The S&P 500 index gained over 18% in the first half of 2023, an appreciable feat after the dramatic slump of 2022. The benchmark index now stands firmly at more than 20% of its recent low in late 2022, igniting hopes of a bull market in the coming months.
While the Federal Reserve raised interest rates again in July, its impact on the U.S. stock market has been mixed. With the year-over-year rise of the U.S. Consumer Price Index, (CPI, a metric to gauge inflation) dropping to 3% in June 2023 from the peak of 9.1% in June 2022, the market is now expecting the interest rate hikes to come to an end. Understandably, the probability of an upcoming bull market seems to be quite high now.
Given the increased prospects of a bull market, here are the three growth stocks to buy now that can prove to be attractive picks for retail investors.
1. Pinterest
Shares of image-based social media platform Pinterest (PINS 4.04%) rebounded after a dismal performance in 2022. The company earns the bulk of its revenue mostly from advertisements. Hence, the consistent increase in the company's monthly active users (MAUs) in the past few quarters -- which will, in turn, attract more advertisers to its platform -- can be considered to be a major positive development. In the first quarter, MAUs rose by 7% year over year to 463 million -- one of the strongest growth rates since 2021.
Pinterest also has work to do on improving the monetization of its existing user base. Its first-quarter average revenue per user (ARPU) was just $1.35, far lower than Meta Platforms' (NASDAQ: META) first-quarter ARPU of $9.62.
In April 2023, Pinterest partnered with Amazon (NASDAQ: AMZN), allowing third-party ads on its platform. RBC Capital Markets analyst Brad Erickson expects rising ad load (more advertisements displayed per page) and an Amazon deal to result in higher ad inventory and better pricing for the company.
Pinterest has developed an effective targeted advertising strategy that involves showing personalized advertisements relevant to viewers' search queries. Plus, 61% of the viewers claim to go to the company's platform while starting a new project. Coupled with the potentially game-changing Amazon partnership, this stock has much potential for future growth.
2. UiPath
UiPath (PATH 0.26%) surprisingly missed a major portion of the AI-driven stock rally in 2023, despite being a leading robotic process automation (RPA) player. By automating repetitive tasks (simple and complex), the company's low-code cloud-based RPA software (bots) is intended to help clients save time and money.
UiPath may soon see better days as the market becomes aware of the advantages of AI and enterprise automation platforms in improving productivity and cost efficiency. The company has also integrated generative AI technology into its software, which is now capable of reading screens and documents, answering customer emails, summarizing complex documents, and responding to customer support questions. The company also expects generative AI to make access to its platform even easier, as developers will be able to create customized automation code by using natural language descriptions.
UiPath's recent first-quarter earnings performance (ended April 30) was quite impressive. Annual recurring revenue (ARR) at the end of the first quarter of fiscal 2024 was $1.25 billion, up 28% on a year-over-year basis. The number of customers with ARR of $1 million or more rose by 43% year over year to 240. The company has also been successful in cross-selling and upselling to existing customers, as implied by its robust dollar-based net retention rate of 122%.
UiPath is guiding for a non-GAAP (adjusted) operating margin of 13% in fiscal 2024, a significant improvement from a 6% margin in fiscal 2023. The improvement in margins can drive its share prices higher in the long run.
3. SoFi Technologies
Once known mainly as a student loan refinancing company, SoFi Technologies (SOFI 3.69%) has transformed itself into a one-stop shop for consumers' financial needs.
With the U.S. government announcing a student loan payback moratorium at the start of the pandemic, SoFi's student loan business suffered over the past few years. The pain may continue with the government's new plan to forgive $39 billion of additional student loans for 804,000 borrowers. The plan also allows for zero payments in case the borrower's (or his/her family's) income fails to meet certain thresholds. SoFi expects increased demand for student loan originations in the fourth quarter -- which may help partly offset the impact of reduced monthly payments and a drop in refinancing due to rising interest rates.
Despite the macroeconomic challenges (the recessionary and inflationary pressures and the banking crisis) and the moratorium on student loan payments, SoFi's diversified product portfolio (comprising other lending products, investment services, and financial technology services for other banks) and successful cross-selling strategy have generated growth. SoFi's personal loans business has managed to offset headwinds in the student loan refinancing and home loans business (due to tough macros). In the first quarter, personal loan originations reached $3 billion, up 46% on a year-over-year basis. While not yet profitable, the financial services business managed to increase revenue by 244% year over year to $81 million in the first quarter. Further, the financial services business helps attract new customers in SoFi's ecosystem--which is critical for its cross-selling strategy.
In the first quarter, SoFi reported adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $76 million, a dramatic improvement from just $9 million adjusted EBITDA in the same quarter of the prior year. Hence, considering the company's diversified revenue streams and increasing focus on profitability, SoFi can emerge as a winning stock in the coming months.
