This year has started with a very different kind of investment atmosphere than folks were used to in 2022. The Nasdaq Composite has surged over 11% so far this month as growth stocks retake center stage.
But the rally doesn't mean that now is the time to repeat past mistakes, like investing in bad businesses just because they are hot stocks. Instead, it's better to find companies with compelling investment theses that can unlock multidecade growth potential.
Shopify (SHOP -0.11%), the Vanguard Growth ETF (VUG -1.98%), Nio (NIO -4.75%), Beam Therapeutics (BEAM -0.58%), and Roku (ROKU -3.08%) have that kind of potential. Here's what makes each company a great buy now, according to five Motley Fool contributors.
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The leading e-commerce software vendor
Trevor Jennewine (Shopify): Soaring inflation has put many retailers in a tough spot, simultaneously creating a headwind to consumer spending while providing a tailwind that boosts operating expenses. That combination led to a series of disappointing financial results from Shopify over the past year, and the situation might not improve in the coming quarters.
But the fear inspired by those temporary obstacles has actually left patient investors with an excellent buying opportunity.
Global retail e-commerce spending is expected to grow at 13% annually to hit $15 trillion by 2030, and few businesses are better positioned to capitalize on that trend than Shopify. Its ability to simplify commerce by integrating dozens of sales channels on a single platform -- online marketplaces like Amazon (AMZN -2.84%), social media like Meta Platforms' Instagram, direct-to-consumer websites, and brick-and-mortar stores -- is a compelling value proposition for merchants.
Shopify sweetens the deal with an array of adjacent services for merchants, including payment processing, money management, and financing. And the company is building a fulfillment network that will support two-day delivery across multiple sales channels.
The platform empowers large brands to build customized digital storefronts with Shopify Plus, its enterprise-level commerce software. Merchants also have access to sophisticated tools for automation, marketing, and wholesale commerce.
Few competitors, if any, pack as much functionality into their platforms as Shopify, and that advantage has propelled the company to the forefront of the industry. It is the leading e-commerce software vendor, both in terms of market presence and user satisfaction, according to research company G2.
And with shares trading at 11.5 times sales, a big discount to the three-year average of 34.8 times sales, patient investors should buy a few shares of this stock in February.
This foundational ETF has it all
Daniel Foelber (Vanguard Growth ETF): The stock market has rallied nicely to kick off 2023. Even so, there are plenty of excellent stocks that remain down big off their highs.
Thankfully, most of the growth stocks that stand out as particularly compelling buys now can be found in the Vanguard Growth Exchange-Traded Fund (ETF). The top 10 largest holdings make up just under half the fund, but it has over 250 stocks in total. The fund is well structured because it has a rare balance of stability from industry-leading companies as well as exposure to smaller names.
Besides the quality of companies that make up the top holdings -- like Apple, Microsoft (MSFT -1.43%), Amazon, and Alphabet -- possibly the fund's greatest characteristic is its simplicity.
With the Vanguard Growth ETF, you don't have to ping-pong between Apple and Microsoft. Instead, the fund essentially provides a starting position across big tech that you can build upon. In this vein, the ETF does an excellent job of making sure initial-position sizing is under control while leaving room for investors to then add larger stakes in their favorite companies through individual stocks.
During a prolonged stock market sell-off, where price swings in individual stocks can be particularly jarring, the Vanguard Growth ETF offers peace of mind that could be just what an investor needs to weather the storm by holding through periods of volatility.
This EV stock deserves better
Neha Chamaria (Nio): Shares of Chinese electric vehicle (EV) manufacturer Nio hit an all-time high of $62.84 per share in early 2021. Its dizzying rally didn't last long, though, and the stock came crashing down, with 2022 turning out to be a trying year for investors.
So what went wrong with Nio? Lots of factors, including intense selling in growth stocks, surging COVID-19 cases in China, the threat of de-listing Chinese stocks from the U.S. stock exchanges, and fears of a recession.
Yet, if you notice, all of these are macroeconomic headwinds that Nio could only do so much about, and it's not as if the company has stopped growing for two years. In fact, revenue more than doubled in 2021 to $5.6 billion. The stock, though, continued to sink.
Nio's growth certainly decelerated in 2022, but it was also a hugely challenging year given the unanticipated surge in raw material prices, a shortage of batteries and other key parts, and COVID disruptions. Yet Nio launched the models it planned to in 2022 and delivered a record number of EVs in the fourth quarter, up 60% year over year.
While it's true that Nio stock didn't deserve the heady premium of early 2021, it's also true that it is now trading at a price-to-sales ratio of less than 3, one that it last saw before 2020. This is despite record deliveries, steady revenue growth, and several model launches lined up to take advantage of China's booming EV market. I believe that makes Nio a top EV stock to consider right now.
Beam me up
Keith Speights (Beam Therapeutics): My pick for February admittedly isn't for every investor. Beam Therapeutics is a clinical-stage biotech. It isn't generating any sales at this point. The company continues to burn through cash. If you're not willing to take on considerable risk, don't buy this stock.
That said, I think that Beam could skyrocket in the next bull market. Its shares are down nearly 70% from the high set in mid-2021. Most of this decline is due to the overall malaise for biotech stocks.
However, its stock wasn't helped when the Food and Drug Administration (FDA) placed a clinical hold on Beam's application to advance experimental leukemia therapy BEAM-201 into an early-stage clinical study.
That FDA clinical hold was lifted in December 2022. Beam expects to begin administering BEAM-201 to patients by the middle of this year. The company is also already evaluating BEAM-101 in an early-stage clinical study in treating sickle cell disease. It hopes to file for FDA approvals to begin clinical testing of two other experimental therapies by early 2024.
What makes Beam special? The company is a leader in developing base-editing therapies. Most gene-editing methods, such as CRISPR, are sort of like scissors: They cut part of the genome.
Base editing, though, is more like a pencil with an eraser. This means that base-editing therapies hold the potential for a high level of precision without some of the off-target edits that other approaches sometimes have.
Beam Therapeutics was co-founded by a who's who of gene editing. David Liu and his team invented base editing. Feng Zhang is a pioneer of CRISPR gene editing. J. Keith Joung is an award-winning genetic scientist.
Again, Beam is a speculative, risky stock. But the potential for its base-editing technology is huge. If the company's clinical studies go well, Beam will almost certainly be a multibagger down the road.
Roku is spring-coiled for a massive rally
Anders Bylund (Roku): Media-streaming technology developer Roku should report holiday-quarter results in mid-February. Earnings reports often have market-moving power, and this one looks special.
Anybody who tells you they know exactly what will happen on the stock market in the future is selling something. However, Roku's fourth-quarter report seems likely to crush Wall Street's extremely low expectations, based on evidence from Netflix (NFLX -9.11%).
The video-streaming veteran and longtime Roku partner, formerly known for its iconic red DVD mailers, collected 7.7 million net new subscribers in the fourth quarter. Furthermore, Netflix's management said it was "pleased" with its recently launched ad-supported streaming plan.
That's good tidings for Roku. Keep in mind that weak digital advertising sales and slower subscriber growth across the streaming segment inspired the stock's deep dip in 2022.
Microsoft seemed to undermine this bullish message the week after Netflix's update when it reported "lower than expected" sales of online advertising. However, Microsoft's disappointment still referred to double-digit-percentage growth.
And Roku's stock is spring-loaded like a jack-in-the-box packed with an angry kangaroo. The share price is down 70% from 52-week highs and nearly 90% below the all-time peak in July 2021. Roku shares are changing hands at just 2.2 times trailing sales and 3.4 times cash on hand -- far below the valuation ratios of many traditional value stocks.
That's a big mistake, and Roku's long-term growth story should reward the brave investors who buy in at these rock-bottom prices.
Again, I can't promise that the upcoming fourth-quarter report will release the downward pressure on Roku's tightly coiled shares. But even if it doesn't, I'm sure that your future self will appreciate buying the deeply discounted shares available to your current self.
