Many analysts have reached a consensus right now that the market has likely bottomed in the near term. The strength in the economy is robust, and the recent bank bailouts by the Federal Reserve have started to loosen monetary policy despite the rate hikes. Following a tumultuous 2022, tech stocks have made a striking comeback in 2023, drawing attention from investors seeking hyper-growth stocks to buy.
The recovering confidence in the banking sector has diverted investor focus toward more cyclical names, creating a favorable environment for growth stocks. Analysts also anticipate the Federal Reserve may reconsider its rate hikes, leading to a potential resurgence in growth stocks.
Of course, there are fears that the growth rally is overdone and the economy is due for a recession following the rate hikes. But with the Fed’s balance sheet undoing around four months of quantitative tightening, I believe the possibility of a recession is insignificant in the near term. The only worry is that inflation may start rising again if there is too much liquidity in the economy, which can cause some panic in the future.
With that in mind, investors should look into these three hyper-growth stocks to buy:
Twilio (TWLO)
While most other growth stocks have exploded in recent months, Twilio (NYSE:TWLO) has remained overlooked. However, the stock is slowly making a comeback, up 16.7% year-to-date, but remains 86.5% below its February 2021 peak. I believe TWLO stock is poised for a resurgence this year as it is already building some momentum.
The cloud communications platform enables developers to integrate various communication services into applications and has seen remarkable expansion since its 2016 IPO. While the inflation and interest rate increases pose some challenges, the outlook seems very optimistic as we advance.
What’s more is that the company has been consistently beating analyst estimates. Twilio reported fourth-quarter revenue of $1.02 billion, up 22% year-over-year, and substantially narrowed its losses from $482 million in Q3 to $229 million in Q4. That’s mainly due to the cost-cutting initiatives the company went through, such as reducing its workforce by 17%.
Admittedly, the top-line growth is indeed slowing down. But investors also need to consider that Twilio’s growth will likely pick back up as the economy recovers. Many cyclical tech names use the company’s services, and the temporary slowdown shouldn’t warrant a low valuation.
Intuit (INTU)
Intuit (NASDAQ:INTU) is another business the market has underappreciated so far. It specializes in financial software such as TurboTax, QuickBooks and Mailchimp. Sure, INTU stock still trades at a premium, with a price-to-earnings ratio of 63.8x. However, its forward P/E ratio is at 28.6x, meaning that analysts expect much higher earnings in the future.
But what makes me really bullish about the stock is its remarkable margins. Its gross margin is at a remarkable 79%, while its net margin is at 14.2%, both ranked better than ~85% of other software companies. Furthermore, the three-year book growth rate (per share) is nearly 60%. That’s better than ~90% of its peers, showing that the company is rapidly building its asset base.
Much like other companies, top-line growth has slowed down here too. But as the macroeconomic situation eases, I expect that to turn a corner. Five-star analyst Jim Kelleher shares my view that the stock has considerable upside potential. He expects a 33% upside potential from the current price, with a $580 target.
Enphase Energy (ENPH)
Enphase Energy (NASDAQ:ENPH) is too good to ignore now. While fossil fuel-reliant companies have likely peaked even with the recent OPEC production cut, Enphase Energy seems well-positioned to deliver outsized gains. Countries worldwide are accelerating their efforts to increase their renewable energy output, and solar remains one of the best ways to do so.
First, Enphase Energy’s financials are shining green. Its three-year revenue growth rate is 50.4%, outperforming almost 95% of its peers. Even better, Enphase Energy’s three-year earnings before interest, taxes, depreciation and amortization growth is at 61%. I expect the growth to accelerate more as the solar trend picks up. But even with the current growth rate, its forward P/E ratio of 69.44x calls for more upside.
Indeed, analysts think the same. The average Wall Street target is $293, with a 54.8% upside. Some analysts think it can go even higher, with Sophie Karp from KeyBanc expecting an 91.5% upside potential.
On the date of publication, Omor Ibne Ehsan 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.
