5 Growth Stocks to Hold for the Next 5 Years

A large industry growing at an accelerated rate is one of the cornerstones of our “RPM Investment Strategy.”

Identifying momentum at this scale ensures that we’re targeting growth not only in our best-in-class candidates but also in the arenas where they operate.

Here are five companies that qualify.

Top Dog

At this point, we’re all familiar with the cloud… the off-site data storage that’s accessed remotely. You can access it on any device and anywhere in the world as long as you have an internet connection.

Today, the cloud permeates our lives. For instance, whenever you stream a show on Netflix, that’s using the cloud. And the same goes for every time you visit Facebook, Twitter, Snapchat or YouTube.

And don’t forget the company where you work. All of the data it requires to conduct business uses the cloud, too.

This year, global cloud spending is projected to top $400 billion. And by 2027, it will grow to more than $552 billion. That represents a 1,990% increase from where the market was in 2012!

Businesses are turning to Datadog (Nasdaq: DDOG) to get them on the cloud.

The company is one of the pioneers in cloud observability and DevOps (development and operations). It provides monitoring, analytics, collaboration tools and a full suite of security products for businesses.

It’s now a clear leader in this sector with a market cap of more than $50 billion.

Over the years, Datadog has evolved from a single product to an entire platform.

It works with Amazon Web Services, Google Cloud, Microsoft Azure, Alibaba Cloud, VMware and private clouds. It offers more than 450 integrations. And that’s led to more customers turning to Datadog.

In the fourth quarter, the company’s revenue jumped 84% to $326 million. For fiscal year 2021, revenue was $1.03 billion, an increase of 70% year over year.

In 2021, operating cash flow was $286.5 million with free cash flow of $250.5 million. The company ended the year with cash and marketable securities of $1.6 billion.

The company is not yet profitable on an annual basis, but profitability is quickly approaching and will happen this year.

Datadog has seen broad strength across all customer segments as digital transformation and cloud migration are still underway for companies of all sizes.

In 2021, the number of customers that contributed $1 million or more in annual recurring revenue grew 114% to 216. The number of customers that contributed $100,000 or more increased 63% to 2,010.

That’s key, as these high net worth subscribers accounted for 80% of Datadog’s total annual recurring revenue.

The cloud observability specialist now has more than 17,500 customers. And these include big names such as 21st Century Fox, Blue Origin, DraftKings, Peloton, Shell, Samsung and Zillow.

At the moment, 77% of Datadog’s customers are using two products or more and 31% are using four or more. These percentages are increasing. And that means Datadog’s revenue will continue to march higher.

Revenue is projected to grow to $1.52 billion this year with operating income of approximately $170 million and earnings per share between $0.45 and $0.50.

But here’s the big picture and why you should buy and hold Datadog for the next five years…

The global enterprise infrastructure software market is projected to be worth more than $53 billion by 2025. On top of that, public cloud market revenue will top $552 billion by 2027.

Buy this leader of the pack.

Action to Take: Buy Datadog (Nasdaq: DDOG) at market. Use a 25% trailing stop to protect your principal and your profits.

An Ocean-Sized Opportunity

The public cloud – which is what most folks mean when they talk about cloud computing – has turned computing into a utility.

Instead of corporations and other large organizations building their own data centers and buying servers, storage and networking gear, they can purchase what they need from public cloud players – and scale up or down as needed.

This way, they can get what they need quickly and inexpensively rather than investing in the real estate, infrastructure and hardware for data centers.

Virtually every company has shifted some computing to cloud services.

The trend is accelerating, and cloud computing services provider DigitalOcean (NYSE: DOCN) is riding that trend. The company operates cloud computing platforms in North America, Europe and Asia, as well as other places internationally.

DigitalOcean, which just became a public company last year, had an impressive growth spurt in 2021. Here are some of the financial and operational highlights:

• Revenue was $428.6 million, an increase of 35% year over year.
• Gross profit was $258 million.
• Average revenue per customer was $59.96, an increase of 25% over 2020.
• The net dollar retention rate was 113%, up from 103% in 2020.
• A $300 million stock repurchase program was initiated.
• Total customers reached 609,000 in 185 countries, both the number of customers and the number of countries were all-time highs.

DigitalOcean’s focus on small businesses is providing it with a unique market presence to an underserved market.

Many of its competitors are targeting large business customers. Smaller enterprises often don’t get the attention and necessary level of support they require.

DigitalOcean gives them that attention and support with cloud platforms built specifically for the needs of small businesses.

That’s going to lead to healthy revenues and profits in the years ahead…

Revenue in 2022 is expected to jump 35% to approximately $575 million and reach nearly $975 million by 2024. Based on the 2024 projection, the compound annual growth rate for net income and earnings per share is 85% and 74%, respectively.

There are not many companies that have an outlook like that.

And due to the recent tech sell-off, shares are trading 58% lower than the highs reached just four months ago.

Action to Take: Buy DigitalOcean (NYSE: DOCN) at market. Use a 25% trailing stop to protect your principal and your profits.

The Business Platform for the Digital Age

Based in Braintree, Massachusetts, EngageSmart (NYSE: ESMT) provides a software-as-a-service (SaaS) approach to customer engagement software and integrated payment solutions.

The company specializes in SaaS platforms for the healthcare industry, governments, utilities, financial services companies and nonprofits.

EngageSmart’s software helps companies adopt digital platforms for conducting business. It facilitates e-commerce sales, management software, bill payments, scheduling and more.

SaaS companies like EngageSmart are revolutionizing the way people buy and access software.

Businesses across every industry are moving from legacy systems and processes to the automation and self-service capabilities of SaaS.

Here’s why…

Customers pay for SaaS over time instead of paying huge upfront license fees. They don’t buy or own the software; they just rent it.

Customers simply pay as they use it. They pay recurring subscription fees that can be paid monthly, quarterly or annually.

The fees are based on how many services are chosen, so companies both large and small can afford it.

The SaaS fee also includes maintenance. Customers get free upgrades to new software as soon as the upgrades are released. And most importantly, they happen seamlessly. The client company has to update its software only one time, and it immediately gets access to the latest version with no downtime.

Customers access SaaS via the cloud using only an internet connection. Meaning customers no longer have to be tethered to their network computers to use it.

In the business world, switching to SaaS is called a “no-brainer.” EngageSmart is reaping the benefits…

In 2021, revenue soared 48% year over year to $216.3 million. Small business revenue leapt 74%, and enterprise revenue climbed 28%.

The company increased its customer base by 22.6% to 83,000. Processed transactions soared 32% to 111.4 million.

Revenue in 2022 should jump to nearly $300 million.

EngageSmart is looking at a $28 billion market revenue opportunity. There’s a long runway of growth ahead…

Action to Take: Buy EngageSmart (NYSE: ESMT) at market. Use a 25% trailing stop to protect your principal and your profits.

Thirsty for Profits? This Stock Will Help

Currently, nearly 2 billion people live in a water-stressed area. As the planet’s population increases, so does the demand for potable water. But droughts and pollution make more of our fresh water unavailable.

Energy Recovery (Nasdaq: ERII) helps desalination plants reduce their energy consumption by 60% and operate more efficiently.

The company’s flagship energy recovery device – the PX Pressure Exchanger – saves water desalination customers around the world approximately $2.6 billion in energy costs annually.

Company products are also saving billions in the industrial wastewater treatment industry. Energy Recovery’s Ultra PX energy recovery device helps wastewater treatment facilities dramatically reduce their energy needs, costs and emissions.

Energy Recovery is now rapidly moving into other industries and has established an emerging technologies business unit in addition to its water segment.

The San Leandro, California-based company has also developed a product for the oil and gas industry that reduces the amount of energy required to extract fossil fuels.

Energy Recovery also offers a solution to reduce energy consumption in natural gas processing.

Other products help reduce costs and emissions and improve reliability of pumping systems and refrigeration systems that use carbon dioxide.

For construction and manufacturing customers, Energy Recovery offers a variety of products, including energy recovery devices, high-pressure feed and recirculation pumps; hydraulic turbochargers and boosters; and spare parts, as well as repair, field and commissioning services.

Right Place, Right Time

The company is perfectly positioned to take advantage of legislative agendas around the globe that are requiring more environmentally friendly business practices. The world is going “green,” and Energy Recovery is helping make it achievable.

Energy Recovery is still a small company with a market cap of slightly more than $1 billion.

On February 24, 2022, Energy Recovery reported record fourth quarter and full-year 2021 results.

In the fourth quarter, revenue jumped 27% to $33.6 million, and for the full year, it increased 13% to $103.9 million. Net income in the fourth quarter was $5.3 million. For 2021, net income was $14.3 million.

The company finished 2021 with cash and cash equivalents of $74.4 million and short-term and long-term investments of $33.6 million for a combined total of $108 million. Total debt is less than $10 million.

But here’s the six-year growth opportunity… Fortune Business Insights projects that the green technology and sustainability market will reach $41.6 billion by 2028. And this is a market that was at $9.6 billion in 2020.

Energy Recovery is just getting started in servicing that demand…

The world’s water problems aren’t going away, and Energy Recovery will help companies and governments fulfill their water needs and meet emission requirements while saving money doing so.

Action to Take: Buy Energy Recovery (Nasdaq: ERII) at market. Use a 25% trailing stop to protect your principal and your profits.

Snap Up These Shares

With this recommendation, we’re going to take a dip into another one of the hottest sectors of the market… social media.

Snap (NYSE: SNAP) refers to itself as an innovative camera company that’s reinventing the piece of equipment.

The company’s Snapchat app, which is hugely popular – particularly with young people – is a mobile messaging application used to share photos, videos, texts and drawings. The app is free to download, and it’s free to send messages using it.

Snapchat has 319 million daily active users (called Snapchatters) on average. The number of users has increased every quarter for the past three years.

Snap has also moved into the rapidly growing augmented reality (AR) market with its next generation of AR Spectacles. This is all about providing augmented reality (AR) creators a way to build more immersive environments. We’re even now seeing Snap use AR to allow consumers to try on outfits before buying them.

This is a major advancement, particularly with so many people now spending more time at home. Snap estimates that more than 200 million Snapchatters engage with AR per day on average.

However, Snapchat is the company’s cash cow and has become part of the social media ecosystem. And whether you like it or not, these platforms grow increasingly more important to our society each year. In fact, most people get their news from social media now instead of through traditional platforms as they did in years past.

Here, Snap continues to make waves.

It’s emerged as a true rival to Meta Platforms – formerly Facebook – and Twitter.

In 2021, Snap reported its first full year of positive operating cash flow and free cash flow of $293 million and $223 million, respectively. Compared with 2020, daily active users increased 20% to 319 million and full-year revenue increased 64% to $4.1 billion.

But don’t expect a slowdown anytime soon.

For 2022, Snap is expected to enjoy a fantastic 43.9% increase in revenue to $5.9 billion and then jump another 35.6% to $8 billion in 2023. I expect the company to turn profitable in 2023.

This growth is made more attractive as Snap shares trade more than 50% below their 52-week high of $83.11.

The rise of AR is a boon for consumers and retailers, especially as online shopping continues to increase. Snap has partnerships with American Eagle, Gucci, Sweat and other companies to use AR to sell products.

Social media is a mainstay in our society. But Snap is moving beyond just posts and tweets to connect consumers and brands through the power of AR. And that is going to be a driving force for its revenue in the years ahead.

Despite already attracting hundreds of millions of Snapchatters, Snap estimates that it has penetrated only 24% of the North American market, 15% of Europe and only 6% of the rest of the world.

There’s tons of growth potential with Snap…

Action to Take: Buy Snap (NYSE: SNAP) at market. Use a 25% trailing stop to protect your principal and your profits.