Despite long stretches of market volatility this year, growth stocks that typically possess above-average revenue and earnings growth have offered the best returns so far this year. The outbreak of a second wave of coronavirus in Europe and the United States could give these stocks another boost.
With the Federal Reserve keeping interest rates near zero to support the nation’s economic recovery, growing companies are borrowing aggressively and expanding their operations. The SPDR Portfolio S&P 500 Growth ETF, which measures the performance of the large capitalization growth stocks of the US equity market, has gained 29.4% year to date.
At this stage, we think it would be prudent to invest in companies like Uber Technologies, Inc. (UBER), Weyerhaeuser Company (WY), Williams-Sonoma, Inc. (WSM) and Digital Turbine, Inc. (APPS) that are expected to experience explosive revenue and earnings growth going into 2021.
Uber Technologies, Inc. (UBER)
UBER, which is known for ridesharing and food delivery services, operates through five segments – Rides, Eats, Freight, Other Bets, Advanced Technologies Group (ATG) and Other Technology Programs. The company’s food delivery services UberEats and UberFreight have become widely popular since the onset of the pandemic.
On December 8th, UBER announced a private offering of $1 billion of convertible senior notes. The company plans to use the proceeds from the offering to meet its working capital expenses and for funding other corporate developments.
On December 1st, the company announced that it has completed the acquisition of Postmates Inc. which will bring together Uber’s delivery platform with Postmates’ business. This will allow UBER to establish itself as a leading player in the food delivery business.
UBER’s delivery revenue increased 125% year-over-year to $1.50 billion in the third quarter ended September 2020. Delivery gross bookings grew 135% from the year-ago value to $8.55 billion, on a constant currency basis.
The consensus EPS estimate for the next quarter ending March 2021 indicates a 67% improvement from the year-ago value. Moreover, UBER has an impressive earnings surprise history, with the company beating consensus EPS estimates in three out of trailing four quarters. The consensus revenue estimate of $3.84 billion for the next quarter indicates an 8.5% growth from the same period last year. The stock has gained 80.9% year-to-date.
How does UBER stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
A for Peer Grade
A for Overall POWR Rating.
You cannot ask for better.
Weyerhaeuser Company (WY)
WY is one of the leading private owners of timberlands, controlling approximately 11 million acres in the US. The company is also one of the largest manufacturers of wood products in North America.
On November 20th, WY jointly announced the purchase of 85,000 acres of timberlands in mid-coastal Oregon and sale of 149,000 acres in southern Oregon. These transactions will provide WY with an access to key domestic and export markets and strengthen their ability to deliver long-term value to shareholders.
WY’s revenue increased 29.4% sequentially to $2.11 billion in the third quarter ended September 2020. Adjusted EBITDA rose 141.9% year-over-year to $745 million, while gross profit increased 164.7% from the year-ago value to $720 million over this period.
The consensus EPS estimate of $0.28 for the next quarter ending March 2021 indicates a 55.6% improvement from the year-ago value. Moreover, WY has an impressive earnings surprise history, with the company beating consensus EPS estimates in three out of the trailing four quarters. The consensus revenue estimate of $1.82 billion for the next quarter indicates a 5.2% growth from the same period last year. The stock has gained 29.1% over the past six months.
WY’s strong fundamentals are reflected in its POWR Ratings. It has a “Strong Buy” rating with an “A” for Trade Grade, Buy & Hold Grade and Peer Grade. It is ranked #1 out of 51 stocks in the REITS – Diversified industry.
Williams-Sonoma, Inc. (WSM)
WSM is an omni-channel specialty retailer offering home furnishings and decorative accessories under the Williams Sonoma Home brand. It markets its products through e-commerce websites, direct-mail catalogs, and retail stores.
The company recently partnered with CRUX to offer a line of kitchenware that provides simple-to-use appliances with bold design details. This strategic partnership will help WSM provide unique products to its customers and stand out in the market.
WSM’s net revenue increased 22.4% year-over-year to $1.76 billion in the third quarter ended November 2020. Net income increased 170.1% from the prior-year quarter to $201.77 million. Non-GAAP operating margin rose 810 basis points from the year-ago value to 15.7%, while EPS grew 170.8% from the prior-year quarter to $2.60 over this period.
The consensus EPS estimate of $3.27 for the current quarter ending January 2021 indicates a 53.5% improvement year-over-year. WSM has an impressive earnings surprise history, with the company beating consensus EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $2.15 billion for the current quarter indicates a 16.8% increase from the same period last year. The stock has gained 44.8% year-to-date.
WSM’s promising outlook is reflected in its POWR Ratings. It is rated a “Buy” with an “A” for Trade Grade and a “B” for Buy & Hold Grade, Peer Grade and Industry Rank. It is ranked #29 out of 69 stocks in the Home Improvement & Goods industry.
Digital Turbine, Inc. (APPS)
APPS is a software platform offering media and mobile communication products and solutions for mobile operators, application advertisers, and other third parties worldwide. It provides programmatic advertising, targeted media delivery services and professional services related to the core platform.
Earlier this year, the company partnered with Moonlighting, a leading mobile on-demand hiring platform, to grow Moonlighting’s app users and provide access to available jobs and business tools. This will broaden APPS’s market reach and give a boost to its on-device media platform.
APPS’s net revenue increased 116% year-over-year to $70.90 million in the second quarter ended September 2020. Operating income rose 289% from the prior-year quarter to $12.12 million, while non-GAAP adjusted EBITDA grew 265% from the year-ago value to $16.50 million over this period.
The consensus EPS estimate of $0.16 for the next quarter ending March 2021 indicates a 220% improvement from the year-ago value. Moreover, APPS has an impressive earnings surprise history, with the company beating consensus EPS estimates in three out of trailing four quarters. The consensus revenue estimate of $72.50 million for the next quarter indicates an 84.2% growth from the same period last year. The stock has gained 507.7% year-to-date.
It is no surprise that APPS is rated “Strong Buy” in our POWR Ratings system. It has an “A” for Trade Grade and Buy & Hold Grade, and a “B” for Peer Grade and Industry Rank. Among the 96 stocks in the Software – Application industry, it is ranked #17.
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UBER shares rose $0.28 (+0.53%) in after-hours trading Tuesday. Year-to-date, UBER has gained 78.24%, versus a 16.66% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More…
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