7 Red-Hot Growth Stocks That Could Be Headed to the Moon InvestorPlace - Stock Market News, Stock Advice & Trading TipsGrowth stocks are trading through a brutal bear market. However, these dips will evolve into opportunities for the best names....
By Bret Kenwell
This story originally appeared on InvestorPlace
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
Among other areas of the market, I hone in on growth stocks and let me tell you: It's been a painful couple of months. While many low-quality names have been thrashed for an entire year, many stocks stood strong.
Not anymore.
Just about every growth stock I can think of and scan for has felt the bear-market pain over the past few months. Some were able to outrun the selloff, hitting new highs in the fourth quarter. However, the selling pressure has caught up them now that the overall market has come under pressure as well.
What happens to these stocks if the Nasdaq has a bear market of its own?
I don't know, but it's not out of the realm of possibilities that we'll find out. In any regard, for those that are dollar-cost averaging or just looking for a few good growth stocks to buy and hold, let's look at some solid stocks:
- The Trade Desk (NASDAQ:TTD)
- Snap (NYSE:SNAP)
- Airbnb (NASDAQ:ABNB)
- Twilio (NYSE:TWLO)
- Upstart Holdings (NASDAQ:UPST)
- Roku (NASDAQ:ROKU)
- Nu Holdings (NYSE:NU)
Growth Stocks to Buy: The Trade Desk (TTD)
It's been a total annihilation in growth stocks, yet The Trade Desk is still standing. Shares are down "just" 29% from the high. While that sounds terrible — and normally, it is — it's vastly better than many of its growth stock peers.
Why? Because it continues to deliver strong results!
When growth stocks were carving out new lows in mid-November, The Trade Desk was hitting new all-time highs. Of course, it couldn't dodge a bear market forever and the stock price eventually came under pressure again.
Then The Trade Desk reminded investors why it's worth sticking with, as shares rallied earlier this month on another quarter of better-than-expected results.
The company is forecast to grow sales between 20% and 30% in each of the next three years and is healthily profitable. In fact, I think too many investors look at the price-to-sales ratio and conclude that The Trade Desk is too expensive. Because of its strong profitability, I believe it should be viewed on a price-to-earnings ratio.
While it's not necessarily cheap, it shouldn't be given its growth rate.
Growth Stocks to Buy: Snap (SNAP)
I used to have a serious issue with Snap because its financials were not that good. Further, management seemed to simply celebrate the fact that they were public and patting themselves on the back rather than digging in and getting to work as a "prove-it" company.
Well, the company has really come around lately. Even though the stock has been getting killed, Snap continues to churn out strong results. In January, shares fell more than 20% in the session ahead of earnings, simply for the fact that Facebook (NASDAQ:FB) had reported disappointing results.
That's why Snap stock exploded over 50% the next day after reporting earnings, as the results were solid. Further, management provided a solid outlook as well.
Snap isn't embroiled on controversy like some of the other social media platforms. Further, it has solid growth and its users continue to stick with the platform. Consensus estimates call for 37% revenue growth this year, followed by 43%, 32% and and 30% growth in 2023, 2024 and 2025 respectively.
Growth Stocks to Buy: Airbnb (ABNB)
Lodging stocks are booming. Hyatt Hotels (NYSE:H), Marriott (NASDAQ:MAR), Expedia (NASDAQ:EXPE) and others are all pushing to new highs while the stock market continues to slog away at multi-month lows with robust volatility. Like the others, Airbnb has been performing incredibly well. However, it's not at its highs like the rest of the group above.
Perhaps it won't get there, but if the relative strength in this group is any indication, Airbnb stock can continue to push higher. It's one of the few growth stocks that are rallying on earnings rather than selling off and it also has a unique catalyst.
Travelers are looking to get out and about. Only some are looking at a return to normal and traveling to busy areas, while others are looking to get out of the hustle and bustle and are looking for retreat-type trips.
Either way, Airbnb is a winner in these scenarios and it shows in the stock price.
Growth Stocks to Buy: Twilio (TWLO)
Twilio bulls had a fast one pulled on them. After a 60% decline from the highs coming into earnings, a "fast one" is the last thing anyone wanted.
When Twilio reported earnings on Feb. 9, the stock initially rallied more than 25% in the after-hours session. In the regular-hours session on Feb. 10, the largest gain the stock boasted was just 15.6%, but by the time the session ended, Twilio was stock was up just 1.9%
Long story short? Investors are selling growth stocks on earnings. We're in a bear market and in those conditions, the trend isn't to buy the dips, it's to sells the rips.
From the post-earnings highs, Twilio shares are down about 30%. For a company forecast to grow revenue 30% to 35% in each of the next three years, that seems rather ridiculous. That's particularly true with the stock down 60% from the all-time high made about one year ago.
Shares trade around than seven times 2022 sales estimates. For what it's worth, the company delivered a strong quarterly result earlier this month too. When it reported, it not only beat on earnings and revenue expectations, but guidance for next quarter came in well ahead of expectations.
Management expects revenue of $855 million to $865 million vs. consensus expectations of $803.84 million.
Upstart Holdings (UPST)
Upstart Holdings was one of the few growth stocks that didn't sell off on earnings. This company is in perhaps the best position to continue pushing higher and the reasoning is multifold.
For starters, the stock had a favorable reaction to earnings. While shares have come under some selling pressure from the recent highs, Upstart stock is still up after the report and it's one of the few growth stocks to rally on earnings.
Second, earnings and revenue weren't just ahead of expectations, but revenue guidance for next quarter was well ahead of estimates too. Management's EBITDA forecast topped expectations as well.
The company also announced a $400 million share buyback program, which isn't insignificant given its ~$10 billion market capitalization.
Lastly, expectations call for strong long term growth. Estimates call for 67% revenue growth this year, 36% growth in 2023 and 42% growth in 2024. All the while this company is profitable and only driving its bottom line higher.
Growth Stocks to Buy: Roku (ROKU)
This pick is a bit controversial. Roku didn't burst higher on earnings like Upstart, nor did it fade from a nice post-earnings rally. Instead, it plunged 22% on Feb. 19 after disappointing results.
The company reported a top- and bottom-line miss, as Roku whiffed on expectations. Shares are now down 80% from its highs in the second quarter of 2021. Roku's rise and fall has been pretty stunning, even for investors with a tough stomach.
Supply chain issues weighed (and continue to weigh) on the company. As such, the company missed on revenue expectations, despite growing sales by more than 33% in the quarter.
Perhaps worse though, management's outlook for next quarter was below expectations, coming in at $720 million vs. $748.5 million. Management's EBITDA outlook was short of expectations too.
But the company has a reasonable explanation for its shortfall (again supply chain related), while average revenue per unit (ARPU), streaming hours and active account growth all came in with solid results.
I won't sugarcoat it: The reaction to earnings was terrible.
However, one has to think there is long-term value in Roku starting to present itself given the enormous decline in the share price and the growing world of streaming video. Further, analysts still expect 35% revenue growth for the year (likely to be reduced to some degree after this earnings report) and 30% next year.
Nu Holdings (NU)
Last but not least we have Nu Holdings. Nu is perhaps the least well-known stock on this list despite it sporting a fairly large market cap. Currently, the company is worth $35 billion, which is the fourth-largest company on this list.
Headquartered in Brazil, this company is new to the U.S. markets after making its debut in December. That's pretty poor timing in regards to how growth stocks are performing. However, it could lead to an opportunity.
Both Tiger Global and Warren Buffett's Berkshire Hathaway (NYSE:BRK.A, BRK.B) have stakes in the company as of last quarter.
Currently operating near break-even results, Nu is expected to turn profitable in the years ahead, while revenue growth continues to barrel ahead. Analysts expect a four-fold increase in 2021 sales, followed by 73% growth in 2022, 49% in 2023 and 55% in 2024.
Given that growth, I don't think Nu should be ignored.
On the date of publication, Bret Kenwell held a long position in ROKU, TWLO and TTD. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.
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