With 2020 practically in the history books, it is not too early to start thinking about 2021. And while no one knows what the big investment trends will be in the new year, the best time to invest in growth stocks is before everyone else starts to accumulate shares.
With that in mind, we asked three of our Motley Fool employees what actions they think should take off in 2021. They responded with PTC (NASDAQ: PTC), Clean energy fuels (NASDAQ: CLNE)and Intuitive Surgical (NASDAQ: ISRG). Here’s why.
Image source: Getty Images.
An industrial revolution is among us
Lee Samaha (PTC): The shares of the industrial software company had a great 2020 – up 57% this year at the time of writing – and I think there is more to come in 2021. Trading 42 times the 2021 profit estimates, PTC is definitely not a superficially cheap action.
However, growth stocks are, by definition, purchased for their future growth prospects and not for current assessments, and PTC has a lot of growth ahead of it. In short, the company is betting on the increasing adoption of digital technologies in the factory. Management sees its core activities, namely computer-aided design software (CAD) and product lifecycle management (PLM), as having high single-digit growth potential in the medium term.
However, the real enthusiasm is around its Internet of Things (IoT) and augmented reality (AR) solutions, which management sees growing at 26% and 60% annual rates in the medium term. The benefits of IoT, AR and digital technologies are numerous and increasingly important.
For example, PTC’s IoT solutions connect the plant owner’s physical assets to the digital world. This allows them to be modeled and / or analyzed digitally to optimize performance and predict when they need maintenance. Meanwhile, AR allows technicians to monitor and maintain equipment, even without being physically present.
Given that the valuation of PTC will be modeled on its growth prospects, it is likely that any further adoption of its software in 2021 will lead the market to positively reassess the action as it pricing for the expected improvements.
So, if you believe in the digital industrial revolution, you probably also believe that PTC has a lot of potential to grow strongly in 2021. Especially because the COVID-19 pandemic and the reshoring movement are seen as an accelerated interest in the digitization of factories. In all, PTC’s stock has a lot of potential to rise again in 2021.
Forget EVs: this stock of alternative fuel has the green flag
Scott Levine (Clean Energy): Although inventories of electric vehicles (EV) received a big splash in 2020, those focused on 2021 would be wise to consider another investment related to vehicles and the evolving energy scenario: natural gas. The self-proclaimed “only supplier of natural gas supply solutions in the industry to offer CNG [compressed natural gas], LNG [liquid natural gas] & RNG [renewable natural gas] fueling, “Clean Energy Fuels is a company that has developed a network of more than 550 natural gas filling stations in 41 states and Canada.
Clean Energy Fuels’ shares rose about 150% more in 2020, with investors celebrating the fact that the company’s finances have improved over the year.
CLNE revenue data (TTM) by YCharts.
Although revenue growth suffered due to the lower sales volume resulting from the COVID-19 pandemic, Clean Energy Fuels demonstrated the ability to control expenses and report a remarkable growth in financial results. Likewise, the company also generated impressive cash flow throughout 2020. On a 12-month basis, Clean Energy Fuels reported operating cash flow (OCF) and free cash flow (FCF) of $ 61 million and $ 36 million, respectively – impressive numbers, considering that the company reported an FCO of $ 12 million and an FCF of negative $ 15 million for 2019, according to Morning Star. In addition, the company’s balance sheet looks strong; the company ended the third quarter with a net cash position of $ 56 million.
So, what is driving my optimism about the chances of this action in 2021? For years, investors have not been impressed with Clean Energy Fuels, showing disbelief at the notion that natural gas could be a viable option for heavy trucks, fleet vehicles and other applications. But it seems that the market is getting rid of its doubts and willing to take a walk. In addition to improving the company’s financial health, the company recently signed several agreements that illustrate the industry’s growing enthusiasm for natural gas. This week, Clean Energy Fuels announced the signing of a memorandum of understanding with Total to develop RNG production and supply infrastructure in the United States, as well as an agreement with BP to develop RNG facilities. And these ads come soon after other encouraging signs of the company’s momentum. In mid-December, for example, Clean Energy Fuels reported that it had closed deals representing more than 58 million gallons of its RNG Rescue. This is too much? Consider the fact that throughout 2019, the company reported Redeem sales of 143 million gallons.
There may be some bumps in the way during 2021, as the company is still in its growth phase, and adverse news can lead to some volatility. However, I think the company has reached an inflection point in 2020 and is heading in the right direction for 2021 and beyond.
A return to normalcy
John Bromels (Intuitive Surgical): With some health professionals already starting to receive the first vaccines against the coronavirus, it is a good bet that the country’s medical systems will return to normal at some point in 2021. This is good news for the robot-assisted surgery specialist Intuitive Surgical .
Intuitive makes the da Vinci series of robot-assisted surgical devices. Each of these very expensive systems performs mainly minimally invasive surgeries, mainly in the areas of urology and gynecology. Because robot-assisted surgery is much more accurate than even a well-trained human surgeon, it leads to faster recovery times and better results for patients.
The pandemic decimated Intuitive’s business. Since surgeries currently performed by da Vinci machines are optional, business evaporated overnight, as hospitals across the country canceled elective surgeries in the spring. Even when elective surgeries started to happen again, overburdened hospitals had to prioritize their spending. As a result, Intuitive’s successful stock price growth slowed in 2020, with shares rising only about 33.5% in the year.
We may not see a recovery in Intuitive’s stock until the coronavirus appears to have really been defeated, which may not happen until well into 2021. But when it does, expect rapid growth from the undisputed king of robot-assisted surgery.