The events of the 2022 stock market have left many investors feeling discouraged and perhaps unsure about what the new year could hold. While there is no guarantee that the volatility will abate in the months ahead, history has taught investors time and time again that the only way to sustain returns and build a profitable portfolio is to stay invested through the ups and downs of the market.
If you have capital to put into your portfolio right now, it is still an excellent time to build positions in wonderful companies with strong long-term growth potential. No investment is devoid of risk, but as you diversify your portfolio around a wide range of companies with varying catalysts for growth, you can be better prepared for the swings of the market while setting yourself up for durable future returns.
On that note, let's take a look at two monster stocks with incredible growth potential in the years ahead that you may want to consider adding to your buy basket before 2023 dawns.
1. Upstart
The current macro environment is creating an abundance of challenges for any company with exposure to the lending market. The combination of elevated interest rates and low consumer savings rates, not to mention fears of a recession, are driving the risk of default higher while making it more difficult for many consumers to get loans approved at favorable rates.
These challenges certainly haven't been lost on Upstart (UPST 2.89%), the AI-driven platform that is working to completely change the way credit is extended to consumers.
Upstart does this through its proprietary platform, which evaluates factors like a person's income, education, and work history, in addition to their credit score, to reach a more informed decision as to whether or not that consumer ought to be extended credit.
Consumers can apply for a variety of loans through Upstart's platform, including auto loans, personal loans, and small business loans, and in many cases, receive a decision about their application in seconds. As of the most recent quarter, 75% of all loans processed through Upstart's platform are done so on a fully automated basis.
Upstart's platform not only enables more consumers to access credit than through the traditional FICO-based system, but the company has been able to do so at a loss rate that trails that of traditional U.S. banks. According to the results of an internal study in 2021, when its approval rates were aligned with those of traditional U.S. banks, Upstart recorded 53% fewer defaults. Upstart's platform has also generated 173% more approvals at the same default rate as these banks.
NASDAQ: UPST
Key Data Points
Right now, Upstart is reporting growing net losses as a result of declining loan volumes, and revenue is down from the year-ago period. However, declining loan volumes are not only to be expected in the current environment with institutional investors slashing capital allocations but are actually an indication that Upstart's proven model is continuing to work as it adjusts for risk based on the macro situation.
These headwinds won't necessarily let up in the next few quarters, but these are still relatively short-term factors when you're considering an investment time frame of three to five years or longer.
Meanwhile, Upstart continues to attract credit unions and banks eager to get on board with its platform, even in the current environment. In the most recent quarter, Upstart boosted its network of bank and credit union partners by an incredible 170% year over year while growing its auto dealer partner network at such a pace that it now covers roughly 25% of the U.S. auto market with its lending products.
While the near-term environment may pose challenges for Upstart, it's also sitting on a sizable amount of cash in the amount of $830 million.
Upstart's core competitive advantage lies in its proprietary model, which is continuing to prove its mettle even in the current environment. As interest rates come down, Upstart's platform, broad (and rapidly growing) network of lending partners, and continued expansion to lucrative areas of the wider lending market are all key catalysts that can portend a robust recovery in the years ahead.
Analysts estimate the fintech stock has a median to high upside potential ranging from 16% to 99% in the next 12 months. For investors with a reasonable tolerance for risk, a long-term buy-and-hold position in Upstart could yield significant returns over the next five to 10 years.
2. Intuitive Surgical
Unlike the previous stock, Intuitive Surgical (ISRG +2.81%) is not particularly vulnerable to the volatility of macro headwinds. As the indomitable leader in the global surgical robotics industry, the company is well positioned to ride out the challenges presented by a wide range of economic environments -- and this one is no different.
For those unfamiliar, Intuitive Surgical develops and manufactures surgical robotics systems for minimally invasive surgeries.
Its most well-known product is its da Vinci surgical system, which has been on the market for over two decades and enabled Intuitive Surgical to amass a stunning share of the global surgical robotics market to the tune of about 80%. No competitor has even come close to grasping this level of market share in this space, which is on track to hit a valuation of nearly $100 billion by 2024.
The da Vinci system is used in a wide range of minimally invasive procedures, from thoracic to general to cardiovascular surgeries. Intuitive Surgical also sells another surgical robotics system called the Ion, which is used in minimally invasive lung biopsies.
The adoption of surgical robotics systems by medical providers is growing, as these tools can help promote better precision and shorter surgery times, not to mention a lower risk of complications and shorter recovery time for the patient.
NASDAQ: ISRG
Key Data Points
Intuitive Surgical doesn't just make money off the sale of these systems -- which run for a pretty penny. A single da Vinci Surgical system costs upward of $2 million. Beyond the sale of the initial systems, however, Intuitive Surgical also makes money from the software it sells that accompanies these surgical suites, diagnostics, and support services that it sells to medical providers, as well as the costs of parts and tools integral to these systems that require regular maintenance and replacement.
These diverse and recurring streams of income, in addition to the high-ticket prices of its state-of-the-art surgical systems, enabled the company to grow revenue and profits substantially over the years. In the trailing decade, Intuitive Surgical has grown its annual revenue and earnings by roughly 160%. In that same decade, the stock delivered a total return of nearly 400%.
Considering Intuitive Surgical's foothold in a vast and growing addressable market, it's not a stretch of the imagination that the company could still deliver considerable growth for investors in the years ahead. Even in the current market, Wall Street analysts are estimating that the stock could achieve a high upside of more than 20% in the next 12 months.
