Another market downturn is upon us, threatening to disrupt individual investment and retirement portfolios — and financial lives. However, as is usually the case, bear markets come and go, and economies and markets recover to print new record highs. As the market benchmark, the S&P 500 index, fell more than 20% year-to-date and into a technical bear market, now could be one of the best times to check out beaten-down growth stocks to buy for a rich retirement in the long term.
Honestly, the irritating and depressing losses in your stock portfolios hurt emotionally, but they remain just paper or electronic losses — unless you sell. History tells us to remain faithful and invested in the stock market during such tumultuous times. Actually, for someone building a retirement nest egg, new contributions deployed during market downturns may produce better capital growth and better dividend-adjusted returns than the capital invested at all-time highs in 2021.
In his letter to Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) shareholders back in 1990, investing legend Warren Buffett wrote that “the most common cause of low prices is pessimism — some times pervasive, some times specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces.”
Pessimism and fear have grown in abundance in the U.S. stock market this year. Some growth stocks with very high capital gains potential lie beaten down today. Growth names have been substantially punished. The iShares Russell 1000 Growth ETF (NYSEARCA:IWF) is down more than 25% year-to-date. However, some of the beaten-down growth stocks do have very solid fundamentals. They have a higher capacity to survive any prolonged economic downturn and emerge much stronger businesses once the troubles of this low sentiment season are over.
If the U.S. manages to avoid a recession this year (by chance) or the economy bounces back from one relatively quickly, the growth stocks on my top-buy list could report above-average earnings growth rates and make investors enjoy a richer retirement over the next decade. Perhaps it’s time to start getting greedy while everyone else is getting fearful.
Let’s have a closer look at my current favorite growth stocks to buy for a richer retirement.
| SLDP | Solid Power | $6.35 |
| AMD | AMD | $87.17 |
| RBLX | Roblox | $34.64 |
| ADSK | Autodesk | $188.20 |
| DDOG | Datadog | $107.55 |
| DOCN | DigitalOcean Holdings | $47.63 |
| NVDA | Nvidia | $170.66 |
Solid Power (SLDP)
Solid Power (NASDAQ:SLDP) is a solid-state battery developer that is achieving milestones and could soon be shipping some test samples to partners including Ford (NYSE:F) and BMW. Solid Power is one of the electric vehicle (EV) battery stocks that retain the element of surprise and could disrupt a fast-growing $560 billion global EV battery market. It kickstarted a pilot production line recently and could be a favorite candidate to fit the next-gen breakthrough battery tech in a road-driven car ahead of popular favorite QuantumScape (NYSE:QS).
Solid Power stands to gain market traction if its pilot production project registers success. The company made a significant step toward producing its first EV battery to deliver to partners after the installation of a pilot production line. In a March update, all required equipment for the larger 100 amp-hour battery production line has been delivered — management claims.
The company believes its battery design won’t require re-tooling and redesigns of existing battery manufacturing plants (as opposed to QuantumScape’s design). Thus, once proven successful, the company’s battery design could be licensed to any of the battery manufacturing giants leading the global lithium-ion battery market today.
SLDP stock stands to rally if the company were to scale-up operations quickly and grow sales at a fast clip within the next two or three years. The company won’t need the significantly dilutive capitalization to build new factories as its most popular competitor currently does.
The lithium-ion battery market may get disrupted soon, and the era of new solid-state battery technology with higher power density, fast charging capacity and cheaper battery packs with low fire hazards is on the horizon. Solid Power could be a growth stock to buy for its potentially high upside over the long term if it leads in the new transformative mobility-enhancing solution.
Advanced Micro Devices (AMD)
Advanced Micro Devices (NASDAQ:AMD) is a semiconductor chip designer that has executed a growth strategy well over the past decade. The company achieved a 56% compound annual growth rate (CAGR) in revenue from $6.7 billion in 2019 to $16.4 billion in 2021. It significantly expanded its operating profit margins during the three-year period from 9% in 2019 to 22% by 2021. AMD is a promising growth stock to buy after its significant drop so far this year. Shares could be a great performing retirement asset as the company plans to return 40% of free cash flow to shareholders.
In a recent corporate presentation, AMD’s acquisition of Xilinx in 2021 increases the revenue contribution of the high-margin data center and embedded segment in the revenue mix from 25% of total sales to 40%, leading to a non-GAAP margin expansion for 2022. Market worries of a potentially weak PC market are thus drowned as AMD’s total addressable market (TAM) grows to a staggering $300 billion.
AMD stock is down 40% year-to-date as tech sector valuations shrunk in 2022. However, investors who buy AMD stock during the current market correction could lock in hefty returns if the company’s projected 20% per annum growth rate in diversified revenues gets realized over the next three to four years.
Actually, AMD could be a cheap growth stock to buy right now as shares trade cheaply today. Its low forward price-to-earnings ratio of 19.9 and a very low price-to-earnings growth ratio of 0.5 imply that AMD stock is undervalued relative to its future earnings growth potential.
Roblox (RBLX)
Online gaming platform provider and videogame publisher Roblox (NYSE:RBLX) is a typical youth-focused growth stock to buy on the dip during the 2022 market decline. Although Roblox stock has declined by 66% so far this year to trade below its IPO price, chances of a strong long-term recovery seem very strong.
According to a recent report, Roblox’s average active users increased by 17% year-over-year to 50.4 million in May, and revenue for the month could be up 30% from comparable numbers last year. Revenue and cash flow are growing in leaps and bounds.
The company may not be profitable today. But it’s generating massive amounts of positive free cash flow every quarter — for five consecutive quarters now. Positive free cash flow cushions the business from the vagaries of trying to borrow or raise new capital during a recession or a period marked by depressed capital market enthusiasm.
Roblox is a growth stock to buy right now for its growing closed garden ecosystem that keeps business within its walls. An in-house game engine, publishing platform, online hosting services, marketplace payment processing and a buzzing social network give the company multiple revenue sources and unparalleled business development insights.
Autodesk (ADSK)
Autodesk (NASDAQ:ADSK) has revolutionized how architectural design, engineering and construction teams go about their work since 1982. The design software company’s growth into media and entertainment in the 1990s opened new growth frontiers, and its visual effects software was used in award-winning productions, including the 2009 film Avatar. Autodesk’s stock price has risen as the business has grown, and there could still be massive growth ahead.
Wall Street sees Autodesk growing its revenue by 14.3% this calendar year and by another 14.2% in the next year, but earnings per share could grow at a faster clip (29.1% for 2022 and 20.5% for 2023). Autodesk reported $1.46 billion free cash flow in 2021, and the company could generate a record $2 billion free cash flow this calendar year according to its management’s latest financial outlook.
Autodesk’s billings may grow at 18% to 21% for fiscal year 2023, which ends in January next year, while revenue grows at 13% to 15% during the period. Hence, the company is winning more subscription customers — a huge source of high quality, recurring earnings and growing cash flow.
Cash flow is the lifeblood of any enterprise, and growing free cash flow could allow Autodesk to reinvest in growing its operations, acquiring new customers and even scooping up good and promising businesses through acquisitions during a down market.
Autodesk is a good growth stock to buy for its growing earnings, robust and sticky customer base and strong future cash flow generating capacity which opens up new possibilities.
Datadog (DDOG)
Datadog (NASDAQ:DDOG) is a cloud-based service provider offering server monitoring, database services and analytics bundled in a fast-growing software-as-a-service business model. Its enterprise software platform could prove mission-critical and attract sticky demand — even in a recession. The company broke into profitability two quarters ago, and Datadog’s revenue and earnings performance could attract more investors back to the high-growth tech stock.
After a 41% decline that saw it print new 52-week lows before recovering somewhat, DDOG stock is back to its 2020 trading levels. However, the company generated more than four times its ($83 million) 2020 free cash flow over the past twelve months ($336 million) and could grow earnings at increasing rates over the next few years.
Datadog’s earnings per share (EPS) are estimated to grow to 74 cents in 2022. Analysts have increased Datadog EPS projections for this year by 45% over the past 90 days. Wall Street sees DDOG profits rising 42% year-over-year in 2023 and projects a strong 48% compound annual earnings growth rate for Datadog over the next five years.
It’s highly likely that DDOG stock could generate significant capital gains in the long term and enable investors to enjoy a rich retirement.
DigitalOcean Holdings (DOCN)
DigitalOcean Holdings (NYSE:DOCN) is another cloud computing growth stock investors could buy and add to a retirement-focused portfolio today. The company offers on-demand platform tools for developers, start-ups and small and medium businesses — a growing market that usually lacks in-house IT support staff.
Critical to the DigitalOcean business model is its simplified cloud computing interface that users without formal training can practically use to create and develop tools, and the company offers full-time customer and technical support.
The company became free cash flow positive in 2021 after producing $133 million in cash from operations and spending less on capital investments. Wall Street expects DigitalOcean to double its free cash flow to $52 million in 2022 and report another 80% cash flow growth in 2023 as it reports its first positive GAAP EPS next year.
Cash flow growth and its graduation into positive profitability in 2023 could put DOCN stock price on a strong recovery path over the next few years.
Wall Street rates DigitalOcean Holdings stock a strong buy today. The average analyst price target on DOCN stock, at $59.20 per share, could represent a 27% potential upside over the next twelve months. However, a full recovery to its 52-week high of $133.40 could mean a strong 186% capital gain if the company’s management continues to execute as well as it has been doing lately.
Nvidia (NVDA)
Last on our list of growth stocks to buy now for a richer retirement is Nvidia (NASDAQ:NVDA). Nvidia is a leading designer of graphics processing chips globally, and its moves into artificial intelligence (AI) and the automotive segment opened up new market verticals that could power strong growth over the next decade or two.
Nvidia’s market dominance in the global gaming graphics market and AI and its clout in the supercomputing market make it an ideal growth stock to buy and hold for the long term. That’s more true if you believe the global supercomputing market, powered by AI and spurred by emerging Web 3.0 applications, is headed for phenomenal growth.
Management sees a $1 trillion total addressable market for Nvidia’s products right now.
Its shares seem expensive with a trailing P/E multiple of 45 times. However, since our discussion is forward-looking, Nvidia’s forward P/E is a respectable 29.6. Wall Street expects the company’s five-year earnings growth rate to exceed 18% per annum. High valuation multiples for NVDA stock may be justifiable.
Shares are down 42% in a market sell-off so far this year. The company’s sustainable profitability, positive cash flow generating capacity and proven leadership capacity in key growth markets in the supercomputing age make NVDA stock a promising growth machine in a retirement portfolio.
On the date of publication, Brian Paradza held Advanced Micro Devices’ (AMD) common stock. He did not hold (either directly or indirectly) any positions in any other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
