Is the growth trade running out of steam?
Ryan Modesto doesn’t think so. He just thinks you have to be pickier.
This week on Ticker Take, the growth investor told us the market is in better shape than the mood suggests. Stocks have moved sideways while earnings have kept rising. That has pushed the Nasdaq 100 back to valuations last seen at the 2022 lows. Money has been bouncing between software and AI names, which makes things choppy. But Modesto says that’s just rotation, rather than funds actually leaving the market.
So which names do you own? Modesto looks for three things: growth, momentum and quality. Specifically, sales that are growing faster than average and balance sheets that can handle a rough patch. As for the stock itself, that’s where momentum is important.
Modesto has spoken with us before about growth names he liked, but gave up on because the momentum wasn’t there. Three examples from when we last spoke a year ago include Freshworks and Alkami Technology, which got caught in the “AI eating software” trade, and Genius Sports, which made a big acquisition that changed its investment story.
With that said, here are six growth names that have his attention these days.
Nebius (NBIS)
Nebius rents out GPU computing power to companies building AI models. The business is growing quickly, margins are improving and, unlike most data center players, the company has a strong balance sheet. Modesto says everything is firing on the right cylinders right now.
nVent Electric (NVT)
nVent makes equipment for the data center buildout. It recently made a large acquisition in the power space, which Modesto calls a bottleneck for AI infrastructure. The stock trades at about 25 times forward earnings, with earnings growing around 30 per cent, and he thinks that’s a reasonable price to pay.
SharkNinja (SN)
Consumer stocks have been weak, but SharkNinja has been hitting 52-week highs, and that gap is what caught Modesto’s attention. The company keeps rolling out new appliances, and it’s not a business that AI is likely to disrupt. If SharkNinja can keep growing around 10 per cent a year, he thinks it could be a nice compounder over the long term.
Cellebrite (CLBT)
The stock has struggled, and Modesto admits it’s on a short leash. Cellebrite sells security tools to government agencies, which means it needs certifications that competitors can’t easily get. The problem is that delays in getting those certifications have pushed out some contracts. Still, the stock trades at 18 times earnings with 80 per cent gross margins, so he’s holding on, though with less patience than before.
Karman Holdings (KRMN)
Karman makes parts for missiles and rockets. Modesto sees two long-term tailwinds here: countries around the world are rearming, and missile stockpiles need to be refilled after years of conflict. Karman is building itself into a vertically integrated supplier that benefits from both.
Kratos (KTOS)
Kratos is one of the few pure-play drone companies left. It has started delivering its Loyal Wingman drone, which Modesto sees as a catalyst for cash flow. The stock has pulled back on budget uncertainty and delayed contracts, but he says that’s missing the forest for the trees.
The Ticker Take
Modesto is still bullish on growth, but that doesn’t mean he’s holding everything. His approach comes down to knowing which names still have momentum behind them and being willing to let go of the ones that don’t.
Jon Erlichman is a BNN Bloomberg contributor and the host of Ticker Take on YouTube.
