High debt burdens make growth stocks an intriguing play
Debt is on the rise in the U.S., leaving many Americans wondering how they’ll ever climb out of the holes they’ve borrowed themselves into.
Earlier this month, the New York Federal Reserve reported that total household debt in America hit $14.96 trillion in the second quarter of 2021 — $313 billion higher than at the end of March.
3 growth stocks that could help you ease your debt load
If you’re one of the millions of Americans with a dark cloud of debt hanging over you, injecting a bit of risk into your investment strategy in order to gain higher upside might be called for.
But before you do that, be sure to reduce your overall borrowing costs by transferring high-interest debt (like credit cards) to lower interest debt (like a line of credit or a refinanced mortgage).
Then you can really start chipping away at your personal debt-to-equity ratio by investing in growth stocks expected to generate returns that outpace your interest costs.
Here are three rapidly growing companies that might help lighten your debt burden.
Canadian e-commerce platform giant Shopify has seen its share price explode, up 121% over the past three years.
With a current price-to-earnings ratio in the high 70s, Shopify shares aren’t cheap. But this already thriving company still has plenty of upside.
Its growing role in the rapidly expanding world of online shopping should lead to a wider user base and higher profits.
Shopify has benefited greatly from lockdowns that have pushed consumers online. And it’s a trend that shouldn’t slow anytime soon.
Even at these elevated levels, Shopify’s stock continues to be supported by strong financial metrics. Its year-over-year revenue and subscription growth of 57% and 70%, respectively, both topped Wall Street expectations.
2. Spotify Technology
Spotify Technology is another growth stock that might be worth paying attention to.
The Swedish music streaming platform Spotify saw its total revenue increase by 23% year over year in the second quarter of 2020, driven by significant growth in the number of premium subscribers and advertising revenue.
Spotify hasn’t experienced the same breathless run-up in value that Shopify has enjoyed this year — quite the opposite. Spotify shares are down 21% over the past 52-weeks and have fallen 35% since the start of 2021.
But with Spotify being the biggest name in music streaming, the company is well-positioned to be one of the key players in music distribution as it becomes an increasingly digital endeavor. Specifically, the company should be able to keep growing its user base as it steadily benefits from long-term network effects.
It might be worth buying on the dip.
Despite the controversy that tends to materialize whenever Tesla CEO Elon Musk opens his mouth, shares in the electric vehicle manufacturer have fared well over the past year, posting an impressive gain of 81%.
Like Spotify with streaming and Shopify with online sales, Tesla is the leader in its chosen field.
With most countries pledging to be carbon-neutral by 2050, widely available electric vehicles will be critical if their ambitious environmental policies are to succeed.
But it’s not only electric vehicles that will boost Tesla’s returns.
Tesla also sells highly scalable products like solar panels and batteries, putting the company in an ideal position as the clean energy space expands.
Find an investment vehicle that works for you
Before we wrap up, it’s important to remember that the stock market, as strong as it’s been this year, is not a sure thing.
Needless to say, if your budget already doesn't have any room in it, trying to stretch it with stock purchases is not in your best interest.
That said, if you do have a modest investing budget to work with, you may want to use an investing app that allows you to buy “slices” of shares for companies like Tesla — especially one that comes with no fees or commissions.
Another low-budget option is using an app that allows you to invest with just your “spare change,” rounding up to the nearest dollar on all your purchases to help you build a diversified portfolio over time.