I’m often seeing people chasing the next big growth stocks, hoping to find a quick multi-bagger. If someone can achieve that, I’ll raise my hat to them.
But I can’t do it, and I’m likely to hit on far more losers than winners. For me, a growth stock is for ever, not just for the current bubble. And I’ll only buy one I think will be significantly ahead in 10 years.
Cybersecurity
I see long-term potential in Darktrace (LSE: DARK), which has fallen out of favour. Shareholders have had a few scary moments, with the price having already gone through one boom-and-bust cycle.
The shares floated at 250p in April 2021. So at 306p, at the time of writing, they’ve provided a decent return. But they’re clearly well past the speculative bubble that took them up close to £10 at its peak.
The investment case for Darktrace seems straightforward to me. The company develops AI-based cybersecurity technology, and that’s becoming increasingly important. Cyber attacks are even part of modern warfare, so there are defence needs to be addressed as well as banking and other commercial priorities.
Pioneers
One big risk is that it’s often not the pioneers of a technology who make the money. Billionaire investor Warren Buffett has pointed to the number of car makers that went bust in the early years of that industry. That risk is very real here too.
There’s no profit yet. Analysts forecast a small one for the 2023-24 year though, with something a bit better the following year. Right now, all we have to go on is sales. And the company is reporting growing demand for its products.
Would I buy Darktrace shares? If I did, it would only be a relatively small investment. And I might wait for 2022-23 results. But if I do buy, it will be with a 10-year horizon.
Tech stocks
Over the past 12 months, the US Nasdaq index has lost 30% of its value. That means stocks like Moderna, Tesla and ASML are all down. And those are the top three holdings of my second pick, Scottish Mortgage Investment Trust (LSE: SMT).
I think a lot of US tech stocks were seriously overvalued in the last bull run. And I’d say some of the fall represented a welcome correction.
But just as Nasdaq stocks can get too rich in good times, I also reckon they can also fall too far when sentiment is weak. Right now, I see a good time to buy them.
Diversified growth
The easiest way for me to get exposure to these investments is through Scottish Mortgage. It holds a wide variety of growth stocks, including some unlisted companies that I can’t buy directly.
An investment trust also gives me something I greatly value, especially in tough times. That’s diversification.
The biggest risk I see is that these growth stocks could spend another couple of years in the doldrums. And my investment in Scottish Mortgage might well fall before I see my anticipated growth.
Still, I just can’t see the Nasdaq not being significantly higher in another decade.
