When markets are in a bull run, the economy is growing, and there is a lot of optimism about future, investors are eager to buy stocks. Often, buying at such high levels when everyone else is also on a buying spree leads to disappointments. Warren Buffett has famously advised investors be fearful when others are greedy, and greedy when others are fearful.
The S&P 500 index has fallen roughly 20% in 2022, as of this writing. With fear and uncertainty around, it is probably time to be greedy. Indeed, as always, you must be greedy only with quality companies. Let's take a look at three growth stocks that you can consider buying in 2023.
1. Lucid Group
Lucid Group (LCID 1.23%) offers one of the best electric vehicles (EVs) in the market today. The company has been growing its vehicle deliveries, albeit more slowly than what investors would have liked. It has orders from the Saudi government in addition to reservations in the U.S. It has the funding required to carry operations till the end of 2023. The best part is the stock has fallen more than 80% in 2022, and is trading at a more attractive level right now. Indeed, its price-to-sales (P/S) ratio is still high -- at about 32. But it is important to put this ratio in perspective. Lucid is generating few sales today. But its sales should grow by orders of magnitude, bringing its P/S ratio to far more reasonable levels in the coming years.
It is important to note the risks. The company is at an early stage of growth, and faces several challenges. It may not succeed in ramping up its production as it hopes, or may not ramp up profitably. The competition in the segment is stiff, and established players are targeting the same market as Lucid. Finally, I don't expect the stock to necessarily rise in the short term. You should consider starting a position with a long-term time horizon. But if Lucid delivers on its promises in the coming quarters, its stock may see gains in 2023 as well.
2. Enphase Energy
Microinverter maker Enphase Energy (ENPH -1.13%) is one of the fastest-growing renewable energy businesses. In the latest quarter, the company grew its revenue 20% sequentially and 51% year over year. It generated a gross margin of 43%, incurred 12% operating expenses as percentage of its revenue, and generated 31% operating income for the quarter. These three numbers are better than its baseline target of 35% gross margin, 15% operating expenses, and 20% operating income. It is this firm grip on its financials that has helped Enphase grow rapidly over the years.
One of the ways in which Enphase Energy controls its costs is by having its executive team in the U.S. as well as core teams in cost-competitive geographies like India and New Zealand. At the same time, the company is focused on growing its "share of wallet" by extending and improving its offerings. Initially, Enphase only offered microinverters. The company added batteries to its offering, helping it to grow its revenue per home. It is now expanding its offerings to include load controllers, EV chargers, fuel cells, grid services, and software, as well as upgraded IQ8 microinverters. The company estimates that these offerings enhance its potential revenue per home from $2,000 in 2019 to $12,000 in 2023 and beyond.
Enphase's unique, quality, and cost-competitive offerings are expected to see growing demand in the coming years. The company estimates its serviceable addressable market to be $23 billion by 2025. Due to the solid performance, the stock is up 65% in 2022 despite a fall in the broader market. 2023 could offer you a suitable entry point in this top renewable energy stock.
3. ChargePoint
Leading electric vehicle charging company ChargePoint (CHPT 1.09%) controls roughly 70% of the public level 2 charging market in North America. With its capital-light approach, the company has managed to expand its charging network rapidly over the years. Although the company is loss-making right now, it expects to become cash-flow positive by the fourth quarter of 2024. If that target is achieved, the stock could see some positive momentum.
ChargePoint focuses on commercial and fleet customers and has 24% of Fortune 500 companies as its customers. These customers' spending with ChargePoint is also growing over years. Government support to boost electric vehicle growth, as well as to develop a strong public charging network should drive ChargePoint's growth in the coming decades. The stock is down roughly 50% in 2022, offering a more attractive entry point for patient, long-term investors.
