2 Growth Stocks to Buy and Hold for the Bull Market

By | March 31, 2024

The Nasdaq Composite recently hit a new record for the first time in more than two years. As a result, the growth-oriented index is officially back in bull market territory, and that historically bodes well for stocks. The Nasdaq has returned an average of 215% during the eight bull markets that have occurred since 1990.

Investors hoping to capitalize on that upward momentum should put money into the stock market today. This is why two Nasdaq stocks, Data hound (NASDAQ:DDOG) And CrowdStrike (NASDAQ: CRWD)are valuable long-term investments.

1. Date dog

Datadog sells observation and security software. The platform integrates 19 products, including infrastructure and application monitoring, user and developer experience monitoring, and log management solutions. These tools help companies prevent performance issues and protect their IT environments. The Datadog platform also features artificial intelligence (AI) capabilities that accelerate incident recovery.

Datadog has the advantage of being able to consolidate a wide range of observability workloads. Companies can replace diverse products from different suppliers with an integrated platform from Datadog. Consolidating workloads onto a single platform is typically more cost-efficient simply because there are fewer systems to maintain.

That platform strategy also means Datadog has a plethora of products with which it can acquire new customers and grow those relationships over time. In that regard, the company has been successful, as evidenced by its strong presence in several observability markets. For example, analysts have recognized the company as a top contender in application performance monitoring, cloud infrastructure monitoring, database monitoring, and AI for IT operations.

Datadog delivered strong results in the fourth quarter, exceeding expectations. The company grew its customer base by 18% year over year and reported net revenue retention of more than 110%, meaning average spend per existing customer increased by more than 10% over the past year. In turn, revenue rose 26% year over year to $590 million and non-GAAP net income more than doubled to $0.44 per diluted share.

One of the most impressive figures was the 74% increase in residual performance obligation (RPO), a leading indicator of future earnings. Specifically, RPO includes the contracted revenues that have not yet been recognized. The rapid expansion of RPO during the fourth quarter could lead to faster revenue growth in future quarters.

Going forward, Datadog should benefit from trends such as cloud migration, AI, and the proliferation of software systems and connected devices. In short, anything that complicates IT environments should drive demand for observability software. Datadog is well positioned to respond to that demand. To quote Alex Zukin of Wolfe Research, “Even in a cost-savings-obsessed macro environment, engineers simply cannot live without their Datadog.”

Wall Street expects the company to achieve annual revenue growth of 25% over the next five years. In that context, the current valuation of 20.6 times turnover is acceptable. To be clear, Datadog stock isn’t cheap and investors should expect volatility, but the company could also deliver above-average shareholder returns in the coming years. Now is a good time for patient, risk-tolerant investors to buy small positions in this technology stock.

1. CrowdStrike Holdings

CrowdStrike provides cybersecurity software and services. The platform includes more than twenty applications covering several major markets, and the company is a major player in many of them. Most notably, CrowdStrike is the leader in modern endpoint security Morgan Stanley considers it the largest and fastest growing cybersecurity market. But analysts have also recognized CrowdStrike as a leader in areas including cloud security, threat intelligence and managed detection and response.

One reason for that success is the breadth and simplicity of the Falcon platform. To quote CEO George Kurtz, “CrowdStrike is the only single-platform, single-agent technology in cybersecurity that solves use cases far beyond endpoint protection.” When Kurtz talks about “single-agent technology,” he is referring to the single, lightweight sensor that comes with each application. Unlike products from other vendors, this sensor can be installed without rebooting and puts very little load on the device (it consumes less than 1% of computer resources).

In addition, CrowdStrike has built a reputation for providing the best threat protection, thanks to what some analysts see as superior artificial intelligence (AI) capabilities. The rationale is that CrowdStrike, as a leader in endpoint security and threat intelligence, has a vast amount of security data on which to train its machine learning models.

CrowdStrike continued to benefit from growing demand for cybersecurity in the fourth quarter. The company reported a net revenue retention of 119%, meaning existing customers spent 19% more over the past year. It also reported a gross retention rate of 98%, meaning it retained the vast majority of its customers. In turn, revenue rose 33% to $845 million and non-GAAP net income rose 102% to $0.95 per diluted share.

Innovation has made CrowdStrike a leader in cybersecurity. It was one of the first vendors to deliver AI-powered protection from the cloud, and continues to bring new products to market. CrowdStrike recently launched Falcon for IT, software that unifies and automates IT and security workflows, and Kurtz says customer excitement is “off the charts.”

Additionally, CrowdStrike recently collaborated with Nvidia to provide customers with access to accelerated infrastructure and software, allowing companies to build custom AI security applications trained on their own data. That value proposition creates new monetization opportunities for CrowdStrike, and it could certainly attract new customers.

Wall Street expects CrowdStrike to grow revenue 29% annually over the next five years, making its current valuation of 26.4 times revenue seem acceptable. That said, like Datadog, this stock isn’t cheap and volatility is to be expected. But CrowdStrike and Datadog are high-quality companies with good opportunities to create significant shareholder value. Patient investors should feel comfortable buying small positions in this growth stock today.

Should you invest $1,000 in Datadog now?

Consider the following before purchasing shares in Datadog:

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Trevor Jennewine has positions in CrowdStrike and Nvidia. The Motley Fool holds and recommends positions in CrowdStrike, Datadog, and Nvidia. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.

History Says the Nasdaq Might Rise: 2 Growth Stocks to Buy and Hold for the Bull Market was originally published by The Motley Fool

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