Rising interest rates are typically a threat to the stock market, but not all stocks are created equal.
According to investment banking giant Goldman Sachs, one type of stock should continue to perform well next year as rates rise: highly profitable growth stocks.
“Growth stocks with high profit margins outperformed unprofitable growth stocks when real rates jumped in 1Q 2021,” writes the bank’s chief U.S. equity strategist, David Kostin, in a letter to investors. “Profitable stocks should remain resilient if rates rise in 2022.”
Time may be short. High inflation is driving fears that the Fed could pull the trigger on higher rates soon. Already, the yield on the 10-year U.S. Treasury note has gone from 0.93% in January to 1.53% today.
Here are five high-growth, high-profit-margin stocks Goldman has found to brace your portfolio. At least one could be a lucrative pickup, especially if you’re investing for free.
Marathon Digital Holdings (MARA)
Marathon is a cryptocurrency miner. Year-to-date, its mining fleet has produced approximately 2,712 self-mined bitcoins.
And while some bitcoin miners might be tempted to sell their coins in the recent crypto rally, Marathon simply hoards them — an act known as “holding on for dear life,” or HODL, to crypto enthusiasts.
Unsurprisingly, the stock did well in the crypto boom. Despite recent turbulence, Marathon shares have returned 225% in 2021.
The stock came up in Goldman’s screening process because the consensus estimate for its annual revenue growth is 105% from 2021 to 2023. Meanwhile, the consensus estimate for its 2023 profit margin is 51%.
Riot Blockchain (RIOT)
Riot Blockchain is another crypto play that showed up in Goldman’s search. It mines bitcoin and hosts mining equipment for institutional clients.
In Q3, revenue totaled $64.8 million, up a staggering 2,532% year-over-year.
But Wall Street believes the best is yet to come. The consensus annual revenue growth projection is 69% from now till 2023, with the profit margin reaching 46%.
The shares have been walloped in recent weeks along with the broader cryptocurrency market. But now might be an opportune time to pounce.
Of course, there are many ways to jump into the crypto boom. For instance, some apps allow you to pick up crypto ETFs or buy cryptocurrency directly, all commission-free.
Marvell Technology (MRVL)
Chipmakers are firing on all cylinders right now, and Marvell Technology in particular is receiving plenty of investor attention.
Its stock has surged 87% over the past year.
Thanks to growing demand from data centers — Marvell’s largest end market — the company’s revenue grew 48% year-over-year to $1.076 billion in its most recent fiscal quarter.
Going forward, Wall Street expects the company’s sales to grow at an annual clip of 20% in the next two years, with a profit margin estimated at 35%.
MP Materials (MP)
MP Materials is a rare earth mining company that billionaire investor Chamath Palihapitiya helped take public through a SPAC last year.
The company owns and operates Mountain Pass, the only integrated rare earth mining and processing site in North America.
Shares are up 43% over the past year.
One of the reasons behind the investor enthusiasm is that electric vehicles (EVs) need powerful rare earth magnets to turn energy into motion. Given the growth rate in the EV industry, MP’s outperformance shouldn’t come as a surprise.
The company is expected to deliver annual revenue growth of 50% through 2023.
In terms of market cap, Mastercard is bigger than all the previously mentioned companies combined.
While smaller companies tend to be more nimble, the financial services giant can also deliver rapid growth, especially as pandemic restrictions are being lifted.
In Q3, Mastercard’s gross dollar volume rose 20% year-over-year on a local currency basis. Cross-border volume, on the other hand, surged a more impressive 52%.
Analysts expect the company’s revenue to increase at an annual clip of 18% in the next two years.
Yes, Mastercard does trade at over $360 per share at the moment. But you can still get a piece of the company using a popular app that allows you to buy fractions of shares with as much money as you are willing to spend.
A fine strategy further afield
Of course, you don’t have to limit yourself to the stock market.
There are real assets that have survived all kinds of interest-rate environments while also delivering market-beating returns.
For instance, contemporary artwork has outperformed the S&P 500 by a commanding 174% over the past 25 years, according to the Citi Global Art Market chart.
And it’s becoming a popular way to diversify because it’s a physical asset with little correlation to the stock market. On a scale of -1 to 1, with 0 representing no link at all, Citi found the correlation between contemporary art and the S&P 500 was just 0.12.
Investing in fine art by the likes of Banksy and Andy Warhol used to be an option only for the ultra rich. But with a new investing platform, you can invest in iconic artworks, too, just like Jeff Bezos and Bill Gates do.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.