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Buy These 2 Growth Stocks on the Dip

By Jeff Little – Dec 13, 2021 at 12:37AM

Key Points

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As one charges forward, the other prepares for its next display of magic.

Finding the right stocks that offer the opportunity to optimize your investment can be a daunting task for some. If you're looking for a company with the potential to grow, in a market with a bright future, investing in growth stocks can be extremely rewarding.

Sometimes, you'll come across a few companies that offer the combined opportunity to grow and -- if the timing is right -- benefit from a discounted stock price. Two growth stocks that offer investors a great opportunity to buy on a recent dip include a leader in the rapidly evolving electric vehicle market, Chargepoint Holdings (CHPT 6.48%), and world-class media and entertainment giant Walt Disney (DIS 2.46%).

EV owner stores shopping bags in trunk as car is charging.

Image Source: Getty Images.

Chargepoint: powering the future of the EV market

This leading developer of electric mobility solutions is on the cusp of taking its game to the next level, driven by huge demand from the electric vehicle market. Serving over 5,000 customers worldwide and 76% of Fortune 50 companies, Chargepoint provides over 118,000 charging stations in North America and Europe, giving it a 70% market share in level 2 charging -- more than 7x that of its closest North American competitor. 

Level 2 chargers offer speeds up to five times that of level 1 chargers, and can be installed at places of business or at residential locations; however, they offer less flexibility due to being stationary mounted devices. But the future of the electric mobility market favors level 2. According to Grand View Research, the EV charging infrastructure market is expected to have a compound annual growth rate (CAGR) of 33% through 2028, reaching an expected $145 billion. The global number of Level 2 charging stations is expected to rocket up from what was 2,000 units in 2020 to over 30,000 by 2027 -- 15 times what it was just last year.

That size of growth will be necessary to fulfill the need set by the rapidly growing EV market. The global EV market is projected to grow at an annual compound rate of 25%, becoming a $1 trillion market by 2028, driven by demand for alternative energy vehicles. Growing emission regulations set by governments across the globe will continue to push manufacturers toward ramping up EV production, and as a result, more consumers will be purchasing EVs.

Investing in the EV charging market offers plenty of opportunities. For investors looking to buy a growth stock on the dip, Chargepoint offers an excellent scenario. The stock has seen its price cut in half over the course of a year, with a recent 8% drop occurring as a result of its third-quarter report on Dec. 7 when it missed consensus estimates on earnings. However, revenue (79%) and gross margin (25%) were up year over year for the quarter, and the company expects fourth-quarter revenue to come in at the upper end or exceed previous guidance.

With the passing of the infrastructure bill in early November, it supports the projected growth of the EV market, including charging stations. President Biden has set a goal of 500,000 level 2 fast charging stations in place by 2030. In order to do that, $7.5 billion is being designated to make it happen, and businesses that purchase charging stations are being rewarded with up to 30% in tax-break incentives. Currently, there are 122,000 charging stations in place, leaving three times that amount up for grabs by Chargepoint.

Mickey Mouse in a hot air balloon in front of the Disney castle.

Image Source: Photo by Author.

Walt Disney: an iconic brand built to serve generations to come

Just as the EV market offers a future of growth, so too does the entertainment and media market, especially as artificial intelligence and gaming gain a boost from the excitement surrounding the metaverse -- a technological combination of virtual reality, augmented reality, and video that allows users to have live interaction within a digital universe. Disney has metaverse plans of its own. CEO Bob Chapek would like to see Disney be an early adopter to enhance entertainment. And former executive vice-president of digital, Tilak Mandadi, mentioned in 2020 that a theme park metaverse, made of a convergence of the physical and digital worlds through wearable devices and mobile phones could be in store. 

It's this excitement for the future, combined with treasure chest of content built around an iconic brand, that makes Disney a long-term growth stock. Just over two years ago -- that went fast -- Disney launched Disney+, described by the company as a new era of Disney entertainment. Instantly, years of television and movies were at the fingertips of consumers at a subscription rate, and a new competitor to Netflix and Amazon had entered the ring for streaming supremacy. 

As of the end of Q3, Netflix continues to lead in market share, at 27%, with Disney a distant third at 14%, behind Amazon (21%). But before investors get too nervous about Disney's spot among its top competitors, it's important to remember that subscribing to streaming services is not a one-and-done type scenario for many consumers.

As consumers move away from services such as DirecTv, they can use the cost savings to fill in with multiple streaming service subscriptions. And as content offerings continue to expand from top streaming services, the result will be a growth in subscriptions. An upcoming slate of streaming content and in-theatre movies includes highly anticipated releases for successful franchises, including Marvel, Star Wars, and Pixar favorites, like Cars.

Let's also not forget that Disney has multiple avenues of revenue, including its world-class amusement parks; media networks, including ESPN and ABC; direct-to-consumer offerings; and content sales/licensing.

During its recent Q4 2021 earnings release, the company posted revenue of $18.5 billion and stated that it had 118 million Disney+ subscriptions during the quarter, both numbers missing consensus estimates. But if you look at the subscription totals compared to Q3, the number went up by 2 million, meaning that though expectations were missed, growth is still there. 

CEO Bob Chapek anticipates increased park attendance as pandemic restrictions ease and allow for more production to take place. As the number of countries Disney+ is released in doubles by the end of 2023, he reiterated expectations of hitting 230 million to 260 million paid Disney+ subscribers by the end of 2024. That number has not changed since it was announced last year.

Analysts have an average 12-month price target of $204, a 36% premium above the current $150 price tag -- which has fallen by 26% from its 52-week high in March of this year. For investors looking at a long-term opportunity, it's worth noting that small setbacks will inevitably happen along the way, which is what makes these buy-on-the-dip opportunities that much more lucrative.

If you take a look at the media and entertainment segment of the company alone, revenue has increased by three times its 2009 total of $16 billion, to over $50 billion. The company's stock price has grown by nearly five times over that same period. Disney has a sustained presence, strong consumer appeal, an iconic brand, and has been a leader in entertainment and media nearly from its start 98 years ago. The force will be with this company for quite some time, making it an excellent growth stock to buy on the dip.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jeff Little owns shares of Amazon, ChargePoint Holdings Inc., and Walt Disney. The Motley Fool owns shares of and recommends Amazon, Netflix, and Walt Disney. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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