Key Points
- Growth stocks have outperformed for 12 years and counting.
- Tech stocks have been the primary driver for the stock market's outsized gains.
Since the end of the Great Recession in 2009, growth stocks have been a driving force on Wall Street. Historically low lending rates and the Federal Reserve's ongoing quantitative easing measures have created a pool of abundant cheap capital that fast-paced businesses have used to expand operations.
Technology stocks have been a key component of the market's rising trend. Since the financial markets collapsed, demand for consumer electronics and related products and services has caused the tech sector to far outperform every other segment.
Although that has in large part been driven by Amazon.com (NASDAQ:AMZN), which gained over 2,300% during that time frame, semiconductor stocks like Broadcom (NASDAQ:AVGO) and Nvidia (NASDAQ:NVDA) did much better (they've returned over 3,100% and 5,600%, respectively, in the last decade-plus).
The economic dynamics are changing, though. Inflation is running rampant, and the Fed has indicated it's become more hawkish on fighting it, indicating as many as three interest rate hikes may be in the cards this year.
Yet there are still bargains to be found, particularly in the tech sector -- and especially the following pair of growth stocks, which have the tools needed to make you richer in January and beyond.
Shopify
When it comes to tech sector performance,Shopify (NYSE:SHOP) has been no slouch, returning almost 4,200% since its 2015 initial public offering. But 2021 was a tough year for the cloud-based e-commerce platform, and it lost 17% of its value beginning in mid-November.
Shopify still ended the year up 22%, but Wall Street has begun having doubts about the consumer spending boom that was boom launched by the lockdown period of the pandemic. The economy is much more unstable and consumers much more wary, and retail spending fell 1.9% in December as inflation and supply chain disruptions became the Grinch that ruined Christmas for many.
And things aren't improving for Shopify in 2022, which finds its stock down 20% to kick off the new year. The problem comes from concerns that a rising interest rate environment will be detrimental to hyper-growth stocks like Shopify. But there's good reason to believe the market is being unnecessarily pessimistic.
Although Amazon naturally dominates e-commerce with a 39% share of the market -- more than the next 10 biggest competitors combined -- Shopify actually has the second-biggest share with nearly 9%, well ahead of third-place Walmart at 5.8%. Businesses are still transitioning to online presences, and they increasingly turn to Shopify for support, regardless of size.
Third-quarter revenue grew 46% to $1.12 billion, with merchant solutions revenue gaining 51% for the period. Gross merchandise value (GMV) also jumped 35% to $42 billion for the period, though that was below analyst projections of $43.4 billion (and why the stock has slid).
Wall Street is still looking for sales to rapidly increase, forecasting they will reach $16 billion by the middle of the decade. And with its stock just over $1,100 today, analysts have maintained a consensus one-year price target of more than $1,600, for a nearly 50% upside. The massive sales growth is why I think it's likely Shopify will be a trillion-dollar company in the decades to come.
Tesla
While some people will never believe Tesla (NASDAQ:TSLA) is a bargain at $1,050 per share -- a 1,360% return since the market bottom in early 2020 -- few will argue the electric car maker's business won't continue revving its engines and driving forward to greater gains. I'd argue that's what makes it compelling as a stock poised for a bull run.
Tesla is the world's largest EV maker,delivering over 936,000 vehicles in 2021, almost all of which were its Model 3 sedan and Model Y hatchback SUV. Although the carmaker says that's a conservative number because of how it counts deliveries, it's still a small number compared to internal combustion vehicles. Ford alone sold almost 2 million vehicles last year, while total U.S. light vehicle sales were just shy of 15 million, according to Wards Intelligence.
As Tesla keeps growing, it will begin picking off its old-line competitors one by one until it reaches parity and then maybe even surpasses them. It has already passed Volkswagen and Subaru in annual U.S. sales, and has sold nearly three times as many cars as BMW.
The fourth quarter will undoubtedly also mark Tesla's 10th consecutive quarter of profitability when it releases its results later this week. With as many as 30,000 vehicles rolling off its latest Gigafactory assembly line by the middle of the year, Tesla is set to grow even bigger.
Wall Street still doesn't quite agree, and has assigned a consensus price target of less than $900 per share. That's 12% below where it currently trades. One bearish analyst thinks it's worth no more than $150. Yet because investors should have a long-term mindset -- three to five years at minimum, decades preferably -- I wouldn't be swayed at all by the lower price point.
Tesla is a growing, profitable car maker that is leading the industry to an all-electric future. That future may not come anywhere near as quickly as some analysts (and even industry insiders) suggest, but Tesla will be there at the forefront and is a driving force for the future of electric cars for years to come.
