Just look at Ark Invest ARK Innovation ETF to see that growth stocks have suffered a lot. The fund, which focuses on disruptive growth stocks, has fallen more than 30% in the past three months, while the S&P500 fell only 4%. This likely has to do with fears surrounding rising interest rates and a tougher environment for growth stocks looking to raise funds.
However, for businesses that generate free cash flow, this may not be an issue as, for the most part, they can be self-sufficient. Two stocks that are not only rising but also bringing in billions of dollars in cash are Regeneron Pharmaceuticals (REGN 1.51% ) and Coinbase global ( CHANGE -6.90% ). Here’s why there are a few growth stocks you might want to focus on today.
Biotech company Regeneron is a money-making machine. Over the past five years, it has posted strong profits where its net income has been at least 20% or more of sales. These high margins allow the company to easily increase its results as sales increase. In 2021, Regeneron’s revenue of $16.1 billion was nearly three times the $5.9 billion reported in 2017. But what was even more impressive was that the company’s net income grew. jumped more than 570% during this period to reach $8.1 billion.
The company’s free cash flow is equally impressive. At $6.5 billion over the past 12 months, that’s more than six times the $1 billion it brought in in 2017. Regeneron has consistently generated billions in free cash, minimizing its need to raise funds.
This year will likely be more challenging for Regeneron now that the Food and Drug Administration (FDA) has restricted the use of its COVID-19 treatment, REGEN-COV, which has lost effectiveness against the omicron variant. Last year, of the $16.1 billion in sales Regeneron reported, $6.2 billion (39%) was related to REGEN-COV. But even without this boost, sales still increased by 19%. And a return to normal could help the company continue to grow this year and lead to more prescriptions for its eye drug, Eylea, which is the company’s top-selling drug. Its sales in 2021 increased 17% to $5.8 billion.
Even with a likely decline in sales this year, Regeneron should do well, continuing to post impressive margins and bringing in plenty of cash. This security and stability is likely one of the main reasons the stock has outperformed most growth stocks, falling just 2% so far in 2022.
Coinbase is a bit riskier buy only because it is closely associated with Bitcoin and can often move in similar directions to volatile cryptocurrency. But the reality is that Coinbase is a much safer option between the two. The company simply runs a cryptocurrency exchange that facilitates the buying and selling of digital currencies like Bitcoin.
It is coming off an explosive year in 2021 in which net revenue of $7.4 billion increased 545% year-over-year. Its profits have grown from $322 million in 2020 to more than $3.6 billion last year. Free cash flow of $10.6 billion was more than three times the roughly $3 billion the company generated a year earlier.
The company’s growth looks promising, especially if the popularity of digital currencies and non-fungible tokens (NFTs) maintains momentum. Last year, total NFT sales in the crypto world topped nearly $20 billion from under $100 million in 2020.
If you’re bullish on crypto, Coinbase is a great way to gain relatively safe exposure to it. Although shares of the stock have fallen 37% this year (Bitcoin is down 25%), it may be an underrated stock to own given its strong fundamentals. Even as sales decline and excitement around NFTs wanes, Coinbase can still deliver strong numbers as its net profit margin last year was over 46%, and the year before it was still north of 25. %.
Several analysts see this title climbing to more than $300. And that’s a strong possibility as more and more people get involved in cryptocurrencies. Coinbase is at the center of these opportunities as it has 11.4 million monthly users transacting on its platform at the end of 2021.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.