4 no-brainer growth stocks to buy amid tech wreckage

Ever since the market bottomed during the Great Recession nearly 13 years ago, growth stocks have been virtually unstoppable. Historically low lending rates and accommodative monetary policy have rolled out the red carpet for fast-moving companies to borrow cheaply to hire, acquire and innovate.

But over the past two months, the market’s leading sector, technology, has become its biggest drag. While tech stocks have single-handedly driven the market to new heights over the past decade, they have sometimes caused something of a “tech sinking”.

Yet if there’s any good news here, it’s that every stock market crash and correction in history has represented an opportunity to buy high-quality, innovative companies at a discount. The following four growth stocks are prime examples of no-nonsense buying amid tech carnage.

Image source: Getty Images.

CrowdStrike Holdings

One of the smartest ways to capitalize on this massive tech sell-off is to buy industry leaders that offer clear competitive advantages. One such example is cybersecurity stock CrowdStrike Holdings ( CRWD -2.90% ).

On a broader basis, cybersecurity has become a service of prime necessity. Regardless of the size of a business or the performance of the US economy and/or stock market, hackers and bots don’t take a day off from trying to steal business and consumer data. With businesses moving much of their data to the cloud in the wake of the pandemic, the responsibility for protecting information falls more than ever on third-party providers like CrowdStrike.

The not-so-secret sauce that rocks CrowdStrike is its Falcon security platform. Falcon was built in the cloud and leverages artificial intelligence to become more effective at recognizing and responding to potential threats over time. Although CrowdStrike’s solutions aren’t the cheapest, the superior security provided by its platform has made it a popular protection solution for end users. Unsurprisingly, its customer retention rate has hovered around 98% for more than two years.

The company’s operating results also show that it has no problem courting new customers. In less than five years, CrowdStrike’s subscriber base has grown from 450 to 14,687. Perhaps even more impressively, 68% of its existing subscribers have purchased at least four cloud module subscriptions. This is 9% less than five years ago. As existing customers spend more, CrowdStrike’s adjusted subscription gross margin gets closer and closer to 80%!

A bank manager talks with a couple about a loan.

Image source: Getty Images.

Assets received

Another absolute growth stock to buy during this tech wreck is cloud-based lending platform Assets received ( UPST -6.86% ). Upstart shares are 65% below their 52-week high on Feb. 17.

Upstart was hammered for an assortment of reasons. For starters, the Federal Reserve is expected to start raising interest rates in March. When rates rise, multiples for growth stocks typically contract. Moreover, since Upstart’s platform is involved in the lending business, there are fears that higher lending rates will reduce the demand for loans at the bank level.

However, none of these concerns can hinder Upstart’s growth trajectory or long-term strategy. This is a company that relies on artificial intelligence (AI) and machine learning to quickly and accurately screen loan applicants. This is not just about saving money for financial institutions, but also about democratizing the lending process by helping people who otherwise might not qualify for a loan.

The number that continually stands out in Upstart’s operating results is the high percentage of revenue it receives in the form of bank fees and service revenue. In the fourth quarter, 94% of its revenue came from royalties and services. This means that Upstart has no direct credit exposure and therefore will not be penalized by potentially higher delinquencies in a rising rate environment.

There is also a huge lead for Upstart to develop. It has mainly focused on personal loans since its inception. But with the acquisition of Prodigy Software last year, it now has an AI-enabled car lending platform. The auto loan origination market eclipses the personal loan market in size.

An electric Nio EC6 on stand in a showroom.

The all-electric Nio EC6 crossover hit showrooms in 2020. Image source: Nio.

Nio

Electric vehicle (EV) manufacturer Nio ( NI -6.11% ) is a third no-brainer growth stock that went on sale following the tech wreckage.

Along with fears of a multiple squeeze in growth stocks, Nio has been weighed down by shortages of semiconductor chips, which have affected the entire automotive industry. Those shortages have halted the company’s aggressive production ramp-up at a time when market share for electric vehicles is up for grabs.

On the other hand, it is an undeniable truth that most countries will be pushing green energy solutions for decades to come. Encouraging consumers and businesses to go green by buying electric vehicles will be on the agenda. This vehicle replacement cycle will last for decades and provide auto stocks with a period of sustained above-average growth.

What’s been impressive about Nio is the company’s rise to power amid these supply chain issues. In November and December, Nio recorded an annual rate of around 130,000 electric vehicles. By the end of the year, management expects the company to have an annual operating rate closer to 600,000 electric vehicles. Increased demand for its existing vehicles, as well as the introduction of three new electric vehicles, will help fuel this expansion.

Additionally, Nio’s management team made the awesome move of introducing its Battery as a Service (BaaS) program in August 2020. The BaaS program allows buyers to charge, swap, and upgrade their batteries. It also reduces the initial purchase price of an EV. In return, buyers pay Nio a monthly fee for this service. Nio has effectively traded lower-margin, short-term revenue for higher-margin, long-term revenue that will build customer loyalty.

Two employees looking at several computer screens displaying a lot of data.

Image source: Getty Images.

Palantir Technologies

A fourth easy-to-buy growth stock in the wake of the tech stock selloff is a data mining specialist Palantir Technologies (PLTR -6.37% ).

It doesn’t sound like a broken record, but multiple compression has been a big theme behind the recent tech sinking. Less than 13 months ago, Palantir’s market capitalization briefly topped $80 billion, which is a rich valuation for a company that reported about $1.5 billion in sales across the entire year 2021. As of February 17, Palantir had lost about three-quarters of its value from its all-time high.

However, patience should pay off for investors in Palantir given that no other company does what it does at scale.

Palantir has two mining platforms, each with a specific target. Gotham serves federal agencies, while Foundry focuses on corporate clients. Over the past two years, Gotham has been the company’s primary growth engine. Major multi-year contracts signed with the US government have supported the company’s sales growth above 40%.

But looking ahead, Foundry is Palantir’s golden ticket. Not only can Foundry help businesses streamline operations by simplifying mountains of data, it has global appeal. That’s not the case with Gotham, which will be limited in its global appeal by security concerns. In other words, Gotham is not something Palantir’s management team would allow the Chinese government to use.

Management expects Palantir to be able to grow at least 30% per year through the middle of the decade. This makes its recent pullback a buying opportunity for long-term investors.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

Garland K. Long