2 monster growth stocks to buy now and hold forever
The Pareto principle – also called the 80/20 rule – was first proposed in 1896 and it has been shown to be true when applied to a number of different fields including sports, computing , health and especially the economy. An application in economics suggests that about 80% of market gains at any given time are driven by 20% of market actions.
This is partly why many investment companies stress the need to diversify a portfolio. No one knows for sure which stocks will be part of that 20% group generating monster returns for shareholders. While there’s no absolute certainty, we can make strong guesses about stocks that are within the 20% range, and it’s pretty clear that Z-scale (ZS -8.22%) and Assets received (UPST -10.35%) have huge upside potential. Let’s take a closer look at these two monster actions.
Zscaler operates the largest network security cloud in the world. Its Zero Trust Platform, known as Secure Access Service Edge (SASE), accelerates and secures access to applications and infrastructure, enabling employees to connect to corporate resources and the Open internet from any device or location. Additionally, by providing security from the cloud, Zscaler eliminates the need for expensive on-premises hardware.
Thanks to its pioneering status and considerable scale, the research company Gartner has recognized Zscaler as the industry leader for 11 consecutive years. During this time, the company has become a key enabler of digital transformation, helping organizations shift resources to the cloud, embrace remote working, and protect their IT ecosystem from cyberattacks. Unsurprisingly, this translated into strong financial results. Over the past year, revenue has climbed 61% to $970 million and free cash flow has climbed 45% to $184 million.
Zscaler is well positioned to reward patient shareholders. The company captured a fraction of its $72 billion market opportunity, but its retention rate has exceeded 125% in the past six quarters, indicating a sticky platform and strong execution of its growth strategy land and expanse.
More broadly, Zscaler is a longtime leader in network security, and the company stands to benefit as companies continue to invest in digital transformation. In fact, Gartner believes that 60% of enterprises will have at least plans in place to adopt SASE networks by 2025, up from just 10% in 2020. This tailwind bodes well for Zscaler, and that’s why this Monster growth stock is a long-term investment.
2. Assets received
Upstart’s mission is to improve the lending industry by reducing risk for banks and expanding consumer access to credit. While traditional underwriting models rely on a limited amount of data – often no more than 30 variables – Upstart leverages artificial intelligence to analyze over 1,500 data points per borrower, helping banks more accurately quantify the risk of fraud and default.
As a caveat, Upstart’s artificial intelligence (AI) models have not been tested during a downturn in the credit cycle, and delinquencies are growing faster in the current macro environment, according to data from Kroll Bond rating agency. However, internal data suggests that Upstart still outperforms traditional underwriting models on all FICO score thresholds.
Financially, Upstart is growing at a breakneck pace. A total of 57 lenders are now using its platform, three times more than the previous year, and 525 dealerships are using its recently launched auto lending software, also three times more than the previous year. In turn, revenue skyrocketed 271% to $1 billion in the past year, and the fledgling fintech company posted a generally accepted accounting principles (GAAP) profit of 1. $64 per diluted share.
On a less optimistic note, management lowered its financial outlook for the current year, citing the possibility that rising interest rates could reduce consumer demand for credit. Even if this happens, the headwind is temporary. Investors should pay more attention to the performance of loans powered by Upstart as consumers battle high inflation. If Upstart’s AI continues to perform better than FICO-based models, this fintech company could go parabolic in the years to come.
Management estimates its market opportunity at $860 billion — a figure that includes its personal loan and auto loan offerings — but the company has a small business loan product in the works that will take its addressable market to 1.5 trillion dollars. That’s why this growth stock is worth buying.