Looking for great growth stocks to add to your 401(k) or Roth IRA? Building retirement wealth requires a long-term view and a priority on growth. Obviously, we can't predict the future, especially beyond the next few years — but we can invest in the emerging leaders of technology trends that will shape economic and social transformations over the next decade.
The three stocks covered below all have established themselves as leaders in their target markets, they are all closely connected to disruptive tech evolutions that have several more years to run, and they are all building an economic moat that will keep them from deteriorating rapidly from competition.
A word of warning — these stocks are most appropriate for growth portfolios that are intended to endure some volatility. That comes with the territory of building retirement wealth. If you are in or approaching retirement, you should ensure that these stocks won't be too volatile to meet your investment goals.
Square (NYSE: SQ) is a fintech leader that first captured investor attention as a hardware and software solution that enabled small businesses to efficiently accept card payments. The company has since established itself in the consumer finance world with Cash App, which provides payment, transfer, banking, and investment services.
Cash App has swelled to more than 35 million users, fueled in part by demand for efficient methods to purchase cryptocurrencies and stocks. That catalyst supported Square's performance while its small business payments revenue suffered through the pandemic. The company has a large number of users in the food, beverage, hospitality, and entertainment industries that were deeply disrupted last year, hurting Square's top line. Cash App remains a strong growth driver, but economic recovery will also be a strong tailwind for Square's business-to-business operations.
Square returned more than 1,700% for shareholders over the past five years, capped by a very strong 2020. Investors shouldn't expect that sort of appreciation to continue, but growth is still in the forecast. Sales expanded 102% last year, in part due to Square's large Bitcoin purchase, which surged in value.
The company has maneuvered to capitalize on a broad group of emerging fintech trends, and it is likely to be a leader for the next few years. Analysts are forecasting 50% growth in 2021 and 20% in 2022, so the stock has a good chance of quickly growing into its aggressive valuation. That's a perfect narrative for long-term wealth creation.
Lam Research (NASDAQ: LRCX) is an under-the-radar company that supplies many of the popular disruptive tech companies. Lam provides machines and support services that are essential to the design and production of microchips. Data centers, cloud computing, artificial intelligence, 5G networks, and other popular tech trends all stimulate demand for semiconductor production and design. Semiconductor stocks are notoriously cyclical, and the technology replacement cycle means that chip makers are constantly forced to invest in research and development to retain market share. That's great news for Lam shareholders.
Investors should recognize that Lam is still cyclical — chip makers are investing heavily in facility upgrades, but that will eventually subside. Still, the proliferation of electronic devices should catalyze demand for semiconductor manufacturing equipment. Further, Lam has significant recurring service revenue that should buoy sales when the hardware segment falters. Investors can still buy shares for a cheap forward P/E ratio of 20, even though it has a strong growth outlook. Over a long time horizon, you'll be able to weather some business cycles and capitalize on the long-term growth opportunity here.
Veeva Systems (NYSE: VEEV) is the largest supplier of cloud software for the life sciences industry. These services include customer relationship management (CRM), data management, and analytics. The company's clients include biotech, pharmaceutical, and diagnostic companies, as well as research organizations. Unlike other CRM or analytics vendors, Veeva is optimized for life sciences, making it an important part of drug development and clinical trial processes.
Veeva has nearly 1,000 customers in an industry that is forecast to grow roughly 7%-8% over the next five years. The analytics portion of this market is especially interesting because tech-enabled R&D is more efficient than previous lab-based research. That drove Veeva's 33% revenue growth during the full fiscal year that ended in January. Most of that revenue is recurring subscriptions, which is excellent from a corporate efficiency standpoint. The metrics on customer retention are also excellent. It's an important signal of lower-than-average customer acquisition costs and a wide economic moat to ward off competitors. Both are very bullish signals for long-term growth investors.
Analysts are looking for 20% annual growth in the medium term with stable profit margins. Investors need to pay a premium to buy Veeva shares, which trade at a forward P/E ratio of 75. That might not look great to risk-averse investors with short time horizons, but this is still a great opportunity for investors who are building retirement wealth. Consider this established player at the intersection of the cloud and life sciences for your retirement account.
10 stocks we like better than Lam Research
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Ryan Downie owns shares of Square and Veeva Systems. The Motley Fool owns shares of and recommends Bitcoin, Lam Research, Square, and Veeva Systems. The Motley Fool has a disclosure policy.