The bear market of 2022 has not been kind whatsoever, and it has been especially unkind to growth stocks. These stocks have been hammered this year, with many equities falling by 65% to 80% or more. As a result, investors are looking for cheap growth stocks to buy.
At the same time, that’s a difficult game to play, given the current environment.
In a bear market, cheap growth stocks can always get cheaper. Once these stocks are in a downtrend, virtually nothing can save them. Strong earnings, reasonable valuations and insider buying mean nothing to the Street during bear markets.
Valuation and insider selling cannot stop these stocks during a roaring bull market, and the opposite trends cannot support stocks in down markets, either.
With those caveats out of the way, let’s look at a few cheap growth stocks to buy.
|AMD||Advanced Micro Devices||$71.94|
A few months ago, I wrote about why Netflix (NASDAQ:NFLX) appears to be undervalued.
If anything, Netflix went from growth stock to value stock in just six months. In that span, the shares fell more than 76%, reducing its market capitalization by hundreds of billions of dollars.
It was a stunning fall for the world’s largest streaming video service. However, it created a buying opportunity.
Despite the fall, Netflix has been the best-looking FAANG member from a technical perspective over the last few months. In fact, it has rallied more than 80% off its low.
Admittedly, that has made Netflix stock less cheap, as the shares now trade at roughly 30 times analysts’ average 2022 earnings estimate rather than the sub-20 times valuation that it carried earlier this year.
Still, the company is growing its top and bottom line, and it has a reasonable valuation. Keep an eye on Netflix when it dips.
Advanced Micro Devices (AMD)
It seems like everyone is forgetting about Advanced Micro Devices (NASDAQ:AMD) but that’s a huge mistake. The company provides building blocks used in many types of growing technologies and is increasingly playing a larger role in critical parts of the tech sector.
Whether it’s in cloud computing, gaming, graphics, machine learning, deep learning or otherwise, AMD’s chips are being widely used.
Like its peers though, the company’s demand is now slipping slightly. At some point, that modest dip will be reflected in the shares after they lost two-thirds of their value. After that decline, AMD is stunningly cheap.
That’s particularly true because analysts continue to expect AMD to grow going forward. And at its recent low, the shares were changing hands for less than 16 times the company’s earnings.
That’s dirt cheap for a high-quality company like AMD, especially as CEO Lisa Su continues to not just boost its revenue, but nearly all of its financial metrics.
I couldn’t help but take a stab at buying PayPal (NASDAQ:PYPL) stock in after-hours trading a few weeks ago. I rarely buy or sell stocks in after-hours trading, but the stock was plunging after PYPL reported its earnings on Nov. 3.
The stock was retesting its 52-week low after the report, and I fully expected it to continue falling for a number of additional days. However, I was a buyer for the simple reason that PayPal became one of the cheap growth stocks that were too hard for me to ignore.
The company’s Q3 earnings and revenue beat analysts’ mean outlooks. Interestingly though, PYPL slightly lowered its 2022 revenue guidance while boosting its earnings outlook. Since the shares were trading at about 16.5 times its 2022 EPS guidance, the stock was too tempting to pass up.
I don’t know when PayPal will get back to sustainable, attractive growth and/or be loved by the Street again. However, I do know that it is too good a company to ignore at this valuation. It’s worth buying in the $70s or even $80s. That’s especially true for investors who plan to hold the shares for multiple years.
Digital Ocean (DOCN)
I know people will critique this pick because cloud infrastructure company DigitalOcean (NYSE:DOCN) trades at 38 times this year’s earnings estimates. However, I believe that it’s still a cheap growth stock that’s worth buying.
My reasoning is based on the company’s growth outlook.
It’s hard to find names that are growing rapidly but trade at low or reasonable valuations. So sometimes it’s worthwhile buying the stocks of companies that are growing rapidly, even if their valuation is a bit high.
In the case of DigitalOcean, analysts, on average, expect its revenue to climb 34% this year and 29% next year. On the earnings front, the mean estimate calls for 141% growth this year and a 40% increase next year.
So the shares are trading at just 27 times next year’s mean EPS estimate. (DOCN’s new fiscal year begins in just six weeks).
I had a good feeling that buyers would get a chance to scoop up Salesforce (NYSE:CRM) in the $120s. My confidence about that grew when the shares were trading in the mid-$130s.
But now, with CRM trading above $160, it’s possible that investors may not get a chance to buy the name in the $115 to $125 range. Sometimes a strategy of waiting and waiting for lower prices doesn’t work out. However, Salesforce should not be ignored.
While analysts’ average estimate calls for the company’s earnings to be flat this year, the mean outlook calls for double-digit-percentage revenue growth in each of the next four years. That’s not a surprise, since the company forecast revenue of $50 billion for fiscal 2026.
That’s significantly ahead of analysts’ mean sales estimate for this year of $31 billion and was about $5 billion more than analysts, on average, were expecting for FY26.
Even at Salesforce’s current prices, its valuation isn’t that obnoxious. In the past, CRM was viewed as one of the most overvalued stocks in the market. That was a huge mistake, as the shares have exploded higher over the last decade.
Despite CRM’s recent rally, the shares trade at “just” 33 times the company’s earnings.
On the date of publication, Bret Kenwell held a long position in DOCN and PYPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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