A good way to grow your portfolio over the long term is to invest in growth stocks. While dividend stocks may offer more consistency, there’s no guarantee that their recurring payouts will continue. And the potential stock price returns earned from a solid growth stock are more than what you can earn from a dividend, anyway.
With the coronavirus pandemic pushing stock prices down, there are many bargains right now that are likely to not only recover to recent highs but keep growing for years and even decades beyond. If you have cash available to invest, then the following three growth stocks are great options to add to your portfolio today.
1. Innovative Industrial Properties
Innovative Industrial Properties (NYSE:IIPR) is a real estate investment trust that offers investors one of the safest ways to invest in the growing cannabis industry. By providing real estate to the medical marijuana industry, Innovative Industrial isn’t taking on any of the growing risks. Nor is it concerned about whether the product will be at a high enough quality or whether it will sell at a large profit. The company has locations all across the country, partnering with several different growers.
In 2019, Innovative Industrial generated $23 million in earnings on revenue of $45 million. That’s more than triple the $21 million in net income the company earned in 2018 from revenue of $15 million. And with New York making up the largest portion of its rental revenue at 15%, Innovative Industrial isn’t overly exposed to one state or one part of the country. And that’s important for cannabis investors, given the volatility of the sector in the past year. Layoffs and poor-performing results are just a couple of the reasons why investors are hesitant to invest in pot stocks these days. One of the ways Innovative Industrial benefits from the industry’s growth without taking on much risk is that it buys distressed cannabis assets and then leases them back to growers.
With a profit margin of 50% in 2019, it’s one of the few cannabis investments that investors can rely on to stay out of the red. As the cannabis industry continues to grow, Innovative Industrial can become an even hotter buy as it acquires more properties across the country. The REIT stock is down 2% since the start of 2020, which is impressive given the 24% decline that the S&P 500 has been on during that time. Although it’s a bit expensive today, trading at around 35 times its earnings, its bottom line is likely to get stronger with the industry’s growth.
The stock also pays investors a quarterly dividend of $1 per share, which yields 6% annually. Since Innovative Industrial is a REIT, it needs to pay out 90% of its earnings out as dividends. Investors don’t have to worry about a dividend cut and as long as earnings continue to grow, so too will their payouts.
Adobe (NASDAQ:ADBE) is a software company with a dominating presence in the market through its popular suite of products. Whether it’s Photoshop or Illustrator, consumers flock to the company’s products because they’re top of the line. With Adobe moving to a subscription service where consumers pay a monthly fee for the Adobe Creative Cloud to access many of its top products, it’s a clever way to generate recurring revenue and a lot of consistency in its financials. And for many advertising professionals, it’s a necessary business expense.
In fiscal year 2019, Adobe earned just under $10 billion in revenue from subscriptions. That was 89% of the company’s total sales. In fiscal 2018, subscriptions made up 88% of total revenue and accounted for 84% of sales the year before that.
Shares of Adobe have slipped a modest 4% this year. That may come as a bit of a surprise given that the stock isn’t cheap — it trades at close to 50 times its earnings. However, investors and analysts remain bullish on the company’s growth, as it has a PEG ratio of just 1.6 over the next five years. A low PEG value (ideally of 1.0 or less) suggests that there’s sufficient long-term growth to justify the stock’s current price-to-earnings ratio. That’s why any dip in value for shares of Adobe can make it an attractive time to buy the stock.
The company’s consistently generated a profit margin north of 22% in each of the past 10 quarters, and sales growth of more than 20% in its most recent quarter only confirms that Adobe is still growing at a very good rate. While investors may want to wait for more of a decline before buying shares of Adobe, the stock may…
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