Scottish Mortgage Investment Trust has a great track record of identifying top-performing growth stocks. Here, I look at three the FTSE 100 fund bought in Q2 to see which I like the most.
EV battery maker
Of this trio, two were new buys and one was a top-up. The two newbies were CATL and Applovin (NASDAQ:APP).
China’s CATL is the world’s largest electric vehicle (EV) battery maker. In Q2, net profit jumped 34% to 16.5bn yuan ($2.3bn). This is impressive growth given the fragile Chinese economy.
The firm is opening a battery plant in Hungary to expand internationally. And as the world transitions to EVs, CATL’s future looks bright.
CATL is already listed in China, but went public in Hong Kong in May, raising $5.2bn. However, when considering a stock, I listen to management speak on earnings calls. This helps me build conviction (or not).
With CATL’s in Chinese, I can’t, so won’t be investing.
Skyrocketing ad-tech stock
Applovin is an ad tech firm that operates an AI-powered platform helping apps monetise more effectively. Growth has been spectacular. In Q2, revenue surged 77% to $1.26bn, while earnings growth was also very strong.
Revenue per installation jumped 70% and installations increased 8%. This means AppLovin earned significantly more per ad served while also reaching more users.
Management said this momentum will continue into Q3, with 59% revenue growth anticipated. The stock has been on fire — up 425% in a year!
Applovin’s AI engine, Axon 2.0, is now optimising advertising campaigns across e-commerce, connected TV, and fintech. These additional verticals significantly extend the total addressable market.
However, as well as being massive, the global digital ad market is very competitive. Beyond giants like Amazon, Google, Meta, Applovin is also competing with The Trade Desk.
Additionally, three short sellers have accused it of misappropriating user data. While Applovin denies this and continues growing strongly, this issue is at least worth bearing in mind.
At first glance, the stock looks very pricey at 29 times sales. However, AppLovin is already incredibly profitable. Forecasts put the shares on a forward price-to-earnings (P/E) ratio of around 30 by 2027, which seems more reasonable.
While it might be worth a look, I find the third stock more interesting.
Riding a wave of growth
That is Sea Ltd (NYSE:SE), a Singapore-based tech giant that runs Shopee (e-commerce), Garena (gaming), and SeaMoney (digital finance). Sea is an acronym for Southeast Asia.
When interest rates surged in 2022, the Sea share price crashed 87% in just 12 months. This fall was accelerated by slowing growth following the pandemic’s online shopping boom.
However, Sea is back on track. In Q2, revenue increased 38% to $5.3bn, with profitability across all three units.
The biggest risk I see here to Sea’s growth is an economic slowdown in its key Asian markets caused by tariffs.
Longer term, however, e-commerce and digital finance are tipped to boom across the region. Shopee is the largest e-commerce platform in Southeast Asia while management says its hit game Free Fire has become an “evergreen franchise“.
The stock’s trading at 65 times next year’s forecast earnings, but this falls to 31 by 2027. Again, for a high-quality growth company still early in optimising profitability, that’s not bonkers.
I reckon Sea’s worth considering and I’ve put it on my watchlist.
