Growth investors have certainly had a rough go to start 2022. Indeed, many of the top picks touted by growth gurus such as Cathie Wood have underperformed greatly to start this year. Given various market headwinds of late, this environment isn’t necessarily unexpected.
Bond yields are rising ahead of expectations of interest rate hikes. These rising interest rates are viewed as one of the main tools the Federal Reserve will use to reduce rocketing inflation. However, this hawkish monetary policy stance is also likely to meaningfully cool the economy. Thus, those looking at top growth stocks may view now as a rather dangerous time to be taking on too much risk.
Indeed, many investors are now focused on de-risking their portfolios. Looking at growth versus value, it’s clear that value stocks are winning out right now. The extent to which this continues long term remains to be seen. However, for now, the winds appear to be shifting directions materially.
How should investors navigate this environment? Well, finding high-quality growth stocks supported by decent valuations and strong long-term growth prospects is a good place to start. Here are seven top picks for growth investors looking to rebalance their portfolios in this current environment:
- C3.ai (NYSE:AI)
- Ford (NYSE:F)
- Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL)
- Upstart (NASDAQ:UPST)
- Shopify (NYSE:SHOP)
- Micron (NASDAQ:MU)
- Nio (NYSE:NIO)
Top Picks for Growth Investors: C3.ai (AI)
One of the top growth areas that many investors remained focused on is artificial intelligence. In this space, C3.ai is an intriguing option to consider.
Indeed, this artificial intelligence company is currently trading almost 85% below its all-time high. For investors looking for value among high-flying growth stocks that have fallen back to earth, C3.ai could certainly be categorized as a fallen angel.
This company’s been touted as the “Microsoft of AI” (NASDAQ:MSFT) by various analysts. Obviously, that’s a flattering and rather bullish take. However, that’s come about as a result of this company’s innovation across key sectors. A range of utilities companies, life sciences companies, and even the Air Force are using C3.ai’s products to harness the advantages of AI in solving big problems.
Notably, this company signed a five-year contract with the Department of Defense worth $500 million late last year, bolstering this company’s revenue growth thesis. For now, C3.ai may be an early-stage stock without an attractive valuation. However, should this company continue growing at the pace many believe is possible, AI stock could be a diamond in the rough at these levels.
Now, for more of a value name. Ford is an automaker that really needs no introduction. The maker of the ultra-popular F150 pickup truck, Ford, like its auto peers, has been transitioning in a big way into the electric vehicle space.
With the launch of the company’s Ford F-150 Lightning model, many investors and analysts are now seemingly looking at this company as more of an EV stock than a traditional auto manufacturer. Accordingly, this company’s valuation has ballooned.
However, relative to other high-growth EV stocks, Ford’s valuation is relatively attractive. The automaker is priced at less than 35x earnings, making Ford’s long-term prospects appear reasonable in light of its valuation. Considering how other EV companies such as Rivian (NASDAQ:RIVN), Lucid (NASDAQ:LCID) and Tesla (NASDAQ:TSLA) are valued, Ford certainly looks like a growth stock with some meaningful upside from these levels.
Alphabet (GOOG, GOOGL)
As far as world-class growth stocks go, Alphabet is in a class of its own. This search giant has grown into an internet behemoth, with a range of businesses spanning a number of high-growth sectors. This company’s margins have remained sky-high, as Google’s dominance in its key markets has remained over the long term.
As far as defensiveness goes, GOOG stock is about as “safe” as mega-cap growth stocks get. This company’s valuation of 26x earnings is reasonable, considering Alphabet’s growth rate. In the company’s second fiscal quarter, Alphabet’s revenue hit an all-time high of $65 billion, representing growth of 41% from a year ago. For those who anticipate this will continue, this is a valuation that’s relatively easy to get behind.
Looking forward, the company projects full year revenue growth of 39% for 2021. The company’s $142 billion in cash and short-term securities also provides some attractive growth capital for forward-looking investors. Thus, this is a top pick for growth investors looking for stocks to own in this environment.
Top Picks for Growth Investors: Upstart (UPST)
One stock I’ve been downright bullish on, but hasn’t performed very well of late, is Upstart. This company’s valuation is the cause of most of Upstart’s problems. A company that has been valued, historically speaking, in astronomical territory, Upstart has since come back down to earth.
Currently, UPST stock trades at a discount of approximately 70% to its peak earlier last year.
Now, this is a company that appears reasonably valued at these levels. At roughly 110x earnings, Upstart is a company many value-seeking growth investors may want to consider. Indeed, if the growth thesis for this company was intact at $400 per share, at $110 per share, this AI-focused credit scoring platform could take off.
As demand for credit wanes, my expectations are that companies offering reasonable ways for lenders to estimate the true creditworthiness of borrowers could take off. While macro headwinds are likely to continue on, my long-term view on Upstart remains very bullish.
Accordingly, this is a stock I think growth investors may want to consider at these levels.
Another stock I’ve been bullish on this past year is Shopify. This e-commerce focused company provides an all-purpose platform that helps small and medium sized businesses set up online shops. In doing so, Shopify has been able to help thousands of businesses weather the pandemic. That’s no small feat.
Coming out of the pandemic, it’s clear that the shift toward e-commerce remains strong. Thus, I view Shopify as a company similar to Amazon (NASDAQ:AMZN) in many respects. This is the king of its domain, with strong secular catalysts propelling long-term growth. Accordingly, investors bullish on the economic transformation to online shopping ought to like how Shopify is positioned.
The company’s valuation has come down substantially from previous levels. It appears Shopify has found a way to grow into its valuation, which could only have been described as ridiculous in the past. Currently, Shopify trades at roughly 39x earnings, a very reasonable valuation for a high-growth company like this.
Shopify’s triple-digit revenue growth days may be over. However, the company’s recent 46% year-over-year revenue growth numbers appear more sustainable in the near term. Assuming this growth continues in the coming two to five years, I think Shopify could run a lot further, a lot faster, from here.
After a massive dip in November, Micron Technology is back on track, rising 12% over the past month. The company is an industry leader in the world of computer memory and data storage. Last year, Micron’s revenue and earnings surpassed all of Wall Street’s targets and estimates.
Recently, Micron Technology released its earnings report for its fiscal first quarter. Revenue in this quarter was $7.69 billion, compared to $5.78 billion in Q1 of 2021. Earnings per share also tripled to $2.04 during the same time.
Despite this, the company’s stock price certainly looks attractive. Micron has a price-earnings ratio under 15. This is lower than the industry average. Accordingly, given the potential upside this stock has, as per analyst price targets, Micron certainly looks like a top pick for growth investors today.
Micron’s growth has been supported by strong secular trends among 5G cellular devices and electric vehicles. Unless these growth catalysts slow, which I expect they won’t, Micron’s growth trajectory looks solid from here.
Top Picks for Growth Investors: Nio (NIO)
Finally, we have Chinese electric vehicle manufacturer Nio. This past year was one of mixed results for the EV player. A global chip shortage hurt deliveries throughout the year.
That said, Nio has generally been able to weather this storm well, posting record numbers and some solid growth. In fact, in 2021, Nio was able to produce more than 91,000 vehicles. This represented production growth of 109%, along with revenue growth of 115% on a year-over-year basis.
As a Chinese EV stock, Nio competes in the world’s largest EV market. Accordingly, as the company many consider to be the “golden child” of China, Nio is positioned to capture long-term market share. This company’s recent growth trajectory is likely repeatable in the years to come, as the Chinese EV market grows. Accordingly, I’m bullish on the geopolitical factors behind this stock more than anything else.
Right now, Nio is working on increasing its production capacity to 240,000 vehicles per year. Thus, a doubling of the company’s current production could be in the cards for next year. As more production capacity is added in the years to come, I expect Nio to be a global EV force to be reckoned with.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.