Market volatility remains red-hot as investors try to digest escalating geopolitical tensions, rising interest rates, inflation, valuation concerns, and other risks.
Across several different sectors, many growth stocks have seen their valuations cut in half or worse. When stocks are falling all around you, it's never easy to hit the buy button. But long-term investors know that the stock market is one of the best ways to generate wealth over time.
Johnson Controls (JCI 0.02%), ChargePoint Holdings (CHPT), and MP Materials (MP -0.49%) are three very different companies that could be worth buying in March for investors with the patience to stomach market volatility. Here's why each company is worth considering now.
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Management thinks it's operating in a $250 billion growth market over the next decade
Lee Samaha (Johnson Controls): During Johnson Controls' investor day presentation in September, management outlined its belief that it has a $250 billion "incremental market revenue opportunity" ahead of it over the next decade. That's on top of its existing annual addressable market of $300 billion.
Those are huge numbers, and they dwarf Johnson Controls' revenue of $23.7 billion in fiscal 2021. Still, the "incremental" opportunity indicates three megatrends ahead of the company.
First, management believes its solutions help building owners to address their net-zero carbon emissions targets by decarbonizing buildings. Second, the pandemic has heightened awareness of the need to create healthy, well-ventilated buildings. Third, the explosion of digital technology and analytics capability will lead to increased adoption of smart building technology.
For reference, Johnson Controls manufactures building products, including heating, ventilation, and air conditioning (HVAC), building controls, and fire and security products, while offering services connected to them. The services part of the business, driven by its OpenBlue software platform and digital capability, is the key to its growth prospects.
Company guidance is for annual earnings growth of 18% to 21% through 2024, and the recent dip in the share price is creating a compelling entry point into the stock.
A multi-decade hypergrowth stock worth considering now
Daniel Foelber (ChargePoint Holdings): Electric vehicle (EV) charging company ChargePoint reported better-than-expected fiscal 2022 results -- growing revenue by 65% year over year. However, what is even more impressive is that ChargePoint is guiding for fiscal 2023 revenue of $450 million to $500 million, which is between 86% and 106% higher than fiscal 2022 revenue.
The EV industry has been a focal point of the broader market sell-off as supply chain constraints and higher competition weigh on the growth rates of several automakers. Even after a post-earnings bounce, ChargePoint stock remains down 67% from its high. But the company remains undeterred and is focused instead on expanding as quickly as possible to prepare for what it expects to be decades of growth in the EV industry.
ChargePoint now has 300,000 roaming ports that drivers can access using their ChargePoint account. It also grew its network charging ports by 64% to 174,000 as of the end of fiscal 2022. ChargePoint continues to grow its footprint in Europe, which now makes up nearly 30% of its network ports. DC fast charging ports increased to around 11,500, or just under 7% of total network ports.
ChargePoint's growth rate alone is impressive. But arguably the biggest standout from the company's guidance is a gradual decrease in operating expenses as a percentage of revenue. The ratio of operating expenses over revenue was 99% in fiscal 2022. But in fiscal 2023, that ratio is expected to decrease to 76% and continue going down in future years. In fact, ChargePoint expects to reach breakeven operating cash flow in the calendar year 2024, which is most of fiscal 2025.
In sum, ChargePoint is a high-risk, high-reward stock in the EV space. But its growth rate and path to profitability make it a company that is worth considering for investors with a long investment horizon.
This mining company is a rare find for growth investors
Scott Levine (MP Materials): With U.S. consumer interest in EVs racing higher recently, there have been numerous calls for America to shore up its supply of rare-earth minerals, which are important components of the vehicles and largely sourced from China. The U.S. Geological Survey, for example, estimates that the U.S. has about 1.8 million metric tons of rare-earth oxides while China has approximately 44 million metric tons, or 37% of global supply. In fact, two weeks ago, the Biden administration made clear the importance of firming up the nation's supply of these materials and announced partnerships with several companies to boost the domestic supply of these critical materials.
One such company identified in the announcement is MP Materials, which will receive $35 million in funding from the Department of Defense in pursuit of "establishing a full end-to-end domestic permanent magnet supply chain." According to the company, it's the only integrated rare earth mining and processing site in North America, making it a key player in the initiative to secure the nation's supply of these important materials.
Illustrating how the company is smack-dab in the middle of growth mode, MP Materials announced fourth-quarter 2021 results last week that featured its achievement of generating record revenue in 2021: $332 million, a year-over-year increase of 147%. Additionally, MP Materials reported fourth-quarter 2021 net income of $49 million, setting a quarterly record for net income.
It's not only in the financials where investors can see it growing, however. MP Materials reported a 28% increase in its estimated rare earth oxide reserves, adding 11 years to the estimated mine life of Mountain Pass, which is now expected to operate for another 35 years. Add to this the fact that the company recently signed a long-term supply agreement with General Motors -- a deal that can certainly be a harbinger for similar deals with EV-makers in the future -- and the attractiveness of MP Materials becomes all the more apparent.
