The market has recently witnessed greater turbulence, owing in part to the Federal Reserve’s aggressive tilt. The Fed appears to be concentrating its efforts on controlling inflation, and the industry now anticipates at least two rate increases in 2022. Due to this situation, the two-year Treasury Note yield has risen from 0.15 percent in June to 0.65 percent. Short-term interest rates are on the rise, which is bad news for growth equities, which thrive in low-interest conditions.
As a result, it’s no wonder that growth stocks dragged the market lower the other week. The ARK Innovation ETF, for instance, has dropped more than 19 percent in the last month. The S&P 500 and Nasdaq, on the other hand, are down 0.64 percent and 2.25 percent, respectively.
This fall in growth stocks, though, is seen as a potential for investors. The surge in short-term rates may be coming to an end shortly, as forward-looking inflation gauges are rapidly reducing. Furthermore, several growth stocks have hit more favorable valuation levels following the recent severe decline. As a result, investors might consider getting these three high-growth stocks during the downturn.
1. Workday (WDAY)
Workday offers wealth management software, cloud expenditure management solutions, and Workday planning applications as well as other enterprise cloud applications. WDAY’s stock has risen 17 percent year to date, and it has risen about 500 percent since its IPO in 2013.
Stocks in the cloud and corporate software have outperformed the market over the last few years. It’s not unexpected, given that businesses are spending more on IT systems, software, and cloud platforms than ever before, and this trend is predicted to persist in the next few years.
These businesses are great for investors since they often offer strong margins and recurring revenue. Due to the cost and difficulty of switching systems, businesses are unlikely to switch software or cloud providers frequently. Furthermore, once users are on a company’s platform, further monetization opportunities become available.
Notwithstanding the stock’s latest underachievement, the company is still growing. Its most recent earnings report indicated a 20% growth in revenue to $1.3 billion, with recurring subscriptions accounting for over 90% of revenue. It also achieved a new EPS milestone, rising from a loss of 10 cents per share last year to a profit of 17 cents per share in the third quarter of this year.
2. Alphabet (GOOGL)
With a market valuation of more than $1.9 trillion, Alphabet has lately surpassed Apple as the world’s third most valuable business. Search is the company’s key revenue generator and earnings, as it is quite profitable and has a large market share. GOOGL has grown into other industries throughout time, such as Google Cloud, Android, Chrome, Google Docs, YouTube, and its venture bets, such as Waymo, an autonomous driving company.
As advertising spending plummeted during the epidemic, GOOGL stock initially underperformed. Furthermore, ads from travel businesses were halted, which account for a significant portion of earnings. Nevertheless, when the economy reopens and normalizes, ad rates and expenditure are well above pre-pandemic peaks.
The firm’s growth may be seen in its third-quarter results. Operating cash flow climbed by 32% to $21 billion, while revenue increased by 41% to $65.1 billion. Analysts predict EPS growth of 85 percent and revenue growth of 39 percent for the whole year. GOOGL’s stock has risen more than 60% year too far, and the company has demonstrated outstanding relative resilience throughout this period of market volatility.
3. Expedia (EXPE)
Expedia is a digital travel agency with numerous divisions. Expedia, Vrbo, Hotels.com, Orbitz, Travelocity, and Wotif are just a few of the company’s well-known franchises. It also provides a variety of travel and non-travel verticals, such as corporate travel management, airlines, travel agencies, online retailers, and financial firms.
The improvement in travel is also confirmed by the company’s latest earnings report. Revenue increased by 97 percent to $3 billion, well beyond projections. It made $553 million in net income, a significant improvement above the previous year’s $31 million loss. Experts predict $2.3 billion in revenue in Q4, a 148 percent raise, and $6.89 per share in EPS.