Since the Great Recession officially ended in 2009, growth stocks have been the driving force on Wall Street. Low lending rates, massive government spending, and the Federal Reserve providing an abundant pool of cheap capital have incentivized businesses to hire, innovate, and acquire other companies.
The chickens are now coming home to roost in terms of runaway inflation, and though the Fed has indicated rate hikes are coming to combat high prices, effects won't be felt right away. Inflation has also made it difficult to find stocks that are cheap, with the S&P 500's price-to-earnings ratio of 29.4 at historically elevated levels.
Market corrections are common and the Fed's intention to raise rates could trigger one. Since 1926, there have been nine bear markets and 15 recessions, though no one can know when one will occur. Fortunately, those down markets only lasted 1.4 years on average while bull markets on average stuck around for nine years.
Ultimately, patience is an investor's best friend, and buying shares of companies with strong long-term growth prospects now can overcome any downturn if you hang tight. The following two innovative growth stocks have a real chance for supercharged results in the years to come.
I'm leery of recommending any China stocks based on the risks associated with Beijing's mercurial government policies on foreign investment. For example, the crackdown on tech-oriented businesses was an outgrowth of the government's desire to limit the free flow of information, but electric vehicle (EV) maker Nio (NIO -1.94%) is a company walking lockstep with where China is heading.
China is rapidly transitioning to electrification, with "new-energy vehicle" sales racing up more than 140% in October to 321,000 compared to a year ago, followed by a 121% gain in November to 378,000 vehicles.
Nio delivered almost 10,900 EVs last month, more than double the year-ago figure, and it has delivered more than 80,900 vehicles year to date, a 120% increase year over year. Almost all those EVs have gone to China, though a few were shipped to Norway. Nio plans to be in five more European countries next year. Were it not for the global supply chain disruptions, it likely would have done even better. Nio expects to have maximum annual production capacity for 600,000 vehicles by the end of next year, which based on its near-11,000 deliveries last month, makes it likely to achieve an annual run-rate of 150,000 EV deliveries.
It also introduced the battery-as-a-service (BaaS) solution in 2020, which aims to bolster brand loyalty and generate higher margins as owners replace or upgrade their batteries in the future. Nio gives up a little revenue now, for longer-term streams of recurring revenue. Nio has deployed 608 battery swap stations in 153 Chinese cities and completed over 4.74 million swaps, and it installed its first station in Oslo in October.
Wall Street has set a $65.90 consensus price target on Nio stock, giving investors a potential 116% gain to shoot for from its current price of $30.52 per share.
Virtual-healthcare specialist Teladoc (TDOC -4.67%) is surprising Wall Street by continuing to report strong growth in the number of virtual doctor visits. Teladoc saw U.S. visits surge 156% in 2020, hitting 8.8 million, while international visits reached 1.7 million, a 71% increase from the prior year.
Analysts had expected telehealth visits to fall off dramatically as the number of people vaccinated against COVID-19 grew and a reopened economy meant people could see their doctors in person. But instead, consumers got a taste of the convenience of telemedicine and decided they liked it.
Appointments can be made conveniently and the consultations are conducted from the comfort of home. Doctors on the platform gain faster access to patients, particularly chronically ill patients who need more intensive oversight, which ought to improve their health outcomes. That, in turn, should translate into reduced out-of-pocket costs for health insurers.
Teladoc reported that year-to-date global virtual visits hit 10.5 million in the third quarter, -- 20% more than in all of 2020. U.S. virtual visits are running 45% ahead of the year-ago figure at the same time, and over the first three quarters of this year, total revenue has more than doubled.
The real growth driver for Teladoc comes from its $18.5 billion acquisition of Livongo last year that created a virtual healthcare giant. Teladoc forecasts revenue in 2022 will rise to $2.6 billion, ahead of analyst forecasts of $2 billion, with compounded annual growth of 25% to 30% through 2024, when revenue will hit $4 billion. Teladoc has said it can achieve 30% to 40% growth over the next few years from the deal.
Livongo is targeting a significant percentage of the U.S. adult population with its services and as of the end of the third quarter in September, 725,000 members were enrolled, up 31% year over year. And as Livongo expands its services beyond diabetes patients to those with hypertension and weight management issues, its pool of potential members will skyrocket.
Yet costs tied to the Livongo acquisition have substantially widened Teladoc's losses in 2021. Year to date, net losses swelled to $418 million compared to $91 million in 2020. Some analysts are worried that burden will be exacerbated by slowing growth, but it was able to increase sales at a compounded rate of 73% annually for the four years before the pandemic changed how people viewed telemedicine.
This company looks to still be in the early innings of transforming the healthcare space. Although it trades at seven times revenue currently, the 70% loss in its stock value from recent highs has it going for a fraction of its book value and at around $95 a share, it has all the earmarks of a long-term winner.