On the surface, 2023 has been a great year for stocks. The Nasdaq Composite is up about 25% year to date, and the S&P 500 is up around 10%. But dig deeper, and many industries and former market darlings have suffered brutal sell-offs. Most of 2023's gains have come from the growth of a relatively small number of big tech stocks.
Several growth stocks, especially smaller names, are down big so far this year -- but that could spell opportunity. Here's why Rivian Automotive (RIVN 6.10%), Hexcel (HXL -0.03%), and LanzaTech Global (LNZA 7.73%) stand out as three excellent stocks worth buying now on the dip.
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Rivian continues to hit its targets
Daniel Foelber (Rivian): Rivian stock has been all over the place this year, trading as low as $11.68 on April 26, only to more than double in just three months to an intraday price of $28.06 on July 22.
Since the company's initial public offering in late 2021, Rivian stock has been hard to value. At first, it got caught up in the meme stock frenzy and reached an unsustainable nose-bleed valuation well above $100 billion. Over the last two years, the electric vehicle (EV) maker has dealt with a slew of challenges shared by other automakers, including slowing consumer spending and the impacts of rising interest rates.
If you judge Rivian solely on its stock price, then it looks like a complete wild card. But Rivian the company has been uniquely consistent with its production targets, manufacturing expansion, and growth plans -- especially when you consider how challenging this period has been for automakers, and the supply chain constraints that have hampered the EV industry.
The EV maker deserves a lot of credit for pushing its goalposts forward when it comes to production and deliveries. And most recently, it provided an update on its 400,000-vehicle annual capacity plant in Georgia, construction of which is expected to begin early next year.
Rivian continues to barrel forward with its growth plans, even if they look riskier in the near term. Its headstrong approach has some investors worried and wishing management would reel it in a little. But Rivian has an ace in the hole -- its cash position. It has over $9.2 billion in cash and equivalents on its balance sheet. And as it scales up, its cost profile should become more efficient and margins should improve.
The stock could do pretty much anything in the short term. And Rivian's biggest risk is that the market for EVs stays depressed for longer than expected, which would leave the company spread too thin with its larger manufacturing footprint and higher operating costs.
Rivian is a high-risk stock, even after declining by more than 40% in the last three months. But for investors who see its vehicles as appealing and believe in its execution, the stock is worth a closer look.
Advanced composites are the future of aerospace
Lee Samaha (Hexcel): According to Boeing CEO Dave Calhoun, composites will play a significant role in any new plane it develops. It's that kind of commentary that highlights the investment case for advanced lightweight composite manufacturer and seller Hexcel. Not only will Hexcel benefit from the significant ramp ups in production of airplane manufacturers Boeing and Airbus, but it also has a considerable growth opportunity due to the increasing percentage of composite content in newer models.
Hexcel's composites offer strength and weight advantages over traditional materials like aluminum, which means reduced airplane operating costs and higher productivity.
The long-term demand outlook is excellent. However, Hexcel is facing some margin headwinds as it ramps up its capacity to get ahead of expected growth in demand. The margin compression that has led to is concerning to investors, and the stock sold off heavily after the company's third-quarter results were released.
That said, it looks like a matter of when, not if, Hexcel starts to see the benefit of reopening production lines and hiring and training workers. The company looks set for double-digit percentage revenue growth, while Boeing, Airbus, and others, including business jet manufacturers, are doing all they can to deliver on multi-year order backlogs.
As such, Hexcel's actions in getting ahead of a rapid expansion of demand make sense, and the stock's sell-off has created a good buying opportunity in a company with a bright future.
LanzaTech has brewed a clever way to capture carbon
Scott Levine (LanzaTech): It's been a rocky road for LanzaTech over the past three months as the company's stock has plunged by 41% -- and seemingly on no negative news. From installing solar panels on their roofs to retrofitting buildings with energy-efficient solutions, companies are adopting a variety of methods to reduce their carbon footprints.
Committed to helping facilitate this transition toward a lower carbon future, LanzaTech has developed an innovative method to capture companies' carbon emissions and convert them into usable materials such as ethanol. LanzaTech likens its technology to a brewery that's deployed atop an emissions source, using bacteria to convert pollution into fuels and chemicals in the same way that brewers use yeast to ferment the sugars in wheat and produce beer.
LanzaTech dubs the products that use the ethanol -- and ethanol derivatives -- that its technology produces as CarbonSmart. And the company sees a sizable opportunity for CarbonSmart products. According to management, the addressable market for CarbonSmart products -- including household cleaners, cosmetics, and sustainable aviation fuel, to name a few -- is over $1 trillion.
The operations are still in their early innings. Entering 2023, LanzaTech had three operational facilities, and it expects to bring three more online by the end of the year. It also has a considerable number of projects in the works. In its second-quarter report, LanzaTech reported that it had more than 80 projects in early stages of development.
Growth stocks such as this one present higher risks than well-established companies, so investors will want to act accordingly. Should the company hit its 2023 guidance target and report revenue of $80 million to $100 million, and go on to achieve positive adjusted earnings before interest, taxes, depreciation, and amortization in 2024, those would certainly be signs that it is moving in the right direction.
