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The equity markets have been in a correction model with several macroeconomic headwinds to navigate.
Inflation has been rampant and is currently at a 40-year high of 8.6%. The Federal Reserve is pursuing aggressive contractionary policies to tame inflation. This is likely to translate into tightening of liquidity in the financial system. To add to the worries, there are fears of recession in 2023.
However, amidst these concerns, there are few important points to note. First and foremost, stocks discount negative news well in advance. The markets seem to be discounting the recession factor. Further, the best time to buy stocks is when fear is the dominant sentiment.
In the last few months, growth stocks have corrected meaningfully. The recovery is likely to be slow. However, there are high-quality growth stocks that can be added to the portfolio. Over the next few years, these growth stocks can deliver multifold returns.
Therefore, investors should focus on fundamentals and accumulate quality growth and blue-chip stocks.
Top 4 Growth Stocks To Buy For Big Returns in the Next Few Years
Growth Stocks To Buy in 2022
Here are the four growth stocks to buy at current levels.
Pinterest (NASDAQ:PINS) stock has plunged by 50% in the last six-months. The steep decline has been due to lower growth for the company in terms of active users and revenue upside. However, at a forward price-to-earnings-ratio of 21.3, PINS stock looks attractive.
There are two major reasons to like Pinterest. The company has the highest number of active users from emerging markets. However, the average revenue per user from the rest of the world (excluding U.S. and Europe) is just eight cents. The ARPU in the United States is $4.98. There is ample scope for upside in ARPU in emerging markets. This will boost top-line growth and cash flows.
Pinterest has also focused on making the platform seamless for shopping. In the coming years, Pinterest is likely to be a proxy e-commerce platform. With strong global presence, the outlook seems bright. In particular, as e-commerce adoption is likely to increase globally.
It’s also worth noting that Pinterest has strong fundamentals. The company has delivered healthy cash flows and there is visibility for cash flow upside as ARPU increases. Therefore, there is ample financial flexibility to invest in innovation and product development.
Overall, PINS stock has been a victim of market over-reaction. In the next few years, the stock can deliver robust returns.
The electric vehicle industry has multi-year tailwinds. However, near-term challenges have resulted in a steep correction for EV stocks. Nio (NYSE:NIO) is one name that looks attractive among electric vehicle growth stocks.
From a policy perspective, the Chinese government recently lowered taxes on low-emission vehicles. The government is also said to be in talks with EV companies for potential extension of subsidies. With these tailwinds, the outlook is positive for Nio stock once near-term challenges are navigated.
Nio is strong financials and has built a healthy cash buffer through equity dilution. The company is therefore well positioned for aggressive expansion in Europe. At the same time, the company has new models for launch in 2022. This is likely to ensure deliveries growth well into 2023.
It’s also worth noting that Nio has witnessed steady improvement in vehicle margin. With operating leverage, the company is positioned for operating cash flow upside in the next few years.
Overall, Nio is positioned to survive and grow amidst rising competition in the EV industry. The company has been investing in autonomous driving and other innovation. Technological edge is likely to help the company increase market share in international markets.
Roblox (NASDAQ:RBLX) stock has been in a sustained downturn as the markets punish the stock for significant growth deceleration. However, it seems that the correction is overdone and RBLX stock is worth adding to the portfolio at current levels.
Research indicates that the global metaverse market is expected to grow at a strong pace through 2030. With Roblox being one of the top players in metaverse, the growth outlook is still bright. However, it would be unrealistic to expect revenue growth that’s maintained over 50%.
Among positives, Roblox is already generating positive free cash flows. The company has also witnessed sustained growth in daily active users with a global addressable market. It’s also worth noting that growth in users above 13-years of age has been strong in the last few quarters. The platform is therefore catering to a wide age group.
Of course, top-line growth has decelerated significant. However, even if growth sustains around 30% to 40%, Roblox is positioned to deliver strong cash flow upside in the coming years. The deep correction is therefore a good opportunity to accumulate RBLX stock.
DraftKings (NASDAQ:DKNG) stock has also disappointed investors with a downside of 60% in the last six-months. For the long-term, DKNG stock looks attractive at current levels of $10.7.
The company’s top-line growth has been robust. However, a major reason for the sell-off has been profitability concerns. The company’s EBITDA loss widened in Q1 2022 on higher marketing and selling expenses.
Amidst the profitability concerns, there are several positives. First, top-line growth has been robust and there has been a steady growth in average revenue per paying user. Also, the iGaming and Sports Betting industry is still at an early growth stage.
According to the company’s estimates, the iGaming and Sports Betting industry is potentially worth $67 to $80 billion in North America. There is a big addressable market as more states legalize online gaming and betting.
DraftKings therefore has robust growth visibility for the coming years. Once marketing and selling expenses stabilize, the company will be positioned to deliver strong cash flows. DraftKings has guided for long-term EBITDA of $2.1 billion.
DNKG stock is therefore attractive after a deep correction. In the next few years, the stock has the potential to create immense value for investors.
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