3 High-Cyclical Growth Stocks to Buy at Their Trough
With inflation falling to 5%, the expectations for sustained rate hikes have fallen considerably. Even though core inflation did rise and the labor market remains strong, the Federal Reserve, for now, is unlikely to hike interest rates further. That’s great for high-cyclical growth stocks, many of which have rebounded substantially this year.
However, many stocks are still under-the-radar as Wall Street has increasingly focused on new hot sectors such as cloud computing and artificial intelligence (AI). Companies with influence in these sectors, who also implemented extensive cost-cutting measures to appeal to investors, have been rewarded quite graciously so far this year. Meanwhile, high-growth companies in other promising industries remain unappreciated.
I believe once the tunnel vision on AI ends, the following three high-cyclical growth stocks are set for a rally:
Enphase Energy (ENPH)
Enphase Energy (NASDAQ:ENPH) is a leading solar microinverter manufacturer, and its stock is down 41%-plus from last year’s peak. That’s largely due to supply chain disruptions, rising interest rates and a rotation away from growth stocks. The competition between the U.S. and China has also played a role in the company’s stock price decreasing, as it has to pay high tariffs on solar inverter imports. However, the company has an expanding presence in Europe and other developing markets, and the company’s growth story seems far from over.
Additionally, the company is diversifying its product portfolio to include energy management solutions like batteries, smart thermostats and software platforms.
The company has one of the highest top-line growth rates. Revenue growth clocked in at 75.5% in Q4 2022, with its 3-year revenue growth rate ranked better than nearly 95% of its peers. The company’s growth in Europe and expected benefits from U.S. solar tax credits and subsidies will further improve its financials.
Furthermore, Enphase Energy is set to capitalize on the EV boom. The International Energy Agency predicts EVs will make up over 60% of new car sales by 2030. The company’s integrated solutions, such as the Encharge battery system, enable customers to charge their EVs with solar power, opening up new opportunities.
Coastal Financial (CCB)
Coastal Financial Corp (NASDAQ:CCB) has been on a tough ride lately. The market has been unkind to financial stocks, especially after the failures of Signature Bank (OTCMKTS:SBNY), Silicon Valley Bank (OTCMKTS:SIVBQ) and Silvergate Capitol’s (NYSE:SI) Silvergate Bank. These banks were heavily exposed to the volatile crypto and tech sectors, and they collapsed when their funding sources dried up.
Thankfully, the Fed stepped in and provided emergency liquidity to the banking system. This helped prevent a wider impact and restored some confidence in the sector. Coastal Financial was not affected by the crisis, as it has a more conservative and diversified business model. It serves small and medium-sized businesses and consumers in Washington state where the economy is recovering strongly.
As of Q4 2022, the bank had $342.1 million in cash. That’s down from $813.2 million the year before due to loans growing by 50.8%. However, I believe it remains safe from the turmoil in the financial sector as it has total risk-based capital at 11.94%, higher than the Basel III requirement of 10%. Once the headwinds soften due to the bailouts, this stock is well-positioned to perform.
Cloudflare (NET)
Cloudflare (NYSE:NET) is a business that I consider to be essential for the internet as a whole. Many businesses that are online or have an online website use Cloudflare to secure themselves against DDoS attacks and other security threats. The company dominates this sector as it has a market share of 96.19% in network security.
Cloudflare is very popular among small and medium-sized businesses that need a user-friendly way to secure their website from hackers.
The company is consistently reporting revenue growth between 40-50% ever since going public in September 2019. Macroeconomic conditions right now have dampened that growth, but I expect a strong rebound in the long term. Cloudflare’s enormous market share gives them a substantial amount of leverage and pricing power over its customer base. It also has a rapidly expanding total addressable market, with the company venturing into carrier services, VPNs, network analytics and more.
The bottom line is that there is massive potential here, and even the current premium deserves more appreciation.
On the date of publication, Omor Ibne Ehsan did not have (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.
