn’t been the case, and pot stocks like Cresco Labs (OTC: CRLBF) have taken it on the chin. Thankfully, this short-term pain can be investors’ long-term gain.
Federal legalization isn’t necessary for marijuana stocks to thrive. We’ve watched 36 states legalize weed in some capacity, and the Department of Justice has stated its intent to allow individual states to regulate their industries. This is a formula for multistate operators (MSO) like Cresco Labs to be successful.
Cresco Labs aims to show its investors the green with a two-pronged growth strategy. First, it’s focused on building up its retail presence. The company recently opened its 45th dispensary and has been targeting both high-dollar (Florida) and limited-license markets (Illinois, Ohio, and Massachusetts). Limited-license markets cap how many dispensary licenses are issued in total, as well as to a single business. Capping the number of licenses issued ensures that smaller players have an opportunity to build up their brand(s) in potential billion-dollar markets.
The second key to Cresco Labs’ success is its wholesale business. Wall Street isn’t the biggest fan of wholesale cannabis because the margins are typically lower than retail. However, Cresco’s secret weapon is the cannabis distribution license it holds in California, the largest weed market in the world. This license, which it gained as part of the Origin House acquisition in early 2020, allows Cresco to place its proprietary pot products into more than 575 dispensaries in the Golden State.
With Cresco on the cusp of recurring profitability, the table is set for its shares to soar in 2022.
A fifth and final growth stock that’ll make you richer in 2022 is China-based e-commerce company JD.com (NASDAQ: JD).
Among growth names, China stocks were pummeled for much of 2021. Wall Street and investors spent last year concerned about Chinese regulators cracking down on some of the country’s most prominent companies, including Alibaba, which was hit with a record antitrust fine of $2.8 billion. However, JD is likely to escape any increased regulation thanks in part to its operating model.
Alibaba, China’s leading e-commerce platform, generates nearly all of its revenue by acting as a third-party marketplace. Meanwhile, JD operates a traditional direct-to-consumer model that’s pretty much identical to Amazon. It holds inventory and handles the logistics of getting products to buyers. Having control over this entire process makes it very unlikely that regulators would scrutinize JD’s operating model.
JD is also going to be buoyed by China’s often superior growth rate. The country’s emerging middle class is the catalyst behind China’s gross domestic product growing at a faster rate than most major countries. That’s good news for a retail-driven company like JD.
Lastly, don’t overlook the company’s push into new verticals, such as cloud services, advertising, and healthcare. These verticals may be a small component of total sales for now, but they’re growing considerably faster than the traditional retail segment.
Look for JD.com to bounce back in a big way in 2022.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Sean Williams owns Amazon, Bark Inc., and Pinterest. The Motley Fool owns and recommends Amazon, Cresco Labs Inc., JD.com, NIO Inc., and Pinterest. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.