Buy This, Not That: 5 Growth Stocks to Own, 2 to Avoid
The case for investing in growth stocks has been muddled for quite some time.
For example, 2022 was a terrible year for growth stocks across the board. Rapid rate hikes beginning in March of that year caused their downturn.
The negative correlation between rising interest rates and high-performing growth stocks is well known: The price decline wasn’t a surprise.
This year, growth stocks have been harder to predict. We’re constantly pulled in both directions by the threat of additional rate hikes and then the promise of pauses and potential rate decreases in the future.
The current idea that rates will remain higher for longer is only complicating the calculus. With that in mind, let’s take a look at the growth stocks that hold the most promise or the most danger.
Nvidia (NVDA)
Nvidia (NASDAQ:NVDA) stock should remain in the portfolios of smart investors. The shares are facing some volatility following the Fed’s latest rate decision on Sept. 20.
The decision to pause rates was not the problem. However, the Fed did signal that it is likely to hold rates higher for longer.
That adds additional pressure on Nvidia which was already facing valuation issues after its historic run up in value on its generative AI strength.
Frankly, there’s little reason to believe that Nvidia will fall below $400. It remains crystal clear that demand for its AI chips is sky high. The $13.5 billion in revenues that the company reported in Q2 more than proves it.
The firm blew past the $11 billion revenues guidance it had given. Nvidia simply isn’t overvalued because no other firm can replicate the performance of the AI chips it produces. Thus, it remains a growth stock to own because it is the leading firm in a once-in-a-generation opportunity.
Livent (LTHM)
Investing in Livent (NYSE:LTHM) stock with a long-term outlook makes sense right now.
Share prices are lower than they’ve been and they’re probably going to fall further. However, rather than trying to get in at the absolute lowest price, simply establish a position if you can.
The lithium firm has multiple positive catalysts in its favor that promise to propel share prices much higher in the long term. At present, its performance is lagging because lithium prices fell and volumes are relatively flat.
The math isn’t in its favor at the moment from a top-line perspective. That said, the long-term perspective looks bright.
The company is a 50% partner in the Nemaska lithium project in Quebec. Nemaska is expected to begin commercial sales of spodumene in 2025 and to produce lithium hydroxide in 2026.
Livent has a deal in place to supply Ford (NYSE:F) with 13,000 metric tons of lithium hydroxide for 11 years from Nemaska. Beyond that, Livent is expected to merge with Allkem by the end of the year, giving investors another reason to be positive.
Upstart Holdings (UPST)
Upstart Holdings (NASDAQ:UPST) is going to become a cautionary tale in the world of AI stocks.
Investors can refer to its disappointing Q2 earnings to substantiate my belief in that assertion. Share prices rocketed from $12 to $72 between January and early August. Q2 earnings came out, the company was $15 million short of its revenue expectations, and it dropped to $30.
The correction isn’t over. To me, it says one thing: AI-based lending platforms are over hyped.
I don’t think that AI is advanced enough to replace human judgment in the realm of lending and have railed against companies that bragged about their AI mortgage algorithms in the past.
The same arguments apply to personal loans and automobile loans. The technology lacks the nuance that leads to strong business results in lending.
Investors were already bearish about Upstart Holdings for those reasons. They will be that much more so given that rates are going to stay higher for longer.
TEGNA (TGNA)
The answer to whether or not to invest in TEGNA (NYSE:TGNA) stock depends on time perspective. Short-term traders should avoid it. Beyond the next 4-6 weeks there are realistic reasons to believe that TGNA share prices will rise.
The company plans to enact its second ever accelerated share repurchase after Q3 earnings are released. The company plans to repurchase $325 million worth of shares at that time.
Another interesting catalyst for the company will happen as we move into 2024. Election activity is going to quickly ramp up and that will be a boon to the media firm.
The company saw Q2’ 23 revenues fall because it lacked mid-term elections it had a year prior. Thus, it is moving into a period of strength that comes around once every four years. That should bolster its revenues far beyond levels 12 months prior for obvious reasons.
Snowflake (SNOW)
Snowflake (NYSE:SNOW) has yet to benefit from the AI-fueled stock boom that has sent other data warehousing stocks higher.
Its shares are clearly volatile and move up and down quickly. However, it has stayed within a range between $135 and $175 in 2023 while many other stocks in its sector have grown much faster.
Investors seem to want Snowflake to take off. Most are rooting for it because it has provided results at the higher range of guidance for the past several quarters. That trend continued in its most recent earnings session.
The company makes a lot of money and is growing at rates of around 30%. However, it loses hundreds of millions of dollars each quarter and those losses increased through the first half of 2023.
Growth trajectory fuels investor optimism while loses temper them, especially in light of recent Fed signals.
All that said, Snowflake has a tremendous opportunity in data warehousing as it relates to ML/AI. It’s one to own because of the scale of its revenues and their rate of growth which seems to cancel out all of its faults that would otherwise crush the stock of a smaller firm with a similar profile.
Tesla (TSLA)
Tesla (NASDAQ:TSLA) stock will move upward for at least the next couple of weeks.
Share prices are being propelled upward because the leading EV manufacturer is becoming relatively stronger the longer the UAW strike continues.
Right now, that looks to be the most likely outcome. The big three auto manufacturers will suffer more damage the longer the strike continues. That makes Tesla relatively stronger and intensifies the competition between EV firms and traditional automakers.
That’s one reason to consider buying Tesla at the moment. That said, it isn’t a perfectly clear case in Tesla’s favor. The tech sell off certainly doesn’t favor Tesla overall. It has been one of the biggest beneficiaries in 2023.
However, I’d argue it has been mostly deserved. Tesla has pivoted from a high-price strategy to a lower-price, higher volume one that is working. The optimist in me says that decision and the UAW strike are more powerful than the negative effects of the current tech sell off.
Intel (INTC)
I don’t think Intel (NASDAQ:INTC) stock is going to move upward immediately, making it one of the growth stocks to avoid. The company is headed in the right direction, though.
I think Intel shares will continue to suffer selling pressure for the next few weeks. It’s one of the weaker-performing AI chip stocks overall and that’s going to matter following Fed signals.
Investors will either move into AI shares that have proven their mettle already, or pivot into safer sectors. That’s my guess.
So, I’d expect Intel shares to be flat at best with the caveat that it very well may improve toward the end of this year. The reason to believe that is that Intel will release its Gaudi 3 AI chips in 2024.
Current generation Gaudi 2 chips were outperformed in each of a series of 8 head-to-head tests with Nvidia’s H100 GPUs. That said, the testers believed those Gaudi 2 chips to be a viable alternative despite their relative weakness.
On the date of publication, Alex Sirois 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.
