If you've been keeping an eye on Wall Street, you know just how unpredictable stock markets can be. The Nasdaq Composite Index, which contains mostly growth stocks, shot 43% higher in 2023 after collapsing 33% in 2022.
The latest big run-up for growth stocks probably should make investors nervous about another crash on the horizon. That said, history says growth stocks could keep climbing throughout 2024.
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In uncertain times like these, making modest but frequent additions to your portfolio is a smart strategy that anyone can follow, now that discount brokerages no longer charge steep fees for every transaction.
A dollar-cost averaging strategy won't lead to the best possible prices for the stocks in your portfolio, but it also ensures that you don't suffer heavy losses by betting all chips just ahead of a market crash. With share prices currently below $100, adding some shares of the stocks below to an already diverse portfolio could be a smart move.
Palantir
Palantir (PLTR 3.73%) is an artificial intelligence (AI) company that helps organizations analyze data from multiple sources that typically don't communicate. For example, the U.S. government uses Palantir's platform to thwart potential terrorist attacks by cross-referencing FBI databases with public transportation records.
Palantir cut its teeth on lucrative government contracts, but the growth of its private-sector business is accelerating. In the U.S., its commercial customer revenue increased 70% year over year in the fourth quarter.
The ongoing rollout of Palantir's Artificial Intelligence Platform is driving growth in the U.S. market. and it's probably only a matter of time before the rest of the world catches on. Total revenue grew 17% last year, and growth is accelerating. Total sales during the three months that ended last December were 5% higher than the previous quarter, driven largely by commercial customers signing up for Palantir's AI platform.
In 2024, Palantir expects between $800 million and $1 billion in adjusted free cash flow. At the moment, though, the company's market cap is north of $54 billion. A valuation of more than 50 times adjusted free cash flow expectations is sky-high, but enterprises are hurling money at Palantir to avoid falling behind the ongoing AI revolution.
With no end to surging demand for AI services in sight, this stock could grow into its high valuation and deliver market-beating gains over the long run. That said, the stock could fall hard from its inflated valuation if earnings don't continue shooting higher.
TransMedics Group
If you're tired of hearing about AI but you still want to invest in businesses with enormous growth potential, consider TransMedics Group (TMDX 3.17%). This company is singlehandedly improving the way donated organs are maintained before they're surgically implanted in a new body.
TransMedics Group has an Organ Care System (OCS) that pumps organs full of warm blood. This is a huge improvement over the old standard, which was mostly limited to styrofoam coolers full of ice.
The TransMedics OCS allows preserved organs to travel much farther than usual to reach a matched transplant recipient. Unfortunately, there aren't enough charter flight providers to keep up with the company's increasing needs, so it acquired its own aviation company last summer.
Investors were more than a little disturbed when the medical device company suddenly became a private airline; the stock is still below its previous peak.
TransMedics Group doesn't have profits to measure its valuation against yet, but they could be right around the corner. The company lost $25.4 million in the third quarter of 2023 due to $29.2 million in nonrecurring transaction costs.
TransMedics expects to report total 2023 revenue in a range between $222 million and $230 million when it releases fourth-quarter results on Feb. 26, after the market closes. The stock has been trading for about 12.6 times the top end of management's sales expectation for last year.
While 12.6 times trailing sales is a high multiple to pay for a growth stock, it's not at all unreasonable for a company growing at TransMedics Group's pace. Management's 2023 revenue outlook predicted a gain of between 138% and 142% last year.
Warm perfusion of donated organs isn't new, but the TransMedics OCS is the only system approved by the Food and Drug Administration to preserve and transport hearts, lungs, and livers. This means any potential competitors have a lot of hoops to jump through before transplant facilities consider them a preferred option.
This stock's valuation is high. But given an approved system for maintaining organs, and a fleet of jets to transport them, you can reasonably expect enough growth from TransMedics Group to make its present valuation seem like a bargain five years from now.
