7 Growth Stocks to Buy on Corrections for 3X Returns by 2026
The S&P 500 index touched highs of 5,670 in July. Over the last one month, the index movement has been volatile with a downward bias. There is nervousness among investors as geopolitical tensions remain high and GDP growth has been sluggish. I believe that this volatility and correction can be used to accumulate several quality growth stocks.
An important point to note is that the U.S. Federal Reserve is likely to pursue expansionary policies before the end of 2024. Further, multiple rate cuts might be on the cards next year. While the impact will be with a lag, expansionary policies will support GDP growth.
This will have an impact on earnings in the next 24 to 36 months. I therefore believe that fundamentally strong growth stocks are likely to deliver healthy returns within this time horizon. Let’s therefore discuss the business factors that are likely to support value creation in these ideas.
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Li Auto (LI)
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Li Auto (NASDAQ:LI) stock has witnessed a sharp correction of 48% year-to-date. This has been on the back of negative sentiments for the EV industry coupled with investors being bearish on Chinese stocks. I believe that LI stock is a steal at a forward P/E of 16.7.
The EV company has been delivering healthy growth and has strong fundamentals. Further, with focus on technology, Li Auto is among the EV companies that are positioned to survive and grow. As of Q1 2024, Li Auto reported a cash buffer of $13.7 billion. This provides ample flexibility to invest in innovation and aggressive expansion within China.
It’s worth noting that even amidst intense competition, Li Auto reported a healthy vehicle margin of 19.3%. Even if the margin sustains at these levels, operating and free cash flows are likely to remain healthy.
Further, for Q2 2024, Li reported vehicle deliveries growth of 25.5% on a year-on-year basis. I expect coming quarterly results to be good and will support a rally from oversold levels. With rate cuts on the cards, it’s also likely that the EV industry will witness growth acceleration.
Miniso Group (MNSO)
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Let’s talk about another Chinese growth stock that looks significantly undervalued. Miniso Group (NYSE:MNSO) is a lifestyle retailer with global presence. The company has been on a high-growth trajectory. However, MNSO stock has corrected by 22% year-to-date. At a forward P/E of 12.7, the stock is a buy and offers a healthy dividend yield of 2.6%.
I must mention that Miniso is also likely to be a beneficiary of expansionary policies that will encourage consumption spending. On the financial front, Miniso reported revenue growth of 26% for Q1 2024 to $515.7 million. For the same period, adjusted EBITDA margin swelled by 200 basis points to 25.9%. Growth has been on the back of a dynamic product SKU coupled with aggressive store expansion in China and in international markets.
It’s worth noting that Miniso has guided for 900 to 1,100 new store openings on an annual basis between 2024 and 2028. For the same period, the company expects to deliver revenue growth at a CAGR of more than 20%. This will also imply continued upside in cash flows and healthy dividend growth.
Marathon Digital (MARA)
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Bitcoin (BTC-USD) is back above $60,000 with the markets discounting aggressive rate cuts in the next 12 to 18 months. I expect the cryptocurrency to make new highs in the coming quarters and Bitcoin miners are likely to be beneficiaries.
Marathon Digital (NASDAQ:MARA) looks undervalued considering the growth outlook. For Q2 2024, the company reported stellar revenue growth of 78% on a year-on-year basis to $145.1 million. This growth was backed by upside in Bitcoin coupled with aggressive capacity expansion.
As of Q2, Marathon reported energized hash rate of 31.5EH/s. On a year-on-year basis, hash rate increased by 78%. Further, Marathon expects to end the year with a capacity of 50EH/s. Therefore, there is visibility for sustained upside in revenue and cash flows.
From a fundamental perspective, Marathon reported a liquidity buffer of $1.4 billion as of Q2 2024. This provides flexibility for aggressive investments next year. I am therefore bullish on MARA stock that has remained sideways in the last 12 months.
IAMGOLD (IAG)
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The sentiment for gold remains bullish with the precious metal trading at $2,460 an ounce. With rate cuts coming, Citi believes that gold can potentially trade at $3,000 an ounce in the next 6 to 18 months. I would therefore look at exposure to quality gold miners and IAMGOLD (NYSE:IAG) is attractive among growth stocks.
It’s worth noting that IAG stock has surged by 110% in the last 12 months. However, valuations remain attractive at a forward P/E of 11. With the company positioned for healthy revenue and cash flow upside, the best part of the rally is due.
There are two reasons that back my view on growth acceleration. First, higher realized gold price will support revenue and cash flow upside. Further, IAMGOLD commenced production at the C?té Gold assets with ramp-up due in the coming quarters.
For Q2 2024, the gold miner beat top-line and bottom-line estimates. The company also lowered its cost guidance. I therefore expect healthy growth to be associated with significant EBITDA margin expansion.
Tempus AI (TEM)
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Tempus AI (NASDAQ:TEM) is a relatively new listing in the field of healthcare technology. The stock is still under-the-radar and it’s a good time to accumulate for the long term. Besides healthy growth in the genomics business, Tempus has one of the world’s largest libraries of clinical and molecular data. This makes the data and services segment attractive.
For Q2 2024, Tempus reported revenue growth of 25% on a year-on-year basis to $166 million. It’s worth noting that data licensing revenue increased by 40%. At the same time, investment in research and development has support growth in the genomics business.
The company recently expanded its immune-oncology portfolio with the launch of AI-enabled immune profile score algorithmic test. Further, Tempus received approval from the Centers for Medicare & Medicaid Services for its next-generation sequencing analysis.
With increased focus on AI and technology in the field of healthcare, I believe that Tempus AI is still at an early growth stage. Fresh exposure can therefore be considered on corrections.
PACS Group (PACS)
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Let’s talk about another healthcare stock that’s a potential multibagger. PACS Group (NYSE:PACS) is a provider of skilled nursing and assisted living facilities in the U.S. The recently listed company is on a high-growth trajectory and looks undervalued at a forward P/E of 24.7.
For the first half of 2024, PACS Group reported revenue growth of 31% on a year-on-year basis to $1.9 billion. The company has also increased the revenue and adjusted EBITDA guidance for the year. It’s worth noting that for Q2, PACS added 167 skilled nursing beds.
With aggressive addition of facilities, it’s likely that revenue growth will remain robust. With the company’s skilled nursing facility having a lower cost advantage, capacity utilization is likely to remain healthy. Another point to note is that the company’s mature facilities have an occupancy rate of 94.2%. As more facilities mature, revenue growth will be supported coupled with EBITDA margin expansion.
Cronos (CRON)
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I believe that some of the best cannabis stocks are poised for a breakout rally. The reasons include improving fundamentals and a relatively friendly regulatory environment. Cronos (NASDAQ:CRON) is my top pick from cannabis stocks and looks massively undervalued.
The first point to note is that Cronos reported a robust cash buffer of $848 million as of Q2 2024. This provides the company with ample flexibility for organic and acquisition driven growth.
The second important point is growth acceleration. For Q2 2024, Cronos reported revenue growth of 46% on a year-on-year basis to $27.8 million. It’s worth noting that new markets of Germany, Australia and the U.K. are likely to support growth in the coming quarters.
Another positive is that the company’s adjusted EBITDA loss has been narrowing. With operating leverage, it’s likely that Cronos will achieve EBITDA break-even in 2025. With multiple positives, I believe that CRON stock is likely to skyrocket from current levels.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
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