Some growth stocks look incredibly compelling right now after the rout of 2022. Although the markets soured on most growth stocks amid rising inflation, interest rates, and fears of an economic slowdown, it could only be a matter of time before fundamentally strong stocks rebound as investors size up their potential and realize they deserve a better valuation.
Shopify (SHOP 0.14%), Salesforce (CRM -1.59%), and Nio (NIO 2.30%) are three such stocks that were battered but look like screaming buys right now for 2023.
1. Shopify: 2023 could be a record year
2022 was a brutal year for Shopify. The e-commerce company invested aggressively in growth, but that burned its bottom line as expenditures rose while sales fell on higher inflation and lower consumer spending. Investors hit the panic button, and Shopify stock plunged 75% in 2022.
Between 2019 and 2021, for example, Shopify almost tripled its revenue and more than doubled its gross merchandise volume (GMV). It's true that the company isn't growing nearly as fast now, but growth for nearly every e-commerce company decelerated as economies reopened.
If you look at the bigger picture, Shopify's revenue still grew 20% in the first nine months of 2022, and its top line has risen exponentially in the past decade. Yet the stock has fallen dramatically.
Shopify's expenditures may hurt in the near term but should pay off in the long run. For example, the integration of its 2022 Deliverr acquisition is costing Shopify a lot of money right now, but Deliverr has given Shopify a huge headway into logistics and fast shipping. Shopify is also innovating and regularly launching new products and services like loans and cross-border solutions to attract more merchants to its platform and expand its global reach.
Investors don't like to see hypergrowth stocks fall short. But as long as the company is growing and making moves to cement its future, it's time to buy such stocks, not sell.
If 2021 was Shopify's biggest year yet in terms of sales, 2022 should break that record, and 2023 could be even bigger, given Shopify's latest decision to hike the prices of its merchant subscription plans for the first time in 12 years. The move reflects management's confidence in the company's ability to retain existing merchants and attract new ones.
Higher prices should also boost Shopify's profitability, and although the company has a lot more to do to cut down losses, it's a move that makes this battered growth stock even more compelling right now.
2. Salesforce: This could be a solid turnaround story
Salesforce's stock has rallied a solid 30% in 2023 already, but the stock is still down a whopping 45% from its all-time high of November 2021. This could just be the beginning of a fresh bull run for the tech giant.
Salesforce is the leader in customer relationship management (CRM), an industry that's projected to grow by double-digit compound annual rates in the coming years. Numbers prove the kind of clout Salesforce has in the industry: In the first half of 2022, it dominated 22.9% of the global CRM market. The next four largest companies -- Microsoft, Oracle, SAP, and Adobe -- held a combined market share of 19.2%.
Salesforce has slowed down, but it isn't as bad as the markets have made it out to be. For fiscal 2023, which ends on Jan. 30, Salesforce expects to grow revenue by 17% to around $31 billion. By fiscal 2026, Salesforce is targeting $50 billion in revenue and steady growth in margins.
Activist investor Elliott Management recently bought a sizable stake in Salesforce, and with other activists also having interests in the company, they'll all likely push Salesforce to become more profitable. That should eventually work in shareholders' favor, and any improvement in the company's sales and margins should reflect in its share price. There's big potential, and with the company still growing revenue by double digits but the stock significantly off highs, it's a screaming buy right now.
3. Nio: Growth in place; stock price should follow
Electric vehicle (EV) stocks have been high on the list of growth investors in recent years, especially after several start-ups hit the scene and mammoth public listings rocked the stock markets. In 2022, though, most EV stocks came crashing down as investors dumped them on fears of decelerating growth amid macroeconomic challenges. Nio was one of them: The stock plunged 69% in 2022, partly because it is a China-based company, and most Chinese stocks crashed last year.
After that dramatic drop, though, Nio is off to a strong start in 2023 and looks all set to rally even higher. Nio delivered a record number of vehicles in its fourth quarter, and as of Jan. 31, 2023, it had delivered a cumulative 298,062 EVs since its first EV delivery. Nio produced its first smart EV in May 2018 and rolled out its 300,000th vehicle from its production line in December 2022.
Nio's production and deliveries picked up momentum only in the past couple of years or so after the company launched several new cars and entered Europe, its only market outside of China. Nio generated nearly $5.7 billion in revenue in 2021 and could grow its sales by 25% or more in fiscal 2022. That's not nearly as bad, given the headwinds Nio faced last year, including COVID-19 disruptions in China that hurt production and deliveries.
With its recently launched ET5 sedan showing a lot of promise, several new launches lined up for 2023, and China's EV market booming, Nio is one of the most compelling and cheap EV growth stocks to buy now for 2023.
