You only need to look at Ark Invest’s ARK Innovation ETF to see that growth stocks have been struggling badly. The fund, which focuses on disruptive growth stocks, has fallen more than 30% in the past three months while the S&P 500 has declined just 4%. That likely has to do with fears surrounding rising interest rates and a more challenging environment for growth stocks looking to raise money.
However, for companies that are generating free cash flow, that may not be a problem since, for the most part, they can be self-sufficient. Two stocks that are not only growing, but also bringing in billions in free cash are Regeneron Pharmaceuticals (REGN) and Coinbase Global (COIN). Here’s why these are a couple of growths stocks you may want to zero in on today.
Biotech company Regeneron is a money-making machine. In the past five years, it has posted strong profits where its net income has been at least 20% or more of revenue. Those high margins make it easy for the business to grow its bottom line as sales rise. In 2021, Regeneron’s revenue of $16.1 billion was nearly three times the $5.9 billion it reported in 2017. But what was even more impressive was that the company’s net income jumped by more than 570% during that time to $8.1 billion.
Equally impressive has been the company’s free cash flow. At $6.5 billion over the past 12 months, that’s more than six times the $1 billion it brought in during 2017. Regeneron has consistently generated billions in free cash, minimizing its need to raise funds.
This year will likely be a more challenging one for Regeneron now that the Food and Drug Administration (FDA) has limited the use for its COVID-19 treatment, REGEN-COV, which has lost efficacy against the omicron variant. Last year, of the $16.1 billion that Regeneron reported in sales, $6.2 billion (39%) was related to REGEN-COV. But even without that boost, sales still rose by 19%. And a return to normal could help the business continue to grow this year and lead to more prescriptions for its eye medication, Eylea, which is the company’s top-selling drug. Its sales in 2021 grew by 17% to $5.8 billion.
Even with a likely drop in sales this year, Regeneron should be just fine, continuing to post impressive margins and bringing in plenty of cash. That safety and stability is likely a key reason why the stock has been doing better than most growth stocks, declining just 2% thus far in 2022.
Coinbase is a bit of a riskier buy only because it’s closely associated with Bitcoin and can often move in similar directions to the 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’s coming off an explosive year in 2021 in which net revenue of $7.4 billion rose 545% year over year. Its profits jumped from $322 million in 2020 to more than $3.6 billion this past year. Free cash flow of $10.6 billion was more than three times the roughly $3 billion that the business generated a year earlier.
The business’s growth looks promising, especially if the popularity of digital currencies and non-fungible tokens (NFTs) keeps up the momentum. Last year, total NFT sales in the crypto world topped nearly $20 billion while they were less than $100 million in 2020.
If you’re bullish on crypto, Coinbase is a great way to gain some exposure to it in a relatively safe way. Although shares of the stock have fallen 37% this year (Bitcoin is down 25%), this can be an underrated stock to own given its strong fundamentals. Even if sales taper off and the excitement around NFTs wanes, Coinbase can still deliver some strong numbers as its net profit margin last year was more than 46%, and in the previous year, it was still north of 25%.
Multiple analysts see this stock soaring to more than $300. And that’s a strong possibility as more people get involved with cryptocurrencies. Coinbase is front and center of those opportunities as it has 11.4 million monthly transacting users on its platform as of the end of 2021.
Originally published on Fool.com
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning 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 richer.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool owns and recommends Bitcoin and Coinbase Global, Inc. The Motley Fool has a disclosure policy.