- Some have called for a shift to value stocks from growth as the economy begins to recover, bond yields rise, and inflation is let loose.
- Peter Bourbeau, the portfolio manager for ClearBridge Investment’s large-cap growth strategy, isn’t worried, saying that innovative companies will thrive in any environment.
- He highlighted 8 firms that could grow by 30% every year for the next decade.
Peter Bourbeau has been a portfolio manager of ClearBridge Investments’ large-cap growth strategy since 2009.
That’s been a good period to be in growth — the stocks with high earnings growth have outperformed their cheaper value counterparts since around 2007.
But some think that narrative is beginning to change.
In addition to rising bond yields and the Federal Reserve’s expressed interest in letting inflation run free, there is the problem of valuation. Large-cap growth stocks like Apple, Amazon, Microsoft, and Facebook have seen dramatic surges in valuation since March.
In October, the announcement of a vaccine prompted many to call for a rotation from growth into beaten-down value stocks as the economy gets set for a recovery.
Morningstar's Chief US Market Strategist Dave Sekera, for example, told Business Insider earlier this month that while growth stocks won't completely suffer, they will face roadblocks in terms of upside potential over the next few years.
"We'd certainly see headwinds for any further price appreciation over the next two to three years on those stocks," Sekera said. "So that's why we're looking at the value space as being the most attractive space for long-term investors today as opposed to growth."
But Bourbeau — the growth investor — isn't worried.
Sure, value will have its day and some growth valuations are stretched, he said, but growth firms that prioritize innovation will continue to see gains despite factors like inflation, interest rates, and valuation.
Bourbeau pointed to seven firms that he believes are most prioritizing innovation, setting them up for massive upside price action over the next decade.
"You're going to have some of these companies do exceptionally well, grow 30% a year for the next decade," he said. "They'll just blow right through any issues that we see with this theoretical shift from growth to value. There will be some that are casualties, but some will be huge winners if they continue to execute."
8 disruptive stocks primed for growth over the next decade
First, with the growing range of technology used in vehicles, Bourbeau said he is bullish on NXP Semiconductors (NXPI) and auto-component maker Aptiv (APTV).
"These are two companies that are outgrowing vehicle production by anywhere between 600 and 1000 basis points. I mean these are the guys that are enabling all the advanced features in the auto," Bourbeau said.
Automobiles today have "domain controllers, they've got high-voltage harnesses around the car that basically have to control all of the signals going back and forth — from ABS, all the way to electric doors to infotainment," he continued, adding, "those are two names that are really indexed towards this big migration of the advancement of the auto."
Next, Bourbeau pointed to chip giant Nvidia (NVDA).
"This is singularly one of the most fascinating companies in terms of the future of high-performance computing. It's the end of Moore's law, and it's the beginning of accessing and harnessing parallel processing, which is what the TPU — the graphics processor of Nvidia — was really built for," he said.
He added: "All of the major programs and machine learning for artificial intelligence are essentially going to be written off of this silicon right here, and you're not using the old Intel processors any further. You've gone kind of past that, and you have no choice."
Bourbeau also said the cloud-computing industry will see sustained growth.
He said Microsoft (MSFT), with its Azure software, and Amazon (AMZN), with its Amazon Web Services, are two leaders.
"It's very early days," he said. "Amazon internally feels that their AWS business is going to be much larger than their retail business in a couple of years."
Further, Bourbeau said Dexcom (DXCM), which develops continuous glucose monitoring systems, should see continued growth.
And finally, in the logistics industry, Bourbeau also highlighted two companies. One is UPS (UPS), because of their automation efforts.
"It's a name that we're all familiar with for the last 100 years, but what they're doing from an automation perspective, as well as transitioning their fleet to EV and hydrogen fuel cell, they've cut down on logistics costs, they're changing the route density for drivers, and they're just using a lot less drivers to do it," Bourbeau said.
The other is Uber (UBER). He said the firm should be viewed as more than just a ride-share company.
"This isn't just about delivering humans to the bus stop. This is going to be parcel delivery," Bourbeau said. "And how they work with Amazon and UPS, time will tell. And then you've got the food delivery business as well, which is growing at 100%."