The stock market has been a bit shaky lately as investors digest the reality that economic growth could slow and interest rates will remain relatively high for longer than investors had hoped for.
Companies that depend on future growth prospects to justify their present valuations are particularly vulnerable to slowing growth. However, buying top growth stocks during a broader sell-off can be a wise move for patient long-term investors.
Here's why Tesla, (TSLA -1.11%), ON Semiconductor (ON 2.53%), and Fluence Energy (FLNC 2.06%) are three growth stocks that are doing well right now and could be worth buying amid heightened volatility.
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Tesla is a perennial buy-the-dip candidate
Daniel Foelber (Tesla): Tesla stock has sold off a bit lately. But it is still a stock that has staged an epic rebound in 2023. And for good reason.
Tesla offers investors a unique blend of industry leadership in the electric vehicle (EV) industry and ultra-long-term upside potential from autonomous driving, robo taxis, artificial intelligence, electrifying fleets, and more.
Tesla remains in the pole position of the EV industry. But competition is catching up fast. Tesla's long-term plan is to rapidly boost production and become the largest automaker by volume in the world. As the EV leader, Tesla has already proven its ability to retain high margins and be more efficient than the competition.
One question for Tesla is whether it can harness the resources necessary to sustain its torrid growth rate. Another uncertainty is whether Tesla can pass along costs to consumers if raw materials, like those used to make batteries, become more expensive.
In the short term, Tesla is going to be heavily impacted by high interest rates and the toll they take on an already fragile consumer. Long-term potential aside, Tesla is a car company. And car demand can tank if consumer spending falls. Higher interest rates make it more expensive to finance a car. So some consumers may simply delay a new car purchase or the transition to an EV.
The good news is that Tesla has a net cash position on its balance sheet. Other automakers depend heavily on debt, which is getting more expensive in today's high interest rate environment.
As we have seen time and time again, Tesla stock can do just about anything in the short term. Investors should be on the lookout for a major sell-off, knowing that the long-term potential of Tesla stock is worth riding out the volatility.
Industrial and automotive end markets are the future for ON Semiconductor
Lee Samaha (ON Semiconductor): A quick look at Wall Street's estimates for ON Semiconductor's revenue growth in 2023 and 2024 would eliminate it from a growth investor's short list of stocks to buy. After all, top-line growth of 0.7% and 6.9% isn't anything to write home about.
However, a closer look reveals a company positioning itself for excellent long-term growth. Management breaks out its end markets into automotive (40.4% of 2022 revenue), industrial (27.5%), and "other" (32.1%). It sees its automotive end market growing at a 19% compound annual growth rate (CAGR) from 2022 to 2027, with its industrial end market growing at a 10% CAGR, and "other" declining at a 4% CAGR over the same period.
The "other" end market primarily includes the typical consumer electronics businesses (computing, routers, white goods, gaming, smartphones, etc.). In other words, these are precisely the kinds of end markets that tend to make semiconductor companies cyclical. Still, ON Semiconductor is moving away from its more commoditized and lower-margin products while focusing on investing in automotive and industrial end markets with solid growth opportunities. As its revenue shifts toward those higher-growth markets, its overall growth rate will improve.
For example, the company's sensors and intelligent power devices have significantly more content in electric vehicles, advanced driver assistance systems, and power management systems. It's a similar story in the industrial world with factory automation, EV charging stations, renewable energy infrastructure, and smart buildings/infrastructure.
These end markets benefit from long-term secular growth trends, making ON Semiconductor one of the most exciting long-term growth stocks on the market.
Fluence Energy's big battery backlog will electrify growth investors' enthusiasm
Scott Levine (Fluence Energy): Soaring more than 29% in 2023, shares of Fluence Energy have more than doubled the S&P 500's rise. And yet, with Fluence's charge higher, the battery storage stock still has plenty of room to run. The company is in the early innings of its development, and investors who choose to power their portfolios now should be rewarded for their patience in the future.
While solar and wind stocks have received the lion's share of attention, renewable energy investors are now turning their focus to battery storage stocks like Fluence. Battery storage is recognized as a critical factor in helping the transition from fossil fuels to clean energy solutions, and Fluence is an industry leader.
Focusing on Fluence's financials, investors will find several encouraging signs. For one, the company upwardly revised its revenue outlook. Originally expecting to book $1.85 billion to $2 billion in 2023, Fluence now expects to report sales of $2 billion to $2.1 billion.
There are encouraging signs farther down the income statement as well. For one, Fluence has consistently reported a gross profit in 2023, and management forecasts that the company will achieve a 10% gross margin in the fourth quarter of 2023. Also, the company expects to approach breakeven on an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) basis in Q4 2023 and to report positive adjusted EBITDA in 2024.
The future looks especially bright. As a result of the Inflation Reduction Act, Fluence has seen growing customer interest, leading to the company's backlog of $2.9 billion. And that's not all. Fluence also has $12.4 billion in projects in the pipeline to develop.
