For most of the second quarter, growth stocks have been out of favour. With the world reopening after Covid-19, investors have focused on cyclical/value stocks in an effort to capitalise on the pick up in economic growth.
Recently however, growth stocks have begun to make a comeback. This month, for example, the S&P 500 growth index is up about 4%. By contrast, the S&P 500 value index is down about 2%.
I wouldn’t be surprised to see this trend continue in the second half of 2021 as investors refocus on secular growth trends. With that in mind, here’s a look at two top growth stocks I’d buy today.
A top growth stock for 2021 and beyond
One of my top picks in the growth space is Upwork (NASDAQ: UPWK). It operates the world’s largest freelance employment platform. This matches highly-skilled workers, such as software developers, lawyers, graphic designers, and copywriters, with businesses that have projects that need to be completed. Last year, Upwork generated revenue of $374m, up 24% year-on-year.
Looking ahead, I believe Upwork has significant growth potential. In the short term, the company should benefit as the global economy picks up speed and businesses hire staff to expand. I think many of those businesses will turn to the freelance market for flexibility. Meanwhile, in the long run, the company should benefit as the freelance market grows. Experts believe that between now and 2025, the global freelance platform market will see growth of around 16% per year.
There are risks to the investment case, of course. One to consider here is the threat of competition. Upwork faces competition from a number of companies including the likes of Fiverr, Toptal, and PeoplePerHour. Another risk is the stock’s quite volatile.
I’m comfortable with these risks however. I think this growth stock has an attractive risk/reward profile. I’ve made UPWK a substantial holding in my own portfolio and I plan to hold the stock for the long term.
A top cybersecurity stock
Another growth stock I’d snap up today is Okta (NASDAQ: OKTA). It provides identity management solutions to businesses. It has a blue-chip customer base that includes the likes of WPP, Renault, FedEx, and Pret. Last year, the company generated revenue of $835m, up 42% year-on-year.
Okta lies at the intersection of two massive growth industries – cloud computing and cybersecurity. Across the world, companies are rapidly moving to the cloud in an effort to enhance their agility and reduce costs.
At the same time, they’re focusing heavily on cybersecurity. They need to ensure that those using their platforms are who they say they are. This is where Okta comes in. Its solutions enable businesses to securely connect their employees with their cloud-based platforms.
While I believe Okta has attractive long-term growth prospects, there are some risks to be aware of. One is in relation to the company’s valuation. At present, Okta has a market-cap of $36.6bn and a forward-looking price-to-sales ratio of 30. That’s high. If future growth is disappointing, this stock could take a significant hit. The recent $6.5bn acquisition of Auth0 also adds risk.
Overall however, I think Okta has a considerable long-term appeal. I think this stock is a good way to play the cybersecurity growth story.
