Since the conclusion of the Great Recession 13 years ago, growth stocks have driven the market higher. Fast-paced companies have had access to cheap capital provided by historically low lending rates and a generally dovish Federal Reserve, which they’ve used to hire, acquire, and develop.
However, since the start of the year, growth stocks have taken a beating. The Nasdaq Composite has entered a bear market, and all three main stock indexes have fallen into correction territory, with tech-focused Nasdaq being the most severe. Although big falls in the market may be frightening, they’re an excellent opportunity for price-savvy investors to go shopping.
Two growth stocks have emerged as tremendous steals following the most recent big sell-off.
Bargain growth stock No. 1 to buy: Upstart Holdings
Cloud-based lending platform Upstart Holdings (UPST 9.49%) is the first growth stock that’s a screaming deal for opportunistic investors.
Since the start of last summer, the company’s stock has gone on a roller coaster. Upstart has dropped by more than 80% since October. Inflation in the United States has prompted the country’s central bank to take an aggressive stance with interest rates, which Wall Street worries will slow loan creation. While these concerns are real, they fail to grasp Upstart’s distinct competitive advantage.
The creation of an AI-driven lending platform is what distinguishes this firm. Instead of depending on conventional loan-vetting criteria, Upstart is allowing AI to play a crucial role in determining whether or not applications should be approved. As a result, individuals with bad credit histories who would previously have been denied due to their low credit scores are being accepted by Upstart. Despite lower average credit ratings, the delinquency rate with Upstart’s AI-powered platform is comparable to that of a normal vetting procedure.
Upstart is also lowering financial institutions’ costs. The majority of loans are approved rapidly and automatically, with around 70% of them getting the green light right away. Given Up Start’s success, a higher interest rate scenario makes it more likely that banks will turn to the platform for comprehensive loan applications to return to historical norms.
The valuation of Upstart is valued at merely 22 times Wall Street’s 2023 consensus income estimate. That’s absurdly inexpensive for a firm that is expected to produce 65% revenue growth and 37% sales growth in 2023.
Bargain growth stock No. 2 to buy: Meta Platforms
The second low-cost growth stock that investors may buy hand over fist is Meta Platforms (formerly known as Facebook; FB 5.37%).
At the moment, three problems are confronting Meta. To begin with, Mark Zuckerberg, the CEO of Facebook, is investing heavily in metaverse technologies, which is putting a strain on the organization’s bottom line. Second, Apple’s new iOS privacy settings have had a minor detrimental impact on Meta’s ability to collect user data, which is a blow for a business that derives most of its income from advertising. Third, high inflation and worldwide supply chain worries have caused merchants to be unwilling to pay a premium for advertising. Taking into account the growing popularity of Reels, which are less lucrative for Facebook, the overall cost per ad decreased by 8% in the first quarter.
Despite these challenges, Meta offers certain benefits that makes it a logical investment for patient investors. In the first quarter of 2018, Facebook had 2.94 billion monthly active users (MAUs), with WhatsApp and Instagram adding another 700 million unique MAUs. That’s 3.64 billion people, or more than half of the world’s adult population, viewing a Meta-owned social media asset on a monthly basis. Advertisers are well aware that no other social network comes close to matching the number of eyes available from Meta’s family of applications.
To add to that, Instagram, Facebook, and WhatsApp were the second, third, and fourth most-downloaded apps worldwide in 2018. Meta may not be increasing at a breakneck speed anymore, but this information suggests that it’s doing just fine in social media.
For bargain hunters, the price of Meta is currently less than 14 times forward-year earnings estimates on Wall Street. For comparison, Meta has had a forward-year earnings multiple of 25 on average over the previous five years.