When the novel coronavirus initially breached our borders, it seemed at the time that society would melt down. Fortunately, that doom-and-gloom scenario never played out. Instead, for some folks, the pandemic was a gift. As global equity markets tumbled, an intrepid few took the opportunity to load up on growth stocks that were on discount. With more people coming out of the woodwork, we saw an incredible recovery in the major indices.
What’s more remarkable is that bullish sentiment continues despite some glaring pain on Main Street. For instance, while everyone is singing the praise of the last jobs report, we must remember that the employment level is down 5% from where it was right before the pandemic. In fact, the last time the employment level was this low was back in February 2016. Yet growth stocks continue to surge. Why?
Mainly, the current cheap money environment buttresses equities and other risk-on assets. As I mentioned in prior InvestorPlace articles, the real interest rate — that is, the benchmark interest rate minus inflation — is negative. Essentially, what this strange phenomenon does is penalize cash holders: you must pay the bank for holding your money, and the bank pays you to take out a loan.
With a deal like that, it’s no wonder why people are clamoring for growth stocks. Of course, if you haven’t participated in the rally, there are logically fewer viable growth names to consider.
Still, this doesn’t mean that you can’t find growth stocks offered at a discount. To be sure, the discounts are relative — you’re not going to find many high-potential names that haven’t already been bid up like crazy. But a few growth firms have corrected some of their enormous gains, which you may be able to exploit.
- Phillips 66 (NYSE:PSX)
- Vista Outdoor (NYSE:VSTO)
- Tencent (OTCMKTS:TCEHY)
- JD.Com (NASDAQ:JD)
- Fiverr (NYSE:FVRR)
- Wix (NASDAQ:WIX)
- FreightCar America (NASDAQ:RAIL)
Before we grind out the individual companies, I should point out that these firms are still risky ventures. I wouldn’t get too caught up in the buying frenzy as we’ve still got a long way to go before recovering from the pandemic. Thus, don’t spend more money on these growth stocks than you can afford to lose.
Growth Stocks to Buy: Phillips 66 (PSX)
Usually, oil and gas companies that offer sizable passive income usually don’t qualify as growth stocks. Phillips 66, an energy manufacturing company that specializes in the refining and midstream business (among other segments of the industry), has a trailing-12-month dividend yield of 4.6%. However, the contrarian case for PSX stock and similar investments gives it a “growth feel.”
Back when the pandemic first hit us, one of the most badly affected economic sectors was transportation. Obviously, the cruise ship industry suffered a major PR crisis. Furthermore, no one wanted to fly. And to add more salt to the wound, government restrictions on non-essential activities, combined with the broader work-from-home initiative contributed to an almost complete erosion of traffic.
Naturally, this devastated PSX stock.
Nevertheless, some brave souls bet on oil companies back during last year’s March doldrums. With Covid-19 cases declining and the rest of the economy gradually reopening, the narrative for oil has improved dramatically. Still, PSX is down from this year’s highs, in addition to the price point just before the pandemic.
Contrarians may want to give Phillips 66 a second look considering our overall progress in battling the pandemic.
Vista Outdoor (VSTO)
I’ve already lost count how many times I’ve mentioned growth stocks related to the firearms industry — and Vista Outdoor is one of my favorites. Vista is no longer a direct play on the guns themselves as it sold its firearms brands before the pandemic. Fortunately, the company had the sixth sense to hold onto its ammunition business and that has sold like wildfire.
A lot of folks fail to appreciate just how many Americans have purchased firearms. Spare me the talk from Washington about being together in this crisis. Clearly, a great many folks here don’t buy into it. Instead, they’re buying guns. According to FBI firearms statistics, 4.69 million guns were sold in March 2021 — an all-time one-month record.
Cynically, that’s cash in Vista’s hands, which is why I’m bullish on VSTO stock.
Still, sentiment may have gotten a bit overheated. From its closing peak of this year, VSTO stock is down about 12%. If you hold a contrarian view on growth stocks, though, this could be a buying opportunity. Despite the massive premiums on ammunition, people are still buying.
Growth Stocks to Buy: Tencent (TCEHY)
Being one of China’s top multinational technology growth stocks, Tencent is naturally going to attract plenty of controversy. That’s not my opinion. According to the Pew Research Center, unfavorable views of the Asian juggernaut have reached historic highs in many countries. Plus, it’s not just a list of usual suspects. When the Swedes – the fine folks that brought us Ikea – overwhelmingly don’t like you, you’ve got a problem.
On the other hand, betting on TCEHY stock is the ultimate exercise in objective investing. I’m reminded of a scene from the movie Lord of War. You’re not a true profiteering mercenary until you supply arms against the interests of your own country. While I wouldn’t classify Tencent on that same level, the sentiment remains: you’re spending money on Chinese growth stocks rather than American ones.
Despite the geopolitics, TCEHY stock does make a great case for buying it on a relative discount. Against the closing high of this year, shares are down about 18%. As the world’s biggest video game vendor, Tencent has relevance that many organizations envy.
JD.Com (JD)
This will sound strange, but hear me out. I view JD.Com as one of the growth stocks to sell at this juncture. That’s right — I think the nearer-term outlook for JD stock is negative. Technically, shares have fallen through both the 50-day moving average and the 200 DMA. That’s not confidence inspiring to say the least.
Personally, I’m looking at JD stock to correct to at least the $60 to $65 price zone. This is where significant support lies and where many investors may have set their automated buy orders. Until then, I would be leery about getting involved with JD.Com.
Should shares get there, though, they will become much more interesting. For one thing, China has recovered much quicker from the Covid-19 crisis compared to other nations. To be blunt, I’m not sure if I entirely trust Chinese governmental data. But at the same time, it’s also plausible that the country controlled its outbreak.
Further, the financials for JD.Com are very impressive, with the company generating year-over-year revenue growth of 39% in 2020. This is one to keep on the radar as a future opportunity.
Growth Stocks to Buy: Fiverr (FVRR)
Prior to the pandemic, the gig economy was among the hottest trends in business. Basically, it’s the concept of freeing yourself from the traditional paradigm of work and instead pitching your talent to businesses. It’s working on your terms or independent contract roles if you prefer a clinical definition.
Following the immediate aftermath of the Covid-19 crisis, many workers recognized the joys of the gig economy. Many don’t want to give up the benefits of the telecommuting phenomenon we saw last year. However, I don’t believe too many companies will be fond of a permanent work-from-home paradigm. Therefore, it’s likely that perhaps millions of newcomers will seek gig economy platforms such as Fiverr.
FVRR stock is one of the top-performing growth stocks over the trailing year, up nearly 500%. In some ways, it’s almost inevitable that the nature of work will change in America and abroad. By providing a freelance services marketplace, Fiverr is well positioned for the coming paradigm shift.
Surprisingly, though, FVRR stock is on a discount relative to this year’s peak, down 33%. It’s still risky, but that’s also a markdown you can’t just ignore.
Wix (WIX)
Another one of the winners among growth stocks is website development and services company Wix.Com. Over the trailing year, WIX stock gained 126%. However, it’s the speed in which it bounced higher that caught many investors’ attention. Between May 1 and July 9 of last year, shares skyrocketed 139%. The reason? I’m betting the gig economy.
While the Covid-19 pandemic put many transportation and hospitality workers in the unemployment line, many white-collar workers also suffered. Thus, many turned to building their own brand. Rather than learning HTML and dealing with a learning curve, Wix provides an excellent drag-and-drop interface. Sure, you can get creative if you want, but even if you’re not, Wix’s templates are simply gorgeous and of professional quality.
However, what’s most appealing for contrarian investors interested in growth stocks is that WIX stock is presently on a discount. Against this year’s closing high, shares have dropped about 16%. While it’s not an earthshattering decline, Wix is extraordinarily relevant because more people are likely to seek the gig worker lifestyle on a permanent basis.
Growth Stocks to Buy: FreightCar America (RAIL)
According to the Wall Street Journal, railroads represented the growth stocks of the 19th century. That seems like an awfully archaic statement to make about growth opportunities today. Nevertheless, Covid-19’s wider disruption has delivered new relevance for the sector, which could end up helping FreightCar America over the long run. The WSJ’s Spencer Jakab explains:
“Even after the wonder technology had been through multiple booms, busts and bankruptcies, railroads still made up more than half of U.S. market capitalization at the turn of the 20th century just as cars and planes were about to arrive on the scene. Their weight today is far more modest, but recent wobbles in the complex logistical web that delivers goods across the country and the world are a reminder of how valuable their systems still are.”
FreightCar designs and manufactures freight cars using various materials. As our economy gradually recovers, RAIL stock could swing higher. After all, overdependence on international shipping routes have not exactly panned out well.
Better yet for contrarians, RAIL stock is on discount. Against this year’s closing high, shares are down 40%. While presenting volatility risks, FreightCar could benefit if we continue to manage Covid-19 cases.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
