Although growth stocks are taking a beating now because of rising interest rates, there is still opportunity in the sector, according to the founder of Spear Investments, an asset manager in San Francisco specializing in investments in industrial and industrial supply chains.
Spear is focused on identifying growth stocks that offer potential while others are selling off growth and opting for value stocks. Growth investors seek companies that offer strong earnings growth potential, while value investors seek stocks that appear to be undervalued in the marketplace.
Spear concentrates on companies’ balance sheets, said Ivana Delevska, founder and chief investment officer for Spear, which was launched last year. Delevska spent 14 years evaluating and investing in industrials and industrial technology companies. She covered multi-industry companies at Deutsche Bank as a vice president and at Gordon Haskett as a director. She also was a senior analyst on the buy side at several hedge fund platforms.
The key to investing in growth stocks now is “to identify opportunities that are appropriately capitalized and won’t have to come to the market at distressed valuations,” Delevska said in an email answer to questions. “Rising interest rates will continue to be a major risk for growth stocks. The key question then comes down to which specific opportunities have the earnings growth potential to offset this headwind.”
As examples of growth stocks with good potential, Delevska cited three companies:
• Snowflake (SNOW) is a data warehousing firm that has a cloud-based platform designed to help organizations gain greater insights from structured and semi-structured data, with a consumption-based model and an easy-to-use and scalable platform that lowers costs for firms, she said.
• ZScaler (ZS) is a cloud security platform with an easy-to-use security offering. ZScaler is positioned to benefit massively from the rapid adoption of cloud computing, Delevska said.
• Unity (U) could become the go-to platform for metaverse content developers, she said. Real-time 3D (RT3D) will define the next generation of entertainment and Unity enables content creators across a variety of verticals, she explained.
These three companies are example of firms that can take advantage of markets that are at the cusp of significant breakthroughs in technology, she said. The goal “is to find opportunities that will exceed the Wall Street growth projections and have solid balance sheets and profitability that will provide downside protection,” Delevska said.
“As organizations embrace digital transformation, their data architectures are completely changing. This means that legacy solutions are no longer adequate in protecting the current environments,” she explained. The “increased number and complexity of cyberattacks, now exacerbated with geopolitical tensions, are creating urgency in companies to address their cybersecurity vulnerabilities.”
At the same time, the metaverse means different things to different people, she said.
Some “CEOs have noted that they expect the metaverse to be potentially larger than our current economy – creating a huge investment space that does not exist today. Companies that focus on this new universe have growth potential.
“While rates will continue to be top of mind and we don’t expect “growth” overall to outperform, we see some of the best opportunities in this space,” Delevska said. “We focus on finding idiosyncratic opportunities that have the potential to outperform across a wide spectrum of future market and economic scenarios.”