Growth stocks are back! Here are two I’d buy today

Growth stocks are on the rise again but which ones are capable of maintaining this upward momentum? Zaven Boyrazian shares two he’s following.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Recently, growth stocks haven’t been in favour with investors due to fears of rising interest rates. Governments worldwide have been supporting their citizens in an attempt to reboot their economies after pandemic disruptions. However, pouring vast amounts of money into economies means inflation is rising. And when inflation goes up, historically, interest rates rise too, which is bad news for growth stocks carrying big debt loads.

However, as my colleague, Edward Sheldon, has pointed out, the US S&P 500 growth index is back on the rise. In other words, growth stocks are becoming more popular once again. And so, with that in mind, let’s take a look at two growth stocks that I own and would buy more of today.

A potential UK leader in gaming

Lockdown restrictions imposed when the pandemic began led to a surge in gaming activity. The experience was an excellent way to pass the time while being stuck at home. At least, that’s how I saw it. So I wasn’t surprised to see that an Interactive Software Federation of Europe report that revealed a 16% rise in average time spent playing video games last year. While player activity has undoubtedly receded as lockdown restrictions have eased, the digital medium remains incredibly popular. And that’s excellent news for Frontier Developments (LSE:FDEV).

This development studio is behind several leading franchises, including Elite Dangerous, Planet Coaster, and Jurassic World Evolution. Unlike its competitors, Frontier employs what the management team calls a “launch and nurture” approach. Whenever a new title is released, the studio continues to produce new content and release updates even years after. This is why Elite Dangerous still has around 500,000 monthly active players, despite being released nearly seven years ago.

As promising as this strategy has been, Frontier’s business is still exposed to some significant risks. The recent launch of its Odyssey expansion pack was not well received by players. A common theme of negative reviews was the abundance of bugs and glitches preventing an enjoyable experience. Needless to say, this will impact sales. And if the company is unable to resolve these issues quickly, gamers may turn to other titles.

Growth stocks have their risks

A promising growth stock in digital payments

Alpha FX (LSE:AFX) is a financial services company that helps international businesses reduce exposure to currency exchange risks. Currency risk management is its key source of income. And thanks to its commission-based cost structure (rather than the expensive hourly rate alternative banks typically use), the firm continues to attract new clients.

However, that’s not why this growth stock made it into my portfolio. The management team recently launched a new digital payment processing network for enterprise-scale international transactions. Using traditional money-sending solutions is a time-consuming process that can land companies with enormous processing fees. Alpha FX’s answer is cheaper and allows transactions to occur almost instantly.

This division currently only contributes around 13% of the revenue stream. But that’s up from 3% in 2019. And over time, I’m expecting this new payments solution to become the dominant revenue driver for the business. However, it not immune to competition or operational problems. The payment network is almost entirely dependent on an underlying network of multinational banks. Suppose the relationship between the business and these institutions become strained? In that case, it could cause significant disruptions to its income as well as reputation among customers.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Zaven Boyrazian owns shares of Alpha FX and Frontier Developments. The Motley Fool UK has recommended Alpha FX and Frontier Developments. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »