Growth stocks were some of the biggest stars of 2020, yet many have struggled significantly in 2021. This is partly due to inflation fears, which have also caused bond yields to rise. Rising bond yields mean that investors often add bonds to their portfolio, at the expense of stocks. They also increase the cost of borrowing. This can adversely affect growth stocks, as it is more difficult to borrow money cheaply for growth. Alongside other factors, such as expensive valuations, this has caused many growth stocks to lose a large amount of their value. But these two now look oversold, and I believe it’s the time for me to buy, or to buy more.
Virtual healthcare stock
The Teladoc (NYSE: TDOC) share price soared last year as virtual healthcare drastically grew in popularity due to the pandemic. Indeed, at the start of February 2021, it had reached nearly $300, 262% higher than it was at the start of 2020. But fears that demand for virtual healthcare will decline after the pandemic have caused the share price to fall 50% to under $150.
But I feel that demand will remain strong. In fact, in the recent second-quarter trading update, revenues had grown 109% year-on-year to over $500m. Full-year 2021 revenue guidance was also raised to over $2bn, from a previous estimate of $1.97bn. This demonstrates that customer numbers continue to grow, despite the pandemic starting to come to an end. Such rising revenue is essential for any growth stock, and this is why Teladoc makes up part of my portfolio.
But there are risks. Slightly worrying was the $134m loss that the company recorded. Yet I’m not too concerned about this. In fact, a large portion of the loss came from the $83m spent on stock-based compensation, due to the acquisition of Livongo last year. I believe this acquisition gives Teladoc a competitive edge over its competitors, which should help fuel growth in the future.
A fashion-focused UK growth stock
ASOS (LSE: ASC) was another company that benefited from the pandemic, due to shoppers being forced to go online. This meant that active customer numbers have now reached over 26m, up from around 20m this time last year. However, the recent trading update also revealed that things were now becoming more difficult for the online retailer. Indeed, due to “volatility in demand”, sales had become more muted in the final weeks of June. Profits were also being squeezed due to global supply chain pressures. This caused the ASOS share price to fall 14% in one day, and it is currently still below 4,000p, having reached nearly 6,000p in March this year.
But I feel that this dip offers a good time to buy this UK growth stock. Indeed, the ending of lockdown means that more young people will be going out again. This often correlates with an increase in spending on clothes. Accordingly, the opportunities look promising for ASOS, and the recent acquisition of Topshop and Miss Selfridge should also help to propel this growth. The company also recently raised £500m through a convertible bond, demonstrating that it has confidence in its growth abilities. This is why I believe ASOS could be an excellent addition to my portfolio.
