High Growth Stocks: In this Article I will be walking through eight high conviction positions that I am investing in and explaining exactly why I own those companies. Despite the ups and downs in the stock market, my portfolio is up around 14,000 year to date. In this Article, I will show you which trades I’ve made in the past month and which companies I’ve invested in through my Charles Schwab stock portfolio.
Companies I Own
These are eight stocks that I think have the best chance of having a very positive return going forward. You can also see which stocks you own in the article to see what you own.
A company called Snowflake operates in the data space like Datadog. However, it works in a very different way. Snowflake has invented the data cloud which lets them manage all the data access collaboration monetization and even building tools that other companies can use to actually run useful applications on their data. While this company may face some temporary headwinds as we see a downturn in the stock market over the next several months in the long term, the general trends of cloud growth and data proliferation are going to benefit Datadog.
They operate in the B2B space meaning they sell their products to other businesses rather than consumers which tend to be a little bit less fickle about canceling contracts even in an economic downturn. The company is producing 65 million dollars in free cash flow every quarter now. The data cloud is taking that one step further. It makes it an order of magnitude less effort for other companies to use the data that they’re paying less than they are getting back by using the cloud but Snowflake is taking an order to use it less effort than they are paying Snowflake less than the other companies.
The cloud is also a very high adjusted gross margins sitting at around 81 percent in q4 2022. the data cloud Snowflake has a dollar based net expansion rate of 165 percent. For every dollar a customer spends this year, they can expect that same customer to spend 1.65 cents next year.
Even if Snowflake did not market outside the company at all, they would effectively grow at at 65 percent year over year just from their existing customers. As the company gets bigger and bigger, that percentage growth is going to decline over time but their absolute growth rate is still incredibly high and a lot of that has to do with the fact that the customers really like their product, which is why that’s my second largest position that I invest in.
Protecting Your Online Trades
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The third largest company I’m investing in is Cloudflare, in which I own 317 shares valued at $18,000. Charles Schwab calculates their gains and losses as I sold some Cloudflares when it was at a higher price and then bought more around that same price. Cloudflare is not yet profitable from a gap profit margin perspective, but they are getting closer and closer to becoming profitable every single quarter. In their most recent quarter, they reported positive free cash flow for the first time of $34 million.
The company has grown at an average rate of over 50% in revenue year over year for more than the past half decade, similar to the other companies on this list. Cloudflare is now competing with companies like Amazon, Microsoft, and Google with their cloud systems, which would have been almost unheard of for a relatively small company to do five years before.
I consider that a very good thing as we enter a potential recession. That cash gives them the ability to make choices. If they need to buy a competitor, they can do that. If they need to cover a shortfall in one quarter’s earnings because there are a sudden drop and so on, they have the flexibility to do so.
Sofi plans to be the future of banking basically focusing on millennials and gen z who make far above the average income to focus on them as customers. Sofi is not yet profitable, but they are growing extremely quickly with revenue growth of 57% in their most recent quarter, growing 51% before that, 52% before that, and 62% a year ago.
Zscaler is the fifth largest position overall which is a company that you probably haven’t heard of called Zscale. Sentinel One and CrowdStrike Sentinel One offer super advanced antivirus software for enterprises, they use AI to analyze different viruses. CrowdStrike offers super advanced antivirus software that analyzes different viruses and uses AI to break down them.
The biggest downside with Zscalers is that their growth has been slowing down from 71% billings growth year over year in 2021 to 37% growth in Q1 2023, and since Zscalers tend to predict where their revenue is going to go, we may soon see a drop in Zscaler’s revenue year over. As more and more companies are moving to the cloud allowed more of them are going to be implementing this kind of security. The company is not yet profitable, but it’s not one of my largest positions overall. The stock-based compensation as a percentage of revenue has continued to drop over time, which means that eventually, they may even become gap profitable.
Crowdstrike and Sentinel 1: Cloud-Based Security Providers
Crowdstrike and Sentinel 1 are cloud-based security providers, meaning that as customers move to the cloud, these are the kinds of software tools that they will be looking for. CrowdStrike makes $637 million in revenue each quarter and is growing at under 50% year over year. Sentinel One is making a much smaller $121 million per quarter but growing at a much faster 92% year over year. In a lot of ways, Sentinel One looks exactly like Crowdstrike did several years ago.
Now I’m okay with owning both of these companies.
Bill.com: Helps Small Business in the transition to the cloud
Bill.com is unique in that it’s trying to sell its services to small businesses using physical papers and excel spreadsheets or Google Sheets. They’re not super sophisticated, and so any upgrade can make a significant difference. I have a lot of confidence in it going forward.
Bill.com is down over 50% down six and a half thousand dollars overall I have little confidence in going forward. I own 74 shares of Bill.com at a value. Bill.com has a net profit margin of negative 35% if you use GAAP accounting but they are growing like crazy, growing 66% year over year in terms of their revenue in their most recent quarter, growing 94% before that, growing 155% recorded before that, and growing nearly 180% the quarter before that.
Bill.com is also produced using positive free cash flow, and so even though they are not GAAP profitable in the short term, they still have some cash to work with. Now I should distinguish here between GAAP profitability and non-GAAP profitability. Some of these companies are non-GAAP profitable, which means they’re profitable if you exclude stock-based compensation. This is a good thing for small companies because it doesn’t affect their operations, but it does weigh down on their stock price. Overall, GAAP profitability means that they are profitable even if you subtract out the stock-based compensation.