In less than two weeks, the curtain will close on what'll undoubtedly go down as one of the most difficult years on record for investors. Although all three of the major U.S. stock indexes have been entrenched in respective bear markets in 2022, it's the growth-focused Nasdaq Composite that fared the worst. From peak to trough, the Nasdaq has lost as much as 38% of its value since hitting its closing high in November 2021.
But when there's pain on Wall Street, there's the potential for long-term investors to snag high-quality stocks at a discount. With growth stocks taking it on the chin in 2022, fast-paced companies could represent one of the most intriguing buying opportunities in the new year. What follows are five beaten-down growth stocks that can soar in 2023.
Image source: Getty Images.
Teladoc Health
The first pummeled growth stock that has the potential to surprise in a big way in 2023 is healthcare stock Teladoc Health (TDOC 1.64%).
Thanks to its grossly overpriced acquisition of applied health signals company Livongo Health in 2020, Teladoc has taken two massive write-downs this year and is sitting on a loss of greater than $61 per share through nine months.
While it's impossible to sweep such poor decision-making under the rug, it is possible to put these one-time expenses in the rearview mirror for the upcoming year. Without these write-downs, Teladoc's double-digit sales growth and smaller quarterly losses should do the talking.
Although some folks are still skeptical that Teladoc is nothing more than a pandemic fad stock, sales were growing by an annual average of 74% in the six years prior to the pandemic. Further, sales growth looks to be hovering around 15% to 20% annually, even with the worst of the COVID-19 pandemic likely behind us.
What makes Teladoc Health such an intriguing investment is the way it's shaping personalized care. Virtual visits are convenient for patients, can allow physicians to stay on top of critical data for people with chronic illnesses, and they're generally less costly than in-person visits. Altogether, we're talking about improved patient outcomes with less money out of the pockets of health insurers.
NASDAQ: PYPL
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PayPal Holdings
A second beaten-down growth stock with a relatively good chance to turn things around in 2023 and impress investors is fintech stock PayPal Holdings (PYPL 1.13%).
At the moment, skeptics are worried about the possibility of a U.S. recession, as well as how historically high inflation could impact the spending power of low-earning workers. These factors have the potential to slow both the aggregate number of digital transactions on PayPal's networks and the total payment volume traversing its platform.
While there has been a slowdown in new account growth for PayPal, many of its pertinent performance indicators have continued to motor higher. In particular, engagement among active accounts has been steadily climbing for nearly two years.
As of Sept. 30, PayPal's average active account was completing just over 50 transactions on a trailing-12-month basis. That's up 25% from the end of 2020. Since most of PayPal's revenue is fee driven, increased engagement is the most-important metric for driving gross profit growth.
Additionally, look for CEO Dan Schulman's lever-pulling to work its magic next year. PayPal is targeting $900 million in cost savings this year and at least $1.3 billion in cost reduction in 2023. This should boost operating margins and make this historically inexpensive stock look that much more fundamentally attractive.
The Nio ET7 electric sedan hit showrooms in late March 2022. Image source: Nio.
Nio
China-based electric-vehicle (EV) manufacturer Nio (NIO 3.45%) is a third beaten-down growth stock that can really find its stride in 2023. Even though pandemic-related supply chain issues continue to hamper the auto industry, the company appears to have moved past the worst of its production issues.
In November, Nio achieved an all-time record 14,178 EV deliveries, as well as marked its sixth consecutive month of at least 10,000-plus EV deliveries. Demand has not been an issue, and Nio should have no trouble continuing to ramp up its monthly production if supply channels cooperate.
What's been particularly noteworthy about Nio is the company's innovation (of all forms). It's been introducing at least one new EV a year, with this model diversification spurring demand from middle-class and higher-income consumers in China.
Interestingly enough, the company's ET7 and ET5 sedans, which were launched in 2022, accounted for 43.6% of all EV deliveries in November. These sedans, which can surpass 600 miles of range with a battery upgrade, could very well be Nio's chief growth drivers in the years to come.
As for thinking out of the box, look no further than Nio's battery-as-a-service subscription. Consumers buying this subscription receive a discount on the purchase price of their EV and can upgrade or swap batteries in the future. In return for giving up some near-term EV revenue, Nio snags high-margin, recurring subscription revenue and the loyalty of its early EV adopters.
OTC: CRLBF
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Cresco Labs
A fourth beaten-down growth stock capable of generating a lot of buzz in 2023 is U.S. marijuana stock Cresco Labs (CRLBF 4.04%). Despite federal cannabis reform efforts falling flat every year, state-level legalization is providing more than enough opportunity for multi-state operators (MSOs) like Cresco.
The transformative news for Cresco Labs in the new year will be the expected closure of its all-share acquisition of Columbia Care (CCHWF +16.40%). Cresco recently announced that an aggregate of 12 dispensaries and processing facilities will be divested to satisfy the conditions of merging with Columbia Care. When this deal finally closes, the combined entity should have more than 120 operating dispensaries spanning 18 states, which would make it one of the largest MSOs in the country.
Cresco Labs already has a presence in many of today's largest markets -- California, Colorado, and Florida -- but has predominantly been building its presence in limited-license states, such as Massachusetts, Virginia, Pennsylvania, and Ohio, to name a few. The advantage of regulators limiting dispensary license issuance is that it allows new entrants (like Cresco) the opportunity to build up their brands without being overwhelmed by established competitors with deep pockets.
Don't overlook Cresco's wholesale operations, either. Cresco Labs is one of the few companies to hold a cannabis distribution license in California. This license allows it to place its proprietary brands into more than 575 dispensaries throughout the Golden State. Nationally, over 1,200 dispensaries are selling its products. Even with lower wholesale margins, this level of volume can be powerful for Cresco's bottom line.
NASDAQ: BIDU
Key Data Points
Baidu
The fifth and final beaten-down growth stock that can soar in 2023 is China-based internet search giant Baidu (BIDU 3.34%). With the possibility of China's COVID-19 restrictions loosening a bit in the new year, Baidu's core operations and faster-growing ancillary segments could shine.
First, Baidu benefits from competitive restrictions in China. With its competition somewhat minimized, it's been able to control between 60% and 87% of all internet search in China over the trailing-12-month period and currently has a 52-percentage-point lead over its next-closest competitor, Microsoft's Bing. What's crystal clear is that Baidu's search engine is the premier platform for advertisers looking to target their message(s) in China. That helps with its ad-pricing power.
While internet search is Baidu's cash cow, it's the company's artificial intelligence (AI) Cloud and autonomous vehicle (AV) segment (Apollo Go) that could eventually become its primary growth drivers. Apollo Go is the world's leading AV company. Although these nonmarketing segments account for only 26% of net sales, revenue growth from these channels surged 25% during a difficult third quarter for China.
Similar to PayPal, Baidu is also historically inexpensive. A forward-year earnings multiple of 12 is a small price to pay for a company with a long history of double-digit sales and earnings growth.
