There’s never a bad time to buy a good growth stock. There are particularly good times, however, to load up on a great growth name — usually when it’s beaten down, underestimated, or just plain undervalued.
If you’ve got $3,000 that isn’t needed to manage monthly expenses, pay down short-term debt, or bolster an emergency fund, put it to work in your portfolio. Here are three potential growth stock picks worth considering. And even if you already hold positions in one or more of them, it wouldn’t be crazy to add a bit more exposure.
ASML (ASML -0.41%) may be the world’s most important company you’ve never heard of. Indeed, the odds are good that its equipment was used to manufacture some of the hardware in the device you’re using to read this article right now. That’s because ASML makes the tools used by semiconductor companies like Intel, Samsung, and Taiwan Semiconductor Manufacturing to produce chips for computers, smartphones, tablets, smart TVs, and more.
These machines perform a process called lithography — and in ASML’s case, extreme ultraviolet (UEV) lithography. In layman’s terms, they use intense light to “etch” circuit boards into existence. There are other ways to turn silicon wafers into pieces of functioning technology, but this is the most cost-effective way of manufacturing high-performance chips at scale. Oh, and Netherlands-based ASML controls more than 80% of this market, leveraging its superior intellectual property and the know-how that comes from being in its business for far longer than any of its serious competitors. ASML is often imitated, but never duplicated.
This edge doesn’t necessarily mean the company is completely immune from trouble. If the semiconductor industry is struggling, chipmakers may postpone or even cancel purchases of new foundry equipment. Capital expenditures must still be justifiable business decisions, after all.
This isn’t a company that’s held down for long though. Its lithography solutions are too important to the technology sector; consumers and corporations alike sooner or later demand newer and better tech.
The numbers bear this idea out. Despite last year’s broad economic malaise, ASML’s top line was up nearly 14%, and it’s on pace to grow nearly another 25% this year. Sales growth is expected to slow a bit next year, but that shouldn’t bring a halt to its profit growth. Moreover, next year’s anticipated slowdown is based on the headwinds of geopolitical trade conflicts rather than a waning interest in ASML’s wares. Problems of this type tend to get worked out once it becomes clear how much tech companies need one another.
It’s been a tough past few weeks for Confluent (CFLT -2.55%) shareholders. For a short while this summer, it looked like the stock might finally start bouncing back from last year’s bear market. Then the budding bullish trend collapsed. Shares are now down by more than 50% from July’s high.
The bulk of that setback was propelled by the disappointing third-quarter results Confluent posted early this month. The company fell short of estimates, and management’s outlook for the current quarter wasn’t exactly compelling either.
If you can stomach the risk exposed by the market’s response to this company’s Q3 numbers, however, the potential reward may well make an investment worth it.
Confluent helps enterprise-level organizations handle their digital data in real-time. With its open-source software, Kafka, Confluent can ensure a retailer’s inventory database is always up to date, that artificial intelligence tools are always accessible, or that healthcare service providers always know where a particular patient is within the care-giving and payment process (just to name a few use cases). Grocery store chain Albertson’s, megabank Citigroup, and online video hosting platform Vimeo are just some of the companies using its tech.
It’s one of those technologies that organizations don’t realize how badly they need until it becomes available. Then it becomes a must-have.
The stock’s recent performance doesn’t jibe with this bullish thesis. Take a step back and look at the bigger picture though. While last quarter’s revenue missed estimates, it was still up by 32% year over year. Guidance for the fourth quarter suggests comparable growth is in the cards, and the analysts’ consensus forecasts top-line growth of nearly 22%. Maybe best of all, Confluent is finally starting to shrink its losses, which had previously been widening persistently. The breakeven point is within reach this year, and on average, analysts expect a profit of $0.16 per share next year.
The market doesn’t seem to be pricing this shift into the stock just yet; perhaps investors remain unsure if they can afford to believe in this outlook. The analyst community seems to have its finger on the pulse of Confluent’s business though … at least when it comes to earnings.
3. SoFi Technologies
Last but not least, you may want to use any idle cash you’ve got to open or expand a position in fintech outfit SoFi Technologies (SOFI 2.48%).
There are lots of online banking options these days. Many of them, however, are legacy banks with large networks of brick-and-mortar branches that now also offer web-based services. Not SoFi. It was built from the ground up to be an online bank. It doesn’t have any physical branches. Yet it still offers a wide array of familiar banking services like lending, credit cards, investments, and checking accounts.
And it’s proving increasingly popular. As of the end of Q3, SoFi had more than 6.9 million customers, well up from its year-ago count of over 4.7 million, which was much higher than its count of 2.9 million at the end of Q3 2021. It booked $537 million worth of revenue last quarter, up 27% year over year, extending a long streak of top-line growth mirroring its customer growth.
That only scratches the surface of this company’s potential though.
The trend driving SoFi’s growth is consumers’ growing comfort with technology and mobile apps in particular. A survey conducted by JPMorgan Chase earlier this year indicated that while only 69% of baby boomers regularly use any banking app, an incredible 99% of digitally native Gen Zers use banking apps to handle several different tasks. As these young adults age and raise children who will be even more comfortable handling their money-related tasks with technology-based solutions, don’t be surprised to see SoFi Technology’s customer growth and revenue growth accelerate.
Citigroup is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML, Confluent, JPMorgan Chase, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel and long January 2025 $45 calls on Intel. The Motley Fool has a disclosure policy.