Many investors have thrown in the towel on even some of the best growth stocks in 2022. The tech industry had enjoyed outsized prosperity in recent years amid a sharp upturn in the adoption of digital services and technologies during the pandemic. As that trend has slowed in 2022, however, the sector’s earnings growth has sharply declined.
That’s not all. Investors had also bid up tech stocks to very high valuations because of tech names’ strong financial results in the recent past. The combination of falling earnings projections and high valuations caused growth stocks to get pummeled in 2022, with unprofitable and unproven tech firms taking a particularly steep fall.
However, these steep declines have planted the seeds for growth stocks to rebound sharply, creating a bull market of such names. That’s because expectations are now at much more reasonable levels and valuations make sense.
Consequently, the stage is set for growth investors to have more prosperous days ahead. Here are seven of the best growth stocks that should fare particularly well once sentiment starts to swing upward again.
Taiwan Semiconductor Manufacturing (TSM)
Taiwan Semiconductor Manufacturing (NYSE:TSM) stock has fallen 37% in 2022, and that’s even after its recent rally from its lows. This is a massive move for an industry-leading company like Taiwan Semi which has a market capitalization that’s above $400 billion today.
Taiwan Semiconductor Manufacturing is far and away the world’s largest contract producer of semiconductors and integrated circuits. But there are understandable reasons for the decline of TSM.
First, the demand for semiconductor has fallen sharply this year, and political tensions are mounting between Taiwan and China. If China launches a military strike against Taiwan, TSM would face real, potentially catastrophic risk .
That said, Taiwan Semiconductor Manufacturing is cheap enough to be worth the risk, as its shares are now trading at just 12 times analysts’ average forward earnings estimate for the chip maker.
Moreover, the company has started building production facilities in the United States to reduce its geopolitical risk while also taking advantage of subsidies from the CHIPS Act which promotes U.S.-based chip manufacturing.
Finally, Warren Buffett’s Berkshire Hathaway (NYSE:BRK-B) just disclosed that it has taken a big stake in Taiwan Semi stock.
Snowflake (SNOW)
Sticking with tech stocks that Buffett’s Berkshire Hathaway owns, now I will give you some information about Snowflake (NYSE:SNOW).
Snowflake was one of the market’s most anticipated initial public offerings when its shares debuted in 2020. The company has been growing at an exponential rate in recent years, and it is headed by a legendary tech CEO ,Frank Slootman.
SNOW stock opened trading at $240 and reached $400 not long after its debut. As a result, the shares’ valuation jumped to nearly 100 times the firm’s trailing revenue, making it difficult for the shares to outperform the market after that point.
All that has changed as we head into 2023. SNOW stock is down an incredible 59% year-in 2022, bringing the shares to a level not all that far above the company’s all-time low price of $110.26 per share.
After the decline of SNOW stock, Snowflake may provide investors with a great opportunity heading into 2023. The company continues to be one of the fastest-growing large cloud businesses, and it has become profitable. The latter milestone is very important to investors during these turbulent days.
Visa (V)
The credit card companies remain incredible businesses. Investors might think that opportunities are running out for Visa (NYSE:V). After all, how much more market share can Visa really add at this point?
The answer, actually, is more than you might expect. The pandemic drove significant adoption of touch-free payments solutions, which usually utilize the credit card networks’ payment systems. And some developing countries still use a great deal of cash.
And then there is also the resurgence of international tourism and travel. Visa earns far higher margins on international transactions than domestic ones. That part of its business was greatly disrupted during the pandemic.
Now, however, travel has come roaring back, and the industry looks poised to perform well in 2023, even as other sectors and some large companies struggle.
Amazon.com (AMZN)
I’ve been skeptical about Amazon.com (NASDAQ:AMZN) for a long time. The company has often struggled to turn much of its revenues into profits and free cash flow.
And since the pandemic started, Amazon’s profitability metrics have notably soured as the company arguably overinvested to meet a fleeting spike in the demand for its products. Other investments by the tech giant, such as its acquisition of Whole Foods, have also failed to deliver strong returns for the owners of AMZN stock.
That said, once a stock’s price drops enough, its outlook changes as well. I’d argue that AMZN stock is now nearing that point., as its shares are making fresh, new multi-year lows this month.
And sure, the near-term outlook remains poor. Inflation and supply chain issues will likely cause problems for Amazon’s upcoming earnings report. And its heavy investment in logistics isn’t guaranteed to deliver rewards anytime soon either.
However, there is still the Amazon Web Services business, which is an incredible asset. And a lot of other Amazon services and operations could generate more value if and when management cleans up their operations a bit. Amazon is a mess, but its share price is now down more than 50% from the all-time highs. The company has a lot of problems, and bears are making the most of them today.
But don’t forget the firm’s amazing cloud business. And its massive retail operation could return to meaningful profitability if management sharpens its focus and cuts down on wasteful spending.
Netflix (NFLX)
Netflix (NASDAQ:NFLX) has not had a blockbuster year. NFLX stock collapsed in the beginning of 2022 following a sharp deceleration in the company’s growth prospects. For several quarters, the company shed net subscribers outright as consumers lost interest in streaming options as the economy reopened.
Further, the competition in the streaming space has been brutal The share prices of nearly all of Netflix’s rivals have plunged this year as well, with companies like Walt Disney (NYSE:DIS) and Paramount (NASDAQ:PARA) also losing more than half their value since their 2021 highs.
However, Netflix appears to be turning the corner. Things have stabilized for it on the subscriber front, with the company unexpectedly adding 2.4 million net new subscribers in Q3. Meanwhile, the large and continuous losses at rival streaming services should start to limit NFLX’s competition in due time.
Eventually, there will be large-scale consolidation in the streaming industry, and it will become a winner-take-most market where only a few players end up generating good financial results. And Netflix, due to its massive content library and tremendous brand, has a large advantage over its peers.
Netflix may undergo another choppy couple of quarters before things really turn the corner. However, we’re starting to see light at the end of the tunnel for the streaming giant.
Meanwhile, Netflix remains firmly profitable, and it has a large presence in international markets as well. For longer-term investors, NFLX stock is attractive at its current, sharply discounted price.
Dutch Bros (BROS)
Dutch Bros (NYSE:BROS) is a small, rapidly growing coffee-shop chain. The firm is aiming to disrupt Starbucks (NASDAQ:SBUX).
Starbucks has long dominated the American coffee market with its sit-down cafe experience. Many people have become accustomed to using Starbucks as something of a “third place” to work and have meetings. However, the pandemic disrupted people’s existing patterns.
Meanwhile, demographics are also changing. Starbucks does well with millennials and older consumers. However, Dutch Bros wisely figured out that Gen Z — aka the “zoomers” — might want something else.
Dutch Bros has ditched large stores, instead choosing tiny locations designed to support take-out customers. In addition, Dutch Bros focused on sweet and colorful beverages that look good on social media.
The company has also made a point of hiring personable, engaging staff. With all of Starbucks’ current labor tensions and union drives, Dutch Bros could have an advantage on that front as well.
Dutch Bros is still a small company, with annual revenues of around $700 million. However, the firm is planning to open thousands of new stores in coming years. BROS isn’t yet consistently profitable, but if its current trajectory continues, the current, depressed level of BROS stock could represent a great entry point.
Unity Software (U)
Unity Software (NYSE:U) is the operator of a leading graphics engine. The Unity graphics platform is primarily used for designing and running video games. In recent times, Unity has begun to expand its engine to support other fields, such as video animation, architecture, and e-commerce.
The company has a leading position in its primary video-game market. Unity and its key rival, Unreal, together control the majority of the sector’s market share. Unity’s position is strongest in mobile games, but it can also provide graphics for games on consoles, PCs, and virtual/augmented reality platforms.
Speaking of virtual reality, Mark Zuckerburg reportedly wanted to acquire Unity years ago to power Facebook’s virtual reality applications. That lost opportunity looks particularly unfortunate given how much Meta Platforms (NASDAQ:FB) has spent in recent years trying to get its metaverse project up to speed.
Unity has struggled to become profitable. And its monetization model faces some scrutiny, as the company is quite dependent on the advertising market. That said, the video-game sector continues to grow, and Unity’s move into adjacent fields is also promising.
— Ian Bezek
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Source: Investor Place