Bull Market 2.0: Breakout Growth Stocks to Buy Now

The stock market has been on a tear lately, reaching new all-time highs and surpassing the levels seen before the pandemic. Some analysts are calling this the start of a new bull market, or Bull Market 2.0, driven by strong earnings growth, low interest rates, fiscal stimulus, and vaccine optimism.

But not all stocks are created equal in this environment. Some sectors and industries are still struggling to recover from the pandemic, while others are thriving and growing faster than ever. These are the breakout growth stocks that investors should focus on right now, as they have the potential to deliver outsized returns in the coming months and years.

What are breakout growth stocks?

Breakout growth stocks are companies that have achieved a high level of revenue and earnings growth, and are expected to maintain or accelerate that growth in the future. They often operate in fast-growing markets, have a competitive edge over their rivals, and enjoy strong customer loyalty and brand recognition.

Breakout growth stocks typically have some common characteristics, such as:

• High sales growth: Breakout growth stocks usually have double-digit or triple-digit revenue growth rates, indicating strong demand for their products or services.
• High earnings growth: Breakout growth stocks also have impressive earnings growth rates, often exceeding their sales growth rates. This shows that they have high profit margins and efficient cost management.
• High return on equity: Breakout growth stocks tend to have high return on equity (ROE), which measures how well they use their shareholders' capital to generate profits. A high ROE indicates that they have a sustainable competitive advantage and can reinvest their earnings for further growth.
• High relative strength: Breakout growth stocks often outperform the broader market and their peers, showing strong momentum and investor confidence. They tend to trade above their moving averages and break out to new highs on high volume.

Examples of breakout growth stocks

Here are some examples of breakout growth stocks that have been delivering stellar performance and are poised for more growth in the future:

• Shopify (SHOP): Shopify is the leading e-commerce platform for merchants of all sizes, enabling them to create online stores, manage inventory, process payments, and fulfill orders. Shopify has been benefiting from the surge in online shopping during the pandemic, as well as its partnerships with social media platforms like Facebook and TikTok. Shopify's revenue grew by 86% in 2020, and its earnings per share (EPS) soared by 950%. Shopify has a ROE of 19.6% and a relative strength index (RSI) of 67.
• Roku (ROKU): Roku is the leading streaming device maker and platform provider, offering access to thousands of channels and apps, including its own Roku Channel. Roku has been capitalizing on the shift to streaming entertainment, as well as its expanding advertising business and international expansion. Roku's revenue grew by 58% in 2020, and its EPS jumped by 950%. Roku has a ROE of 17.9% and a RSI of 72.
• Square (SQ): Square is a fintech company that provides payment solutions for small businesses and individuals, such as its Square Reader, Square Register, Cash App, and Bitcoin trading. Square has been riding the wave of digital payments, e-commerce, and cryptocurrency adoption, as well as its acquisition of Afterpay, a buy now, pay later (BNPL) service. Square's revenue grew by 101% in 2020, and its EPS increased by 950%. Square has a ROE of 18.7% and a RSI of 64.

How to buy breakout growth stocks

Breakout growth stocks can be volatile and risky, as they often trade at high valuations and face high expectations from investors. Therefore, it is important to do your own research and due diligence before buying them. Here are some tips on how to buy breakout growth stocks:

• Look for strong fundamentals: Breakout growth stocks should have solid financials, such as high sales and earnings growth rates, high profit margins, high ROE, and positive cash flow. They should also have a clear competitive advantage, a large addressable market, and a loyal customer base.
• Look for technical indicators: Breakout growth stocks should show strong price action and momentum, such as trading above their moving averages, breaking out to new highs on high volume, forming bullish patterns like cup-and-handle or flag-and-pole, and having a high RSI.
• Use proper risk management: Breakout growth stocks can be prone to sharp corrections and reversals, so it is crucial to use proper risk management techniques when buying them. These include setting a stop-loss order to limit your losses if the stock drops below a certain level, taking partial profits when the stock reaches your target price or shows signs of weakness, and diversifying your portfolio with other types of stocks.

Conclusion

Breakout growth stocks are among the best performers in the stock market, as they have the ability to generate exceptional revenue and earnings growth, and reward their shareholders with impressive returns. However, they are also risky and volatile, so investors should be careful and selective when buying them. By following the tips above, you can increase your chances of finding and buying the breakout growth stocks that will lead the Bull Market 2.0.