It's been a challenging past year for growth stock investors. The Federal Reserve's shift on monetary policy that'll see it get more aggressive with interest rate hikes, coupled with all of the major U.S. indexes pushing into correction territory during the first quarter, has weighed heavily on previously high-flying growth stocks.
But there's also good news. Since every crash or correction in the major U.S. indexes throughout history has eventually been erased by a bull market rally, the recent dip in the broader market is the perfect opportunity to put your money to work. If you were to invest $300,000 into the following beaten-down growth stocks, there's a really good chance they can make you a millionaire by 2030, if not sooner.
Image source: Getty Images.
The beaten-down growth stock I'm most confident can rally 233% or more over the next eight years for patient investors is social media platform Pinterest (PINS 0.43%). Shares of the company have declined 71% from their all-time high.
Pinterest was initially viewed as a key COVID-19 pandemic winner. With people forced to stay home during periods of lockdown, many turned to online sites to engage with others and pass the time. This sent Pinterest's monthly active user (MAU) count way up. But with COVID-19 vaccination rates rising and most of the U.S. getting back to some semblance of normal, MAUs have gone in reverse in each of the past three quarters. Without MAU growth, Pinterest's once high-flying share price has been pummeled.
However, the shellacking shares have taken is a gift for long-term investors for a variety of reasons. To begin with, Pinterest's historic MAU growth is still within historic norms if you span out four or five years. It's to be expected that the company's active user count would decelerate after pandemic lockdowns caused an abnormally large and unsustainable increase in MAUs.
Perhaps more important, declining MAUs in the short term haven't adversely affected Pinterest's ability to monetize its user base. Despite a small year-over-year decline in MAUs in 2021, the company reported a 36% increase in global average revenue per user (ARPU), with ARPU growth of 80% in international markets. These figures clearly show that merchants and advertisers are willing to pay a premium to reach Pinterest's 431 million MAUs.
There's also been some concern about how Apple's iOS privacy changes could adversely affect ad-driven platforms. These changes won't even raise an eyebrow for Pinterest. Whereas most social media platforms rely on likes and other data tracking tools to determine what interests their users, the entire premise of Pinterest is for users to post and share the things, places, and services that interest them. Users are effectively allowing advertisers to specifically target them, which should give Pinterest excellent ad-pricing power.
Pinterest is quite profitable on a recurring basis and expected by Wall Street to more than double its sales by mid-decade. A $300,000 investment turning into $1 million by 2030 would be a conservative estimate, in my view.
Formal deliveries of the recently introduced Nio ET7 sedan began last week. Image source: Nio.
Nio
Another beaten-down growth stock that can make investors millionaires by the turn of the decade with an initial investment of $300,000 is electric vehicle (EV) manufacturer Nio (NIO 2.30%). Shares of Nio have tumbled 67% since mid-January 2021.
There are three reasons Nio has been taken to the woodshed over the past year or so. First, the auto industry is dealing with serious supply chain issues that are constraining production and/or expansion opportunities. Second, a rising-rate environment places more emphasis on stock valuations, which has clearly weighed on the (for the moment) money-losing Nio. Third, there have been renewed worries about China-based stocks being delisted from the major U.S. exchanges (Nio is headquartered in Shanghai, China).
While all three of these are tangible concerns, they're short-term in nature and highly unlikely to disrupt Nio's long-term growth strategy. With virtually all major economies looking to reduce their carbon footprint, EVs are something of a no-brainer/sustainable growth opportunity.
What's been really impressive about Nio is the company's production ramp-up in the wake of supply chain challenges. In less than two years, it's gone from delivering fewer than 4,000 EVs in a quarter to more than 25,000. Management believes the company may have a chance to hit 50,000 EV deliveries per month before the year is over.
Innovation will also be a key driver for Nio. The company recently introduced its first two sedans, the ET7 and ET5. Buyers who upgrade to the top battery option can get up to 621 miles of range. The ET7 and ET5 are direct competitors to Tesla's Model S and Model 3, but Nio's EVs offer superior range.
Don't overlook the company's battery-as-a-service (BaaS) program, either. The BaaS program, which was introduced in August 2020, reduces the initial purchase price of a Nio EV and allows buyers to charge, swap, and upgrade their batteries in the future. Meanwhile, Nio generates a monthly fee from BaaS members and keeps early buyers loyal to the brand.
By 2024, Wall Street is forecasting a per-share profit of $2.50 for Nio. Based on its current share price of $22 and lightning-fast growth rate, it looks like a screaming bargain.
Image source: Getty Images.
Teladoc Health
A third beaten-down growth stock that can turn $300,000 into $1 million by 2030 for patient investors is telemedicine giant Teladoc Health (TDOC 0.30%). Shares of Teladoc have fallen by more than 75% since hitting an all-time high in February 2021.
In somewhat similar fashion to Pinterest, Teladoc Health was initially lauded as a pandemic winner and subsequently pummeled. The reason? Investors have been betting on a substantial growth slowdown in Teladoc with the worst of the COVID-19 pandemic seemingly in the rearview mirror.
To build on this point, hindsight has shown that Teladoc's acquisition of leading applied health signals company Livongo in the fourth quarter of 2020 was pricey. Costs associated with this acquisition have ballooned near-term net losses at a time when investors are becoming more critical of company valuations. But neither these higher near-term costs nor concerns about a post-pandemic slowdown should faze long-term investors.
Although Teladoc is often praised for its pandemic-related growth, it's important to recognize that this company was growing like wildfire well before COVID-19 spread globally. Between 2013 and 2019, Teladoc averaged... averaged... 74% annual sales growth. This tells investors that Teladoc's virtual visit platform wasn't just in the right place at the right time during the pandemic. Rather, it's the right product/service for a shifting treatment landscape in the U.S.
Telehealth looks to be a win up and down the treatment landscape. While not all appointments can be virtual, those that can are often more convenient for patients. Virtual visit platforms also allow physicians to keep better tabs on their chronically ill patients. The end result should be improved patient outcomes and less money out of the pockets of health insurers. You can bet that any product or service that costs health insurers less will be promoted heavily by insurance companies.
Investors shouldn't be concerned about higher costs associated with the Livongo acquisition, either. Most of these acquisition-based costs are now in the past, which will allow investors to focus on the positives, such as cross-selling opportunities between Teladoc's and Livongo's platforms. Teladoc's net loss in 2022 should shrink considerably from 2020 and 2021.
As a Teladoc shareholder, my expectation is for the company to push to recurring profitability by as soon as 2024. All the while, sustained sales growth should top 20%. That's a recipe for investors to generate a 233% return, if not greater, by 2030.
