January has not been kind to growth stocks. At the time of this writing, the Nasdaq is down 12% year to date and has already had multiple sessions of over 2% declines.
Longtime investors know that short-term volatility is simply the price of admission for the outsized returns that many growth stocks can produce over the long term. Ford Motor Company (F -0.41%), ChargePoint Holdings (CHPT -2.85%), and Block (SQ 0.34%) are three growth stocks worth considering for patient investors that can stomach more pain in case the stock market keeps falling. Here's what makes each a great buy now.
Image source: Ford Motor Company.
An industry stalwart turned into Wall Street's favorite EV play
As the tech sell-off intensifies, a handful of companies remain seemingly insulated from the fallout. After just the first 10 days of the trading year, Ford stock is already up over 20% and is now up 148% over the last year. It also crossed the $100 billion threshold for the first time ever on Jan. 14.
Ford, along with Lucid Group (LCID 0.41%), are two electric vehicle (EV) companies that could very well be two of the best EV stocks to own over the long term. What makes Ford so attractive is that it still isn't overvalued despite the stock's monster gains in 2021 and so far in 2022. Part of that is because Ford stock was extremely cheap for years. And it's also because the company has blown expectations out of the water for its existing demand for its Mustang Mach-E SUV, reservations for its F-150 Lightning pickup truck, and accelerated manufacturing capacity for its EVs.
Ford plans to generate 40% of its 2030 revenue from EVs. However, it remains to be seen if its new EV models will achieve the same level of profitability as its existing ICE units, or if 2030 revenue will actually be lower than 2021 revenue if new EV sales aren't enough to make up for a potential decline in ICE sales. Although Ford is quickly carving out a niche in the electric truck market, it's too early to tell just how valuable that market will be in five or 10 years. That's a risk that investors are taking with buying Ford stock, especially given that it is at its highest valuation in company history.
The EV industry is known for high growth at an expensive price (think Tesla, Lucid, Rivian Automotive, and ChargePoint). But Ford makes a profit, just reinstated a $0.10 per-share quarterly dividend, has a massive workforce, and is experienced in mass production. Ford's trajectory points toward leadership in the electric pickup truck market and a player in the electric SUV and electric delivery van market while sustaining its industry-leading posting in the existing truck market. Overall, that makes Ford a lower-risk play than many other EV names -- which is appealing to investors who want exposure to the space through a brand they know and trust.
A cornerstone of EV infrastructure
Unlike Ford stock, which is up so far in 2022 and has crushed the stock market over the past year, share prices of EV infrastructure company ChargePoint just reached a new 52-week low on Friday.
The sell-off seems overblown considering ChargePoint is doing everything investors could ask for so far in its fiscal year 2022 (FY 2022). After raising guidance, it is now expecting over 60% revenue growth in FY22 compared to FY21.
What's more, ChargePoint's gross margin continues to improve as it spends money to beef up its DC fast-charging network in the U.S. and Europe.
The major red flags for ChargePoint are is its wider-than-expected losses and its forward price-to-sales (P/S) ratio of 18. While a net loss seems reasonable considering the company has repeatedly stated its intent to capture market share in the short term that will lead to profitability over the long term, investors should make no mistake that ChargePoint stock still fetches a lofty valuation even after its steep decline. ChargePoint stock is down over 65% from its 52-week high. For investors looking to add an EV stock that isn't an automaker to their portfolio, ChargePoint's industry-leading 163,000 existing charging ports and strong growth make it a great buy now. t
A high growth fintech play that's down on its luck
Like ChargePoint, share prices of Block, formerly known as Square, reached a 52-week low on Friday. It is now down over 53% from its 52-week high. Sell-offs in companies like ChargePoint and Block are reminders that many stocks are getting absolutely crushed even though the S&P 500 is down less than 5% from its all-time high and doubled between 2019 and 2021.
Block is an integrated fintech company consisting of Square, Cash App, Spiral, and Tidal. It provides a slew of business solutions, software, banking services, peer-to-peer payment systems, Bitcoin tools, and has access to the music market through Tidal.
Block is far less profitable and generates less free cash flow than its competitor, PayPal Holdings (PYPL 0.68%). But Block is the faster grower, and its price-to-sales ratio is compressing quickly thanks to decent revenue growth and a lower stock price.
The main concern with Block is slowing revenue growth and inconsistent profitability -- as evidenced by its recent underwhelming third-quarter 2021 earnings. However, investors interested in the fintech industry have a rare chance to buy Block at a discount. Block stock is trading at a P/S ratio of 3.7, its lowest P/S ratio in over four years. Along with PayPal, Block looks like an obvious choice to buy the dip and trust the company's long-term potential.
Three good options worth considering now
Ford, ChargePoint, and Block are all at different stages in their development. Ford is an established player that's investing heavily in the company's biggest strategic pivot in its over 100-year history. ChargePoint is a newer company but is already pulling ahead as a leader in its space. Block isn't the hypergrowth company it once was, but could soon make up for that with a less expensive valuation and consistent profit. All three growth stocks are worth buying in January and holding for years to come.
