For most of the past 13 years, growth stocks have led the market higher. Low lending rates gave fast-growing companies access to cheap capital, which they used to hire, acquire and innovate.
But over the past few months, growth stocks have taken a big hit. In fact, technology driven Nasdaq Compound retraced as much as 22% from its all-time closing high in mid-November to mid-March, officially putting the index in bearish territory.
The good news is that all of the notable pullbacks in the broad indices were eventually erased by a rally in the bull market. In other words, every significant market pullback is an opportunity for patient investors to pick up high-quality growth stocks at a discount.
Three growth stocks currently stand out as incredible deals that can make you richer in April, and more importantly, well beyond.
The first growth stock to get a screaming buy in April is a fintech company PayPal (PYPL -3.45% ). Shares of the company are down 62% since hitting an all-time intraday high of $310 in July 2021.
PayPal’s recent weakness is based on two concerns. First, investors are concerned about the expansion of the cryptocurrency market and what the digital payments landscape might look like if blockchain-based payments take off. The second issue relates to PayPal’s disappointing financial forecast for 2022, which forecast slower net new account growth and weaker-than-expected year-over-year revenue growth. PayPal partially blamed this weakness on historically high inflation.
While the above concerns are tangible, none should worry long-term investors. Indeed, virtually all of PayPal’s key performance indicators (KPIs) are pointing in the right direction.
For example, total payment volume (POS) on the platform grew 33% in 2021 to $1.25 trillion and is expected to exceed $1.5 trillion in 2022. Double-digit growth in POS is expected to continue to deliver double-digit sales growth.
Additionally, 19.3 billion transactions were made by PayPal’s 426 million active users last year. This equates to 45.3 payment transactions per active account over the past 12 months. This figure has steadily increased over time (it was 40.9 payment transactions per active account in 2020). Not only is PayPal attracting new users, it is seeing its existing users adopt digital payments more each year.
Apart from top-notch KPIs, PayPal also has a huge avenue to grow its business. For example, PayPal acquired Japanese company Buy Now, Pay Later (BNPL) Paidy for $2.7 billion in September. Providing consumers with the ability to fund their purchases and creating a sort of closed-loop ecosystem with BNPL is one of the many ways PayPal can drive digital payment growth in the years to come.
Considering PayPal has averaged a price-to-earnings ratio of 59 over the past five years, that looks like an outright steal at 20 times Wall Street’s earnings forecast for 2023.
Another growth stock that can make you much richer in April (and beyond) and just waiting to be bought is the king of technology. Alphabet ( GOOGLE -1.67% )( GOOG -1.80% ). Alphabet is the parent company of the Internet search engine Google and the YouTube streaming platform.
There is no doubt that Alphabet has held up much better than most tech stocks. While the Nasdaq Composite saw a maximum decline of 22% from its peak, Alphabet’s maximum decline since November is only 17%. Currently, the company’s shares are within 8% of an all-time high. But just because Alphabet hasn’t been throttled like the other growth stocks on this list doesn’t mean it’s not a top buy.
When you buy shares of Alphabet, you gain a real monopoly on Internet search. Google has accounted for between 91% and 93% of the global Internet search share over the past two years, according to GlobalStats. With such a dominant global presence, it’s no surprise that advertisers pay extra to get their message in front of users.
What Wall Street and investors don’t give Alphabet enough credit for is its rapidly growing ancillary operations. According to Buffer.com, YouTube is the second most visited website based on monthly active users (MAU). The 2.2 billion MAUs visiting YouTube are more than double that of TikTok, and about four times more than Break-possessed of Snapchat. YouTube generates nearly $35 billion in annual ad revenue.
Arguably even more exciting is Alphabet’s cloud infrastructure segment. Google Cloud has grown 45% to 50% year over year and is currently #3 in global cloud infrastructure spend. The important thing to note here is that cloud services margins tend to be significantly higher than advertising margins. As Google Cloud becomes a larger percentage of Alphabet’s sales, we could see Alphabet’s operating cash flow skyrocket.
Alphabet offers shareholders a sustainable annual growth rate of 15% to 20%, but can be purchased for only 20 times earnings in the coming year. It’s an incredible deal for a company with so many clear competitive advantages.
A third and final growth stock that can make you rich in April and beyond is the social media platform. pinterest ( PIN -4.63% ). Shares have cratered 72% since hitting an all-time high of nearly $90 in February 2021.
There are two key issues worrying Wall Street. For starters, Pinterest reported three consecutive quarters of MAU declines. Investors are rarely receptive to the idea of a social media company losing active users. Second, there is uncertainty as to how AppleiOS privacy changes may affect advertising-focused platforms. But dig beneath these superficial concerns and you’ll find a rapidly growing company that’s ripe for choice by opportunistic investors.
While we would ideally like to see Pinterest MAUs increase, it’s important to recognize that user growth skyrocketed during the early stages of the pandemic. With people stuck at home, it’s no shock that Pinterest’s MAUs have skyrocketed. Nor is it surprising that higher COVID-19 vaccination rates have led to a short-term decline in active users. The key here is that user growth has tended to increase if we stretch the lens a bit and look at a five-year time frame.
Investors should also note that while MAUs declined by 6% in 2021, average revenue per user (ARPU) soared. Global ARPU jumped 36% last year, while international ARPU soared 80%. What these numbers demonstrate is that advertisers are willing to pay top dollar to reach Pinterest’s user base, which stood at a still impressive 431 million at the end of the year.
Optimists can probably also ignore concerns about Apple’s iOS privacy changes. If this were a traditional social media platform that relies on likes and other data tracking metrics to help marketers reach their users, this would be a tangible concern. However, the whole premise of Pinterest’s operating model is to get its users to post information about the things, places, and services that interest them. Users might as well roll out the red carpet for advertisers.
With few impediments to the company’s long-term growth strategy, Pinterest should be able to sustain annual sales growth of 20-25%. Given that stocks can be bought right now for less than 19 times Wall Street’s projected earnings for 2023, Pinterest could be the best deal of 2022.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.