2021 was another great year for the U.S. stock market. The S&P 500 rose 27%, nearly doubling in the last three years alone. Yet many well-known and smaller growth stocks are hovering around their 52-week lows as Wall Street focuses on profitable companies with steady earnings and punishes pandemic winners that can't sustain 2020's breakneck growth rates.
Lucid Group (LCID 1.99%) and PayPal (PYPL 2.04%) are two growth stocks that could rebound in 2022 and beyond. Here's what makes each a great buy now.
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Lucid has bold goals for 2022
Lucid stock finished 2021 up 280% for the year, making it the best-performing U.S. automaker. Yet even with that monster gain, Lucid is still down 40% from its high as waves of euphoria clash with fierce skepticism.
Both bulls and bears make good points. Lucid's impressive technology, competent management team, and growing list of accolades paint a picture of what could be if all goes according to plan. However, Lucid is years away from achieving positive operating cash flow, let alone becoming profitable. Its growth story is likely still in the first or second inning, yet it already has a $62 billion valuation.
Lucid is a high-risk, high-reward player in the EV space. Most investors are probably better suited simply waiting for Lucid's growth story to mature into something more tangible (sustained production and delivery growth). Yet others with a higher risk tolerance could consider a starter position in Lucid, trusting that its rich cash position will propel it to capture a significant share of the luxury electric sedan and SUV market.
PayPal's business is stronger than ever
You may be scratching your head as to why PayPal stock fell nearly 20% in 2021. After all, PayPal is very profitable, generates a ton of free cash flow, has a lot of cash on its balance sheet, and is an industry-leading financial services business that holds a vital role in business-to-business transactions and peer-to-peer payments.
Yet there's no denying that PayPal added fewer new accounts in the first nine months of 2021 than in the same period in 2020. Its revenue grew 21% year over year in 2020. In Q1 2021, PayPal grew revenue by 31% year over year. In Q2, it only grew revenue by 19% year over year. And in Q3, it grew revenue by just 13% year over year. For all of 2021, PayPal estimates revenue will grow by 18% compared to 2020, and non-GAAP earnings per share will grow by 19%.
PayPal isn't growing as fast as it used to. But it's also a much more stable and profitable business. PayPal stands to be a long-term winner as e-commerce grows and the financial system becomes increasingly decentralized. A year or two of slowing growth when the underlying business is stronger than ever isn't a good enough reason to sell. Down around 40% from its high, PayPal looks like a great stock to buy now.
Two completely different ways to invest in growth
PayPal and Lucid are two completely different businesses that both have their fair share of long-term potential. PayPal's existing foothold in the financial sector should enjoy steady growth as consumers shift away from cash and businesses capitalize on e-commerce and the gig economy. Lucid is building a reputation for delivering on its promises in an exciting industry, but the reality is that no one knows which businesses will rise and fall as the auto industry embraces electrification. Investors should bear in mind that PayPal offers much less volatility than Lucid, which saw its share price dip as low as $16.12 and climb as high as $57.75 in the second half of 2021.
Managing risk by diversifying into a basket of EV stocks or dollar-cost averaging into growth stocks is a great way to capture upside while limiting downside risk.
