By John Ballard, The Motley Fool, Trades Of The Day, 2024-07-22
Many investors want to pick stocks that beat the average return of the market indexes. To achieve that goal, it can be to your advantage to buy shares of promising growth stocks when they go on sale.
Here are two growth stocks that recently pulled back off their highs and have phenomenal prospects for above-average returns. These companies are well-positioned in their respective industries, boasting innovative products, solid financials, and strategic growth plans that could drive significant long-term value.
1. Advanced Micro Devices
Shares of leading semiconductor companies recently pulled back on concerns that the Biden administration is considering cracking down on products imported from overseas that use American technology. Top chip stocks were trading lower on the news, including Advanced Micro Devices (AMD), which is currently trading 22% off its recent high.
While export controls could ding sales in the near term, it's not going to prevent the tsunami of demand for advanced chips used in data centers and training artificial intelligence (AI) models. This is a lucrative opportunity for AMD.
Analysts have significantly raised their earnings forecasts over the last year. AMD's data center revenue is accelerating, soaring 80% year over year last quarter, driven by its new MI300 data center chips. These high-powered chips command higher selling prices and margins than chips used in consumer PCs, which bodes well for AMD's long-term profitability.
AMD sells semiconductor products in a variety of markets, including consumers, communications infrastructure, aerospace and defense, and automotive, but data center and AI applications are becoming increasingly important to the business. After nearly doubling over the year-ago quarter, data center revenue now makes up almost half of AMD's total revenue. That's up from 25% in fiscal year 2022, reflecting strong growth in AMD's data center number-crunching product sales.
With analysts now projecting annualized earnings growth to clock in at 43%, AMD stock should recover and deliver market-beating returns over the next several years.
2. HubSpot
HubSpot (HUBS) shares are down after Google owner Alphabet walked away from acquisition talks. The Google parent had reportedly considered a possible deal earlier this year, and speculation about this reported negotiation drove HubSpot's stock price significantly higher. The corrective dip gives investors a great opportunity to buy shares of a leading customer management software company with outstanding growth prospects.
HubSpot's platform makes it easier for companies to attract more customers, grow web traffic, and convert sales leads, among other uses. It has over 215,000 customers globally, mostly made up of small to medium-sized businesses, and its customer count continues to grow at a healthy clip. While enterprise software spending is weakening due to uncertainties in the economy, HubSpot's revenue growth still looks solid coming in at 23% year over year last quarter.
The stock's recent dip means investors are getting better value for the shares. HubSpot's revenue growth over the last year has brought the stock's price-to-sales multiple down to a more reasonable 10.6, compared to a more expensive 14 sales multiple a year ago.
The customer relationship management software market is projected to grow at an annualized rate of 10% through 2029 to a value of $146 billion, according to Statista. HubSpot is already growing faster than that projection, indicating it can gain market share. Moreover, more top-line growth should lead to healthy profitability, as analysts expect HubSpot to deliver 25% annualized earnings growth over the long term.
For these reasons, HubSpot stock should remain a rewarding investment for long-term investors. Investors looking to capitalize on its recent dip may find this an opportune moment to enter or expand their positions.
— John Ballard
Source: The Motley Fool
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