7 Great Cheap Stocks to Buy for Solid Growth in 2022

cheap stocks - 7 Great Cheap Stocks to Buy for Solid Growth in 2022

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It’s been a shaky start for asset markets in 2022. The interest rate hike and the possibility of liquidity tightening are both concerning investors. Furthermore, geopolitical tensions have escalated and translated into some risk-off trade. I believe the correction presents a good opportunity to accumulate some cheap stocks.

An important point to note is that real interest rates will remain negative even if there are four rate hikes in 2022. Therefore, funds will flow back into asset classes such as equities and cryptocurrency.

Also, the pandemic might become endemic in 2022. This is a positive catalyst for the market, as it will boost global gross domestic product (GDP) growth. Morgan Stanley believes inflation pressure will subside and global GDP growth is likely to be 4.7% for the current year.

These seven relatively high-growth stocks are cheap because they have corrected to attractive levels. I believe these picks have limited downside risk and a meaningful upside potential.

Let’s discuss the reasons that make these cheap stocks worth considering at current levels:

  • Nio (NYSE:NIO)
  • Marathon Digital (NASDAQ:MARA)
  • PayPal (NASDAQ:PYPL)
  • Novavax (NASDAQ:NVAX)
  • Sea Limited (NYSE:SE)
  • Pinterest (NYSE:PINS)
  • Shopify (NYSE:SHOP)

Cheap Stocks: Nio (NIO)

A close-up shot of the Nio (NIO) ES8 vehicle.

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Nio has been on a robust growth trajectory even as NIO stock has trended lower in the last 12 months. Regulatory headwinds in China, profit booking and equity dilution have been some key factors for the correction. Additionally, the chip shortage has been discounted in the stock.

However, after a downside of more than 57% in the last 12 months, the stock looks attractive. Importantly, Nio has several positive catalysts lined up for 2022. First, the company expects to continue international expansion. This will help in vehicle deliveries growth.

Furthermore, Nio has new car launches set for 2022. In addition to the debut of the ET5 last December, the ET7 is set to launch this year. New models will ensure that growth remain strong through 2022 and 2023.

Nio has also been pursuing manufacturing capacity expansion. With plans to enter several international markets by 2025, the company is positioned to cater to the incremental demand.

From a financial perspective, Nio has a cash buffer in excess of $9 billion. This will help with investment in innovation and international marketing.

Overall, Nio is likely to witness accelerated growth towards the second half of 2022. The worst seems to be over for NIO stock.

Marathon Digital (MARA)

GREE stock: a crypto mining rig

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From November 2021 highs of $83, MARA stock has corrected to current levels just under $25. The correction has been in sync with a sharp decline in Bitcoin (CCC:BTC-USD). I believe the decline is a good opportunity to accumulate MARA stock.

Bitcoin seems to be discounting the view that interest rates will trend higher in 2022. However, even with four rate hikes, real interest rates will remain negative. Funds will flow into risky asset classes. Also, if inflation remains stubborn at higher levels, Bitcoin is likely to trend higher.

Specific to Marathon Digital, the company has ambitious expansion plans for 2022. The company is expecting to deliver multi-fold expansion in hash-rate by mid-2022. With an expected hash rate of 13.3 exhashes per second (EH/s), Marathon is positioned for stellar revenue growth.

To put things into perspective, even if Bitcoin trades at $45,000, the company will deliver monthly revenue of $89.9 million. This implies an annualized revenue potential in excess of $1 billion. Further, with an expected mining cost of $6,235 per Bitcoin, its EBITDA margin is likely to be robust.

Marathon Digital is therefore positioned for healthy cash flow growth in the next 12 to 24 months. With ample financial flexibility, the company will be positioned to grow further and diversify. The correction in MARA stock therefore presents a good accumulation opportunity.

Cheap Stocks: PayPal (PYPL)

PayPal (PYPL) logo overlays daylight photo of corporate building

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PYPL stock has been a value creator over a five-year period with total returns around 300%. However, the stock has underperformed in the last six months with a downside of 37%. Current valuations seem attractive and PYPL stock is one of the top cheap stocks to consider.

It’s worth noting that for the third quarter of 2021, PayPal reported $6.18 billion in revenue and $1.3 billion in free cash flow (FCF). The current annualized revenue potential is more than $25 billion with FCF potential of $5.2 billion.

However, PayPal has guided for a revenue target of $50 billion by 2025. Even if FCF doubles along with the doubling in revenue, the company is likely to report FCF in excess of $10 billion by 2025.

PayPal is therefore a long-term cash flow machine. The company also believes the total addressable market is $1 trillion. This leaves ample scope for growth even beyond 2025.

The key point to note is that with robust FCF, the company will have ample flexibility to pursue inorganic growth. This will help with building presence in emerging markets.

PayPal has also been building presence in the cryptocurrency space. Users in the United States and U.K. can buy and sell select cryptos on its platform. Considering the growth in the cryptocurrency space, it’s likely PayPal will expand regional presence as well as product offering.

Novavax (NVAX)

Novavax (NVAX) vaccine for prevention of coronavirus, Covid-19, Sars-Cov-2 in doctors hands in rubber blue gloves

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NVAX stock has been an underperformer in the last 12 months. It’s not surprising with the company lagging behind in the Covid-19 vaccine race. However, I believe the worst of the downside is over for NVAX stock. Furthermore, the company is positioned for significant revenue and cash flow upside in 2022 and 2023.

Places like the United States and countries in Europe already have a high vaccination rate. There is likely to be a limited addressable market for Novavax in these regions.

However, the company has been focused on low-income countries. In most of these countries, the vaccination rate is sill dismal. This provides a big addressable market for Novavax.

Recently, the company received emergency use authorization (EUA) in India. Novavax already has EUA in Indonesia. With several other target markets, the company seems positioned for growth as vaccine deliveries begin this year.

It’s also worth noting the company has a combination vaccine for influenza and Covid-19 in the clinical trial stage. Positive results on this front are likely to ensure another revenue stream.

From a manufacturing perspective, Novavax expects to achieve a capacity of 150 million monthly doses. Additionally, the company has licensed manufacturing with partners in South Korea and Japan. Overall, as delivery of vaccines commences, NVAX stock is positioned for upside in 2022.

Cheap Stocks: Sea Limited (SE)

The logo for Sea Limited (SE) is seen on a web browser through a magnifying glass.

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In October 2021, SE stock touched highs of $373. A sharp correction has followed and the stock currently trades at $156. Considering the company’s growth trajectory, I would consider it a strong buy for growth in 2022.

For Q3 2021, the company reported revenue growth of 121.8% to $2.7 billion. The digital entertainment segment reported bookings of $1.2 billion and EBITDA of $715.1 million. The e-commerce segment revenue was $1.5 billion.

While the e-commerce segment has reported significant cash burn, it’s a revenue growth driver. As sales continue to accelerate, operating leverage is likely to ensure the segment gets profitable. For 2021, the company has revised the e-commerce revenue guidance on the upside to $5.1 billion.

Sea Limited has also witnessed strong growth in Digital Financial Services. For the last quarter, the company reported $4.6 billion in mobile wallet total payment volumes.

Therefore, with multiple growth catalysts, SE stock looks attractive after a meaningful correction. Once the e-commerce segment EBITDA improves, Sea Limited has the potential to be a cash flow machine.

Pinterest (PINS)

the pinterest (PINS stock) logo on a mobile phone held by a woman

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PINS stock was a favorite in the markets a few quarters ago. However, with growth concerns, the stock has slipped by nearly 50% in the last six months.

It seems current levels are attractive for fresh exposure. The stock trades at a forward price-to-earnings (P/E) ratio of 23.9x. Considering the earnings growth, there seems to be potential for a reversal rally.

For Q3 2021, Pinterest reported revenue growth of 43% on a year-over-year (YOY) basis. However, international revenue increased by 96%. While growth in the U.S. has been relatively muted, global growth is likely to remain robust in the coming years.

It’s also worth noting the average revenue per user (ARPU) in the United States was $5.55 in Q3 2021. In the international markets, the ARPU was 38 cents. There seems to be ample scope for growth in ARPU outside the U.S. Once this happens, EBITDA margin expansion is likely along with cash flow upside.

Another important point to note is that the company is focused on making Pinterest more shoppable. The company has already expanded shopping features in several new markets. This is another segment that’s likely to boost active users and revenue potential.

Overall, the selling is overdone in PINS stock. I expect a reversal rally relatively soon and exposure can be considered at current levels.

Cheap Stocks: Shopify (SHOP)

Image of a shopping cart toy on a wooden desk carrying a mobile phone that features the Shopy (SHOP) logo on it

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For a high-growth company like Shopify, it might not always make sense to look at the P/E valuation. SHOP stock looks attractive after a big correction from highs of $1,763 to current levels around $968.

For Q3 2021, Shopify reported revenue growth of 46% to $1.1 billion. An important point to note is the company’s monthly recurring revenue for September 2021 was $98.8 million.

The company’s monthly recurring revenue (MRR) increased considerably YOY. Considering the annualized number, Shopify already has an annual cash inflow of $1.2 billion from MRR. With an increase in businesses using Shopify and scaling of online businesses, it’s likely MRR growth will remain robust. Shopify is therefore another cash flow machine.

Furthermore, Shopify has global reach and this implies a significant addressable market. Online shopping has gained additional traction after the pandemic.

In Q3 2021, the company launched Shopify Markets. This product will make cross-border commerce easier for entrepreneurs. Solutions such as Shopify Payments and Shopify Capital have also witnessed steady growth.

The key point is the company is expanding its suite of products and solutions. In the next few years, Shopify is well-positioned to deliver robust free cash flows.

On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.

Article printed from InvestorPlace Media, https://investorplace.com/2022/02/7-great-cheap-stocks-to-buy-for-solid-growth-in-2022/.

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