Everyone is thinking of e-commerce, social media engagement, the 5G revolution — you name it. There are a lot of cool and inspiring trends in tech, and they happen so fast that it becomes very exciting. But shouldn’t we stop to recognize the data stocks in all of this?
Data is now being created at an exponential rate. Text messages, direct messages, photos, comments, shopping habits, even the routes we take on the road or in a store generate data.
But here’s the problem: All of that data is worthless without a way to organize it.
Imagine having a computer program that tracks millions of data points and generates billions of pieces of information. As humans, we could never organize that into anything of meaning or substance.
But that’s where data stocks come in. These companies can help make sense of the unintelligible. They can connect the dots when there is seemingly no correlation at all. Best of all, this dot connecting creates a wealth of information, helping to drive sales, profits and most of all, efficiencies.
Let’s look at seven data stocks to watch going forward.
Data Stocks to Buy: Salesforce (CRM)
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Leading off our list of top data-driven stocks is Salesforce. Even before we consider the data angle of Salesforce, this stock is a force to be reckoned with.
Commanding a market capitalization of more than $200 billion, Salesforce is coming off a robust quarter. Although the stock has been met with sellers over the past few months, let’s not forget Salesforce rallied 26% in a single day from all-time highs on better-than-expected earnings.
It’s an obvious dominator in the cloud and CRM space, but with its acquisition of Tableau Data, Salesforce is expanding its domination.
Its ability to cross-sell and optimize its businesses is clear. With Tableau, the company can now expand it to the world of Big Data, a market set to continue its explosive growth. Plus, Salesforce has a nice investment stake in the next company.
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Snowflake will be a turnoff for some investors for a few reasons. First, it’s fresh off a big IPO, having gone public just over a month ago. After aggressively hiking its IPO price up to $120 a share, the stock opened for trading at $245. It traded as high as $319 before settling down.
As if the gunslinger action of this new issue isn’t enough, the valuation is through the roof. Trading near $265 a share, Snowflake commands a near-$75 billion market cap.
That’s not that much smaller than Salesforce, which took years to build its business with plenty of skepticism from short sellers. Interestingly enough, Salesforce and Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) both took a stake in this company ahead of the IPO.
For Snowflake, sales rang in at about $96 million in fiscal 2019. In fiscal 2020, revenue ballooned to $252 million. This year, forecasts call for sales of about $565 million.
SNOW stock trades at 277 times trailing revenue and more than 120 times current sales. On a forward basis, the stock trades at about 65 times next year’s revenue estimates and roughly 40 times estimates for fiscal 2023, which call for $1.75 billion in sales.
Granted, the valuation is rich but the growth is evident. It highlights just how big of a market Big Data is set to become.
Data Stocks to Buy: Alteryx (AYX)
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A company really taking the fight to Big Data? Alteryx.
This volatile growth juggernaut has seen its share of ups and downs. When the company reported earnings in early August, disappointing guidance caused the stock to plunge. Then in early October, a CEO change and a guidance hike (above the prior consensus estimates) caused shares to soar.
However, the stock has not yet recovered from the post-earnings dip, despite eradicating its biggest issue. That could leave an opportunity for investors. From the company:
“Companies of all sizes recognize the tremendous potential for data, but many struggle to turn it into actionable insights that improve business results. The legacy approach to analytics slows organizations down, requires costly software and too many specific tools used by too many uniquely skilled people.
The Alteryx APA Platform unifies analytics, data science and business process automation in one easy-to-use platform to accelerate digital transformation.”
Alteryx leverages machine learning and artificial intelligence to make sense of the unintelligible. In that, there is value and it’s why the company has found a way to grow so fast.
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Datadog has been running hard. From the March low to the recent high, shares were up just over 300%.
This name has been on fire and quite frankly, it makes sense. Consensus expectations call for revenue growth of 57% this year, followed by 35% growth next year. Is it possible that these estimates are conservative?
In October, Datadog shares ripped higher on news that it’s working with Microsoft (NASDAQ:MSFT). Under the new deal, Datadog will be available on the company’s Azure platform as a first-class service. In other words, Datadog setup will be automatic, which is huge for this company.
Azure is one of the most popular cloud platforms in the world. So teaming up with it is going to pay huge dividends going forward. Even better, Datadog doesn’t have any debt and is free cash flow positive.
Data Stocks to Buy: Invitae (NVTA)
Let’s change it up a bit. This name is a little more speculative than many of the other holdings on this list. However, Invitae is not as speculative as it used to be.
Believe it or not, this stock may present a better opportunity to investors here in the $40 range than it did below $10. Granted, the potential reward will be less, but so is the risk.
This company is carving out its role in the genomics business.
Invitae has struggled with its cash burn over the years, as it chews through capital building out its business. That caused volatility in its stock price, but investors proved too bearish as the stock has risen more than 640% from the lows to the recent high.
From Invitae: “By harnessing the power of genetics and technology, we can make medical genetics affordable and accessible for everyone, improving healthcare for billions of people.”
The company is leveraging machine learning and Big Data to help in its healthcare fight. Its story is too much to fit in this one column, but investors who take the time to research this name will find it has a much larger role in Big Data than what meets the eye.
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Dare we say that Splunk is a legacy Big Data company? Founded almost 20 years ago, Splunk is a well-known firm with a $32 billion market cap. From the company’s description:
“Splunk is the world’s first Data-to-Everything Platform designed to remove the barriers between data and action, so that everyone thrives in the Data Age.”
However, this company is not without flaws. Remember Alteryx, which cut its guidance when it reported earnings in August? That wasn’t a company-specific issue, it’s an industry-wide one. Splunk missed on revenue estimates and reported disappointing sales guidance.
We’ll see if management gives investors a better update on guidance like Alteryx did, but either way, the reality is clear: Companies were pulling back on Big-Data spending when uncertainty was screaming higher earlier this year.
For now, consensus estimates call for a rebound in the next fiscal year. Analysts expect revenue to grow 25% and for earnings to grow more than 300%. At 11 times forward sales, Splunk is actually one of the cheaper Big Data stocks out there.
Data Stocks to Buy: MongoDB (MDB)
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The last company on our list has a higher valuation than Splunk, but it also has a higher growth rate. Investors had a very short window to buy MongoDB under $100.
Shortly after, it blew through its prior double-high near $185, ultimately topping out near $270. What a great move for a great company.
Consensus estimates call for sales growth of 31% this year and 28% next year. That said, it’s a bit more expensive, with its $14.7 billion market cap, shares trade at roughly 27 times this year’s revenue estimate.
The company “is the leading modern, general purpose database platform, designed to unleash the power of software and data for developers and the applications they build.”
With various businesses spanning the software and cloud industries, MongoDB is in the right places for secular growth. As data continues to grow exponentially and become more complex, large companies will become increasingly dependent on firms like MongoDB.
5G, social media, artificial intelligence, e-commerce and increasing use of technology will continue to drive data. MongoDB and the other data stocks on this list should continue to see solid growth for years to come.
On the date of publication, Bret Kenwell held a long position in AYX and NVTA.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.