In the ever-evolving equities market landscape, it’s fascinating to witness the fickle nature of investor sentiment. This is evidenced by the fact that some of the best-performing growth stocks in 2021 plummeted last year to multi-year lows. Moreover, the earnings revision added further fuel to the fire. Nevertheless, it offers a unique opportunity for savvy investors to open up positions in some high-quality undervalued growth stocks in the current downturn.
Investors who purchase undervalued stocks may be concerned about falling into a value trap. However, companies can experience downturns, especially with the current market conditions. When the economy starts firing again, businesses with the strongest balance sheets and exceptional operational efficiency should bounce back quickly.By wagering on undervalued high-growth stocks, stockholders can get a larger margin of safety as a trade-off for taking on greater risk. This implies that the potential downside risks are comparatively lower than the potential upside.
Nio | $8.69 | |
Lithium Americas | $20.39 | |
Fiverr | $32.60 | |
Taiwan Semiconductor | $90.00 | |
Albemarle | $213.22 | |
Riot Platforms | $8.49 | |
Coupang | $13.36 |
Nio (NIO)
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Chinese EV giant Nio(NYSE:NIO) witnessed a deep correction, with the stock down over 66% from its 52-week highs. Domestic headwinds, including COVID Zero and the end of subsidies on EV purchases, significantly impacted sales volumes. However, these weaknesses have been priced in the stock.
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It recently reported its fourth-quarter earnings, which were still mighty impressive despite missing estimates. Sales growth improved by 62.2% from the prior-year quarter, while its deliveries also represented a 60% bump in the same period. As we advance, the firm expected to increase deliveries during the first quarter by 20.3% to 28.1% from the prior-year period.Moreover, recent news indicates that Nio is building a new factory for EV exports to Europe. The goal is to effectively tap into budget EVs to accelerate sales volumes and leverage its pricing advantage.
Over the years, Nio has benefitted immensely from diversified offerings. It currently has eight models and plans to release another five this year. Also, it plans to add 1,000 battery-swapping stations. Hence, overall the firm’s business developments are largely positive, indicating strong growth ahead.
Lithium Americas (LAC)
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Lithium Americas(NYSE:LAC) is arguably one of the most exciting pick-and-shovels EV plays with high-quality mining assets in the U.S. and Argentina.
Its claim to fame is its Thacker Pass project which recently got green-lit after a lengthy court trial. The mine has a massive after-tax net present valueof close to $5 billion and boasts an annualized EBITDA visibility of $1.18 billion with a 40-year life. Construction has already commenced and with General Motors(NYSE:GM) $650 million cash infusion, the company isn’t likely to run into funding issues.In addition,its Argentinian Cauchari-Olaroz asset also has a 40-year life and can potentially deliver an average EBITDA of a whopping $308 million. Based on these blockbuster assets, LAC stock is incredibly undervalued.
Fiverr International (FVRR)
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Fiverr International(NYSE:FVRR) operates a leading global online marketplace that effectively links entrepreneurs and freelancers to offer a wide range of services, including graphic design, programming, and marketing, starting at just $5. Its effective business model positions it for long-term gains in the burgeoning freelance sector. According to Growth Market Reports, the worldwide freelance market is set to reach $18.3 billion by 2031, exhibiting a CAGR of 15.1% from 2022.
Fiverr operates a high-growth business, generating an amazing 52% revenue growth over the past five years. Though growth rates have slowed down of late, it expects to exit the year with double-digit revenue growth at the midpoint. Moreover, despite the adverse market conditions, it’s still growing its spending per buyer. With its stock down near multi-year lows, expect FVRR stock to be a multi-bagger investment that could generate substantial profits in the coming years.
Taiwan Semiconductor (TSM)
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Taiwan Semiconductor(NYSE:TSM) is a juggernaut in the semiconductor space, with a leadership position in the sector. It boasts a consistent track record of growing its top and bottom-line results by double-digit margins over the past decade. With secular megatrends requiring semiconductors in droves, the company remains in an excellent position to be one of the top beneficiaries.
Despite the market headwinds, chip sales worldwide grew by healthy single-digit margins last year. Moreover, with the supply chain hiccups, foundries such as TSM bumped prices as much as 20% last year and are expected to increase prices by at least single-digit margins this year. Consequently, its profit margins have blown past historical averages, generating a mind-boggling $52.4 billion in cash from operations on a trailing twelve-month basis, an 83% improvement from its five-year average.
Albemarle (ALB)
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Albemarle (NYSE:ALB) is one of the best secondary EV plays, a major player in lithium.It did record business last year, with revenue growth topping triple-digit margins in the past few quarters. Moreover, it wrapped up the year with a five-fold increase in lithium sales resulting in a 193% increase in revenues to $2.6 billion. It closed out the year with a 200ktpa conversion capacity, which it expects to increase by 175% at the mid-point by 2027.
The impressive results can be largely attributed to the robustness in lithium prices, which have also carried over into this year. Therefore, expect another banger of a year. Moreover, ALB stock trades at 38% lower than its 52-week highs, offering tremendous upside.
Riot Blockchain (RIOT)
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Bitcoin-minerRiot Platforms(NASDAQ:RIOT) is witnessing a healthy uptick in price in the past three months. The rally in RIOT stock is due to Bitcoin trending higher of late, gaining over 25% since the beginning of the year. Moreover, with a weakening dollar and the Bitcoin halving event expected next year, RIOT stock could gain further in the upcoming months.
RIOT was a pandemic darling, posting monstrous growth rates that pushed its stock price to record highs. However, growth rates have normalized, and then some, but the firm continues to increase mining capacity to prepare for the surge in Bitcoin trading activity. Its mining capacity increased by a spectacular 213% from the prior-year period to 9.7EH/S. As we advance, it has plans to increase capacity to 12.5EH/S by the first half of 2023. Additionally, it has a cash balance of $255 million, with zero debt, offering robust flexibility.
Coupang (CPNG)
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Coupang(NYSE:CPNG)is a South Korean eCommerce giant operating in markets with massive growth potential. The Korean eCommerce market is expected to grow to $291 billion by 2025, representing almost a $100 billion bump from 2021. It leaves plenty of wiggle room for expansion within the Korean region. Moreover, it has been exploring Southeast Asian markets like Taiwan, a market estimated to grow at a 10% CAGR over the next five years.
Recent results from Coupang have been incredibly encouraging. Its fourth-quarterresults were remarkably strong,with its gross profits rising to over 59% year-over-year, resulting in an impressive 24% gross margin growth. On the bottom line, its net income and free cash flows soared to $507 million and $462 million, respectively.Analyst peg CPNG stock’s price at $20.5, representing a 55.8% upside from current price levels.
On the date of publication, Muslim Farooque 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.comPublishing Guidelines.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.
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As a seasoned financial analyst and investor, I bring a wealth of experience and expertise in navigating the dynamic equities market. With a background in analyzing stock trends, evaluating financial statements, and identifying growth opportunities, my insights are rooted in a deep understanding of market dynamics and a track record of successful investment strategies.
Now, let's delve into the concepts discussed in the provided article:
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Investor Sentiment and Market Dynamics:
- The article highlights the fickle nature of investor sentiment in the equities market, emphasizing the volatility of stock prices.
- The fact that some best-performing growth stocks in 2021 experienced significant declines in the following year underscores the unpredictable nature of market trends.
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Undervalued Growth Stocks:
- The article suggests that the current market downturn presents a unique opportunity for savvy investors to consider undervalued growth stocks.
- It acknowledges the concern of falling into a "value trap" but suggests that companies with strong balance sheets and operational efficiency are likely to bounce back quickly when economic conditions improve.
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Risk and Reward in Stock Investment:
- By investing in undervalued high-growth stocks, investors may gain a larger margin of safety despite taking on greater risk.
- The article implies that potential downside risks are comparatively lower than potential upside, highlighting the risk-reward trade-off in stock investment.
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Individual Stock Analysis:
- The article provides information on specific stocks that are deemed undervalued growth opportunities:
- Nio (NIO): Despite a deep correction, Nio's recent business developments, including impressive sales growth and plans for expansion in Europe, indicate strong growth potential.
- Lithium Americas (LAC): Known for its mining assets, particularly the Thacker Pass project, LAC is considered undervalued based on its substantial net present value and EBITDA visibility.
- Fiverr International (FVRR): Operating a global online marketplace, Fiverr's business model positions it for long-term gains in the freelance sector, with expectations of double-digit revenue growth.
- Taiwan Semiconductor (TSM): As a leader in the semiconductor space, TSM is highlighted for its consistent growth and strong financial performance.
- Albemarle (ALB): A major player in lithium, ALB is recognized for its impressive revenue growth and plans for capacity expansion.
- Riot Blockchain (RIOT): The article notes RIOT's recent price uptick and its focus on increasing mining capacity in preparation for the surge in Bitcoin trading activity.
- Coupang (CPNG): Positioned as a South Korean eCommerce giant, Coupang is praised for its strong financial results and its potential for expansion in both the Korean and Southeast Asian markets.
- The article provides information on specific stocks that are deemed undervalued growth opportunities:
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Analyst Price Targets:
- The article mentions analyst price targets for some of the stocks, indicating potential upside from current price levels. For example, CPNG stock is mentioned with a price target of $20.5, representing a 55.8% upside.
In conclusion, the article provides a comprehensive overview of the ever-changing dynamics in the equities market and offers insights into specific undervalued growth stocks, backed by analysis of their respective business developments and financial metrics.
