Growth companies are currently facing some challenges in the market, with their stocks trading at a valuation gap. These companies, known for their high beta and significant price action, can experience quick wealth erosion. One way to mitigate this risk is through diversification across blue-chip and growth stocks. However, deep corrections in the market can also present good buying opportunities for quality growth stocks.
In this article, we will highlight three growth stocks that have experienced a 50% decline in recent quarters but are considered quality ideas with temporary headwinds. As the challenges subside, these growth stocks are expected to bounce back and potentially surge higher.
With the possibility of rate cuts in the second half of 2024, the S&P is expected to trend higher, leading to a broader market rally. This could result in these growth stocks rallying by 50% to 100% in the next two to three quarters.
The first stock we will discuss is Li Auto (LI), which reached 52-week highs in February but has since plummeted by 50% year-to-date. Despite this decline, LI stock is currently trading at a forward P/E of 16.1, making it an attractive buying opportunity. The correction in the stock was primarily driven by the company’s readjustment of growth expectations and negative industry sentiments due to tariffs on Chinese EVs. However, with a strong cash buffer and plans for aggressive expansion and innovation, Li Auto’s long-term outlook remains positive.
Next, we have Lithium Americas (LAC), which has seen a 56% correction this year, making it one of the most undervalued lithium miners in the market. The company’s Thacker Pass project has significant potential, with an after-tax net present value of $5.7 billion and the capacity to deliver an annual EBITDA of $2 billion. Additionally, the recent conditional commitment for a $2.26 billion loan from the U.S. Department of Energy is expected to support the project’s construction and drive LAC stock higher.
Lastly, Blink Charging (BLNK) has experienced a 54% decline in the last 12 months but has shown signs of bottoming out. With strong revenue growth and plans for positive adjusted EBITDA, BLNK stock is poised for a sharp rally in the coming months. The company’s focus on growth and addressing cash burn concerns indicate a positive outlook for the stock.
In conclusion, while growth companies may be facing near-term headwinds, the current market conditions present an opportunity to consider investing in quality growth stocks that have the potential to bounce back and deliver significant returns in the future.