Market volatility is back, and that means good stocks are going on sale. While no one likes losing money in the short term, investors who have a sizable amount of time left before they retire actually benefit from sell-offs. This is because they are likely to be net buyers of stock in the future, not net sellers.
With that, we asked some of our contributors which growth stocks looked like worthwhile buys now. They reached inside the bargain bin and pulled out Universal Display (OLED), Virgin Galactic (SPCE), and Niu Technologies (NIU).
OLED technology remains the future
Lee Samaha (Universal Display): It often makes sense to buy long-term growth stories after the market overreacts to some "negative" news flow. Of course, it is easy to write that; it's a lot harder to accurately ascertain when such a situation occurs.
Still, I think there's an excellent case for buying stock in OLED research and technology company Universal Display. The company operates in some highly volatile markets, and its earnings are largely dictated by the production schedules of its end market customers. Those customers are mainly mobile phone, TV, and lighting manufacturers, which include the likes of Samsung, LG Display, Sharp, and Konica Minolta.
Herein lies the problem. It's no secret that there's a global semiconductor shortage, and that's impacting the production plans of Universal Display's customers. As such, the market was left disappointed by management's guidance in the recent earnings presentations.
In an environment where many industrially focused companies have raised guidance, it was somewhat disappointing to see the OLED technology company merely maintain it, even as the first half came in generally ahead of expectations.
That said, it's never a good idea to be overly focused on earnings in one or two quarters when you are investing in a long-term growth stock. And the case for buying Universal Display is based on a long-term secular shift toward using more efficient OLED technology instead of, say, LED. Moreover, it's a transition that's likely to accelerate as the cost of OLEDs falls and they become commercially available on an increasing number of mobile phones, laptops, watches, and TVs. As such, Universal Display remains an attractive stock for investors.
A bumpy but potentially worthwhile ride
Daniel Foelber (Virgin Galactic): If an investor bought shares of space tourism company Virgin Galactic at the end of 2020, closed their eyes, and checked the stock price today, they would notice little change. But one look at the chart, and it's easy to see just how severe the volatility has been.
Shares of Virgin Galactic have been all over the place this year, briefly surpassing $60 per share in early February and dipping below $15 per share in mid-May.
Virgin Galactic's future hinges on its ability to successfully develop and scale its commercial space fleet, as well as convince customers that paying $450,000 for a ticket aboard its three-day space experience is worth it.
Over the past few years, Virgin Galactic has been busy testing its fleet and preparing it to safely transport customers. Building a space company in an unproven industry is no easy feat, so it's understandable that it is taking a while to get the company's business off the ground. After all, its biggest risk is a fatal crash. Safety has been and should continue to be a bigger priority than accelerating financial performance.
The countdown to commercial service made a good amount of progress this year, as Virgin Galactic completed a few key tests, gained Federal Aviation Administration (FAA) approval for passenger space flights in June, and launched a successful flight with founder Richard Branson on board in July. That's the good news.
The bad news is that Branson and other high-profile insiders like Chamath Palihapitiya have sold stock throughout the year, with Branson recently selling another large chunk of stock. When sizable shareholders sell, it dissuades retail investors from owning the company. Additionally, Virgin Galactic has suffered a few key analyst downgrades as the company's path to meaningful revenue is still years away.
Add it all up, and you have what could be a potentially explosive industry with a vastly unproven business model and timetable. Shares of Virgin Galactic have taken a significant nosedive over the last month, which could make it a worthwhile growth stock to buy for investors who are willing to let the investment thesis play out.
A new look at e-mobility
Scott Levine (Niu Technologies): It's no secret that electric vehicle stocks have become the darlings of investors who are on the lookout for growth stocks; however, it's not only electric-powered coupes and sedans, trucks, and delivery vans that warrant attention. Niu Technologies, a manufacturer of electric scooters, also deserves a place on growth investors' radars.
Increasing revenue by 565% over the past five years, Niu has proven that there's strong e-scooter demand in the market. While Americans are not accustomed to seeing scooters zipping around cities or their hometowns, most travelers are familiar with how prevalent a sight it is to see scooters in traffic throughout large European and Asian cities.
And that sight may also be more common in the U.S. in the coming years. With the onset of the pandemic, bicycle sales have soared over the past year. Thus, it's reasonable to suspect that e-scooter sales may also rise in the U.S. as people seek environmentally friendly options for getting around. During its Q2 2021 earnings report, in fact, Niu reported that it recently launched the presale for the KQi3 for Europe and the U.S. on Indiegogo. The project was fully funded in five minutes. In the three weeks since the project launched, Niu has raised more than $1 million in revenue.
It's not only in the U.S. where Niu is hitting the gas. In the second quarter, the company opened 450 stores in China, bringing its total number of franchised stores in the country to 2,366, while it also added 40 distributors to its international sales network, which now spans 48 countries.
Over the past month, shares have tumbled more than 10%, making the stock more attractive to investors on the prowl for a discount. Currently, shares are valued at 29.3 times operating cash flow, a discount to its 2020 cash flow multiple of 79.8. And that's not the only perspective from which the stock looks like a bargain; shares are trading at about 32 times forward earnings, lower than the 35 times forward earnings multiple that the stock had on June 30.