2022 was a horrendous year for growth stocks. In fact, many of them also struggled in 2021. So after an amazing bull run, it’s been several years of pain for growth investors. That said, the destruction has left a number of cheap growth stocks in its wake.
The problem? “Cheap” is relative to the buyer, and not all buyers view these stocks as cheap. In many cases, they’re not cheap by traditional measures.
Lastly, valuation is up to interpretation and is highly dependent on the investing environment. When we were in a raging bull market, valuations were not able to cap some of the monstrous runs we saw in stocks. They did not cap the gains and did not restrict the stocks from flying higher.
Now that we’re in a punishing bear market, valuations alone aren’t enough to prop stocks up. Just because something is cheap, that doesn’t mean it can’t get cheaper.
With some of that in mind, let’s look at a few cheap growth stocks to own for the years ahead.
|AMD||Advanced Micro Devices||$70.30|
Advanced Micro Devices (AMD)
Advanced Micro Devices (NASDAQ:AMD) finds itself just 30% above its 52-week low after a recent pullback. The stock has lagged its peers, like Nvidia (NASDAQ:NVDA), although the two have suffered similar peak-to-trough declines.
AMD CEO Lisa Su deserves a ton of respect after the last five years. She has totally transformed the business by reducing debt, increasing revenue and becoming profitable and free-cash-flow positive. She put the business in a financial position to close its acquisition of Xilinx for roughly $50 billion.
That’s a huge acquisition and while Xilinx wasn’t known for its robust growth necessarily, it does have solid margins and consistent free cash flow.
Admittedly, earnings estimates have come down for AMD. However, with shares down more than 49% from their 52-week high, one would think earnings would at least decline for the year. Instead, analysts expect 6% revenue growth in 2023 and 4% earnings growth.
For this, we’re paying just under 19 times earnings. If AMD retests the lows, it will trade at less than 16 times earnings (provided estimates don’t collapse.)
Cheap Growth Stocks: PayPal (PYPL)
PayPal (NASDAQ:PYPL) stock saw an explosive gain after Covid-19, but shares have paid the price amid the fallout in growth stocks. I don’t know that it would have really mattered, but PayPal’s association with crypto and high growth put a target on the stock’s back.
Now, though, the narrative has changed — at least in my mind. The company has raised its earnings outlook in two consecutive quarters, even though the share price has recently probed new 52-week lows. Consensus expectations now call for 9% revenue growth in fiscal 2023 and roughly 17% earnings growth. Admittedly, that comes after a year where 2022 earnings likely fell about 11%.
Still though, it leaves shares trading at just 16.6 times forward earnings. That’s too cheap for a stock that can put together double-digit earnings and revenue growth.
One of the darlings of the last bull market, Tesla (NASDAQ:TSLA) is finally losing its charge. The stock has been absolutely buried lately, suffering a peak-to-trough decline of about 75% while falling in five consecutive months and losing 67% amid that stretch.
Some investors blame it on CEO Elon Musk and his purchase of Twitter. Others blame it on the current investment environment, rising interest rates and a potential recession. In reality, the “why” doesn’t matter. What matters is interpreting whether it’s a good company or not.
While the company may be facing demand problems in China and its fourth-quarter delivery results disappointed Wall Street, the fact is, Tesla still churned out record production last quarter. The automaker is the global leader in electric vehicles (EVs) with a strong energy business and surprisingly solid financials.
Tesla has more than enough capital to manage through an economic downturn, while estimates still call for solid growth.
Expectations for 2022 may prove to be too optimistic, but they currently call for 79% earnings growth on top of 53% revenue growth. Estimates for 2023 call for revenue of roughly $110 billion, up 34%, and earnings of just more than $5 per share, up almost 25%.
Presently, that leaves Tesla stock trading at roughly 23 times 2023 earnings.
Lululemon Athletica (LULU)
It’s been a while since we’ve looked at Lululemon Athletica (NASDAQ:LULU), but the recent price action demands that we do. Shares recently fell almost 10% in a single session after the company warned about the recent quarter.
Instead of a slight gross margin expansion, the company experienced a slight gross margin contraction. However, revenue in the quarter came in a bit stronger than expected, while earnings were near the midpoint of the prior guide.
In other words, a little more sales than expected, a little worse margins than expected and the end result is about the same amount of earnings. Did shares really deserve to hit multi-month lows on the news?
I don’t think so, but what I think doesn’t really matter. However, we can look at this top-tier retailer and make a case for owning it. Estimates call for double-digit revenue and earnings growth this year and next year, including growth in excess of 25% for both categories in 2022. In fact, estimates are pretty strong for the next several years.
At current levels, shares trade around 27 times this year’s earnings. That’s not exactly in the normal territory of cheap growth stocks. However, it’s cheap for Lululemon stock, which is a high-quality business.
From this week’s low, another 14% decline would send Lululemon to new 52-week lows. I’m not saying that will happen, but if it does (and estimates don’t take a big hit), shares will trade at a more reasonable 25 times earnings.
I’m not sure how many people would consider Disney (NYSE:DIS) a growth stock, but with its booming stake in streaming video, I consider it to be. The risk with Disney is pretty clear, though. Its streaming business hasn’t turn a profit yet and the company faces a potential slowdown if a recession materializes.
That said, analysts expect about 8% revenue growth this year and 7% next year. For earnings, those expectations are higher, at 17% and 28.5%, respectively.
I also don’t know what valuation is “too low” to ignore for Wall Street. However, in the $75 to $80 range, Disney gets tough to ignore from a technical perspective and a fundamental one. Assuming the earnings estimates don’t change too much, Disney would trade at sub-20 times earnings.
On the date of publication, Bret Kenwell held a long position in PYPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.