Since the beginning of 2022, the S&P 500 index has corrected by 10%, but some growth stocks have witnessed a much sharper correction. This isn’t much of a surprise with so many headwinds. Trom concerns related to a possible rate hike to geo-political tensions, people are avoiding risk where they can.
Growth stocks generally trade at a valuation premium, but their valuation premium erodes once market sentiment turns negative.
However, this seems like a good time to gradually accumulate some growth stocks. There might be a case for a delayed rate hike with an uncertain economic environment. This can be a possible catalyst for renewed market upside once geo-political tensions de-escalate.
My focus is on growth stocks that have already witnessed a meaningful correction. Amidst the crisis or even before that. I believe that these growth stocks are worth considering at current levels. Once the market bounces back, these stocks are poised for a sharp rally.
- Rada Electronic (NASDAQ:RADA)
- DraftKings (NASDAQ:DKNG)
- Marathon Digital (NASDAQ:MARA)
- XPeng (NASDAQ:XPEV)
- Pinterest (NYSE:PINS)
- JD.com (NASDAQ:JD)
- Apple (NASDAQ:AAPL)
Growth Stocks to Buy: Rada Electronic (RADA)
Defense stocks have been in focus as a result of the rise in geopolitical tensions. RADA stock has surged by 41% in the last month. The high-growth defense stock is still worth considering with a medium to long-term investment horizon.
Rada Electronic is the manufacturer of tactical radar arrays. The company believes that it has a global addressable market of $6.0 billion.
For 2021, Rada reported revenue of $117.2 million. On a year-on-year basis, revenue increased by 54%. Further, the company is targeting to reach revenue of $250 million in the next 3-4 years.
However, with Russia-Ukraine tensions, it’s likely that defense spending will increase for the United States and NATO allies. It’s very probable that revenue growth will be faster than anticipated in the next few years.
Another important point to note is that Rada reported an adjusted EBITDA margin of 25% for Q4 2021 as compared to 17% in Q4 2020. Key margins have been expanding. With scale, the company seems positioned to deliver healthy cash flows.
Also, Rada is diversifying from a geographical perspective. Last year, the company set up a joint venture in India. As the addressable market reach increases, growth is likely to accelerate.
Overall, Rada stock is worth buying even after the recent rally. I would also not be surprised if the company is an acquisition target from one of the big defense players.
DKNG stock has slumped 75% in the last 12-months. However, it seems that the stock has finally bottomed out.
Recently, Morgan Stanley assigned an “overweight” rating for the stock with a price target of $31. DKNG trades today at a little more than $17.50.
DraftKings reported revenue of $1.3 billion in 2021. For the coming year, the company has guided for revenue (mid-range) of $1.9 billion. This would imply a year-on-year growth of 46%.
Although the company is likely to continue reporting EBITDA loss, it’s not a significant concern. After all, to remain competitive DraftKings is investing heavily in sales, marketing and product development.
It’s worth noting that for 2021, the average revenue per paying user was $67. In the prior year, the average revenue was $51. Once costs stabilize or decline, the company is positioned to deliver robust EBITDA.
DraftKings also estimates that the total addressable market for iGaming and online sports betting is likely to reach $67 to $80 billion. As more states legalize online gaming and betting, the company’s market potential will increase. It’s therefore likely that robust top-line growth will sustain in the coming years.
Growth Stocks to Buy: Marathon Digital (MARA)
Marathon Digital is among the top Bitcoin miners to consider with the company positioned for strong growth in the next 12-24 months.
The recent decline in price presents a good opportunity to accumulate Bitcoin (BTC-USD), but a proxy for exposure to Bitcoin is through investment in mining companies.
From a growth perspective, Marathon reported mining capacity of 3.8EH/s in February. The company expects capacity to increase to 13.3EH/s by mid-2022. Further, by early 2023, capacity is likely to increase to 23.3EH/s. The best part of growth is still to come for Marathon.
The company claims it can mine 66 Bitcoins per day at a hashing capacity of 13.3EH/s. Assuming Bitcoin trades at $40,000, the company is positioned for monthly revenue of $79.2 million. This would also imply an annualized revenue potential of $950 million.
Once more capacity is added by early 2023, Marathon is likely to have an annualized revenue potential in the range of $1.3 to $1.5 billion. With the company estimating blended mining cost of $6,235 per Bitcoin, the gross margin is likely to be robust.
Also, as the company’s financial flexibility increases, Marathon will be positioned for further growth and diversification.
XPeng has been on a high-growth trajectory and seems undervalued after being sideways for the last 12-months. A break-out on the upside seems imminent as robust growth sustains and XPeng pursues international expansion.
For Q3 2021, XPeng reported vehicle deliveries of 25,666. On a year-on-year basis, deliveries increased by 199.2%. For the same period, XPeng reported a healthy vehicle margin of 13.6%.
It’s worth noting that XPeng already has a presence in Norway. Recently, XPeng announced strategic partnerships with two renowned European automobile players. The partnership is for agency retail collaborations in the Netherlands and Sweden. As XPeng makes its presence in new markets, deliveries growth is likely to remain strong.
In September 2022, XPeng plans to launch G9. The SUV will be equipped with features that include semi-autonomous driving system and lidar technology. The SUV can potentially help in boosting deliveries growth in international markets.
As of Q3 2021, XPeng also reported cash and equivalents of $7.0 billion. The financial flexibility will allow the company to invest in innovation and boost the product pipeline. Talking about the innovation edge, XPeng plans to launch flying cars by 2024. These cars will also be capable of operating on roads.
Growth Stocks to Buy: Pinterest (PINS)
PINS stock has been in a steep correction mode with a downside of 57% in the last six months. At a forward P/E of 23, the stock looks attractive among growth stocks. The downside seems capped at current levels and a reversal rally is in the cards.
For Q4 2021, Pinterest reported revenue growth of 20% on a year-over-year basis. While growth in U.S. was 11%, international revenue growth was robust at 61%.
Average revenue per user in the United States was $7.43 for Q4 and 57 cents on international markets. ARPU in international markets increased by 63%. In the next few years, international user growth and ARPU growth can be potential cash flow drivers.
Making Pinterest more shoppable is another long-term growth catalyst. In 2021, the company expanded shopping to 13 international markets. With sustained growth in the global e-commerce industry, Pinterest is positioned to benefit.
Pinterest ended 2021 with cash and equivalents of $2.48 billion. Furthermore, for 2021, the company reported an operating cash flow of $753 million. The business has the potential to generate robust free cash flows with user growth and ARPU upside.
Overall, it seems that the sell-off is overdone in PINS stock. For patient investors, the stock still seems like a long-term value creator.
With regulatory headwinds for Chinese stocks, JD stock has declined by 29% in the last 12-months. Considering the company’s growth, JD stock looks attractive at current levels.
For Q3 2021, JD.com reported revenue of $33.9 billion. On a year-on-year basis, revenue growth was 25.5%. For the same period, the company’s annual active customer account increased by 25% to 552.2 million.
Further, in the last 12-months, JD.com reported operating cash flow of $6.4 billion. This gives the company ample financial flexibility for aggressive investments.
Recently, JD.com announced that the company has received regulatory approval for a 52% investment in Dada (NASDAQ:DADA). The latter is a leading platform of local on-demand retail and delivery in China.
With the financial headroom, JD.com is positioned for further organic and inorganic growth. The company is already diversified with segments that include JD Retail, JD Health and JD Logistics.
It’s worth noting that JD.com has the best logistics network in China among leading e-commerce companies. Penetration into tier two and three cities will ensure that robust growth sustains.
Overall, JD stock is attractive among growth stocks after a meaningful correction. Aggressive expansion in Southeast Asia is likely to be another catalyst for accelerated growth.
Apple might be a company with a valuation of $2.6 trillion. However, I would still categorize AAPL stock among the top growth stocks.
At a forward P/E of 26.5, the stock looks attractive. Further, considering the cash flow potential, it’s likely that the company will continue to increase dividends in the coming years.
For Q1 2022, Apple reported revenue growth of 11% on a year-over-year basis. Importantly, the company’s earnings per share growth was 25%. With revenue growth, margin improvement and share repurchase, EPS growth is likely to remain robust.
It’s also worth noting that segments like wearable, home and accessories have delivered healthy revenue growth. Even the services segment growth has been strong as compared to the iPhone segment.
While the iPhone business will remain the cash cow, the emerging segments are likely to ensure that earnings growth remains strong. An impending partnership or announcement related to the company’s entry into the EV segment is another stock upside catalyst.
Earlier this year, AAPL stock had touched highs of $182. The stock has witnessed some correction and trades at $158. This looks like a good opportunity to accumulate.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.