When the Market Gets Going Again, These 3 Growth Stocks Will Likely Lead the Charge
Today, I’m going to reveal three candidates that I think will be among the next crop of future growth stock leaders. But to talk about the current market environment, I’m going to open with one of my favorite investing quotes ever.
It comes from Jesse Livermore, but it doesn’t concern trading strategies or stock picking criteria, but just how weird the stock market can be and how mentally challenging it is. This is from his book, Reminiscences of a Stock Operator:
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“I sometimes think that speculation must be an unnatural sort of business, because I find that the average speculator has arrayed against him his own nature … The speculator’s chief enemies are always boring from within. It is inseparable from human nature to hope and to fear.
“In speculation when the market goes against you, you hope that every day will be the last day—and you lose more than you should had you not listened to hope—to the same ally that is so potent a success-bringer to empire builders and pioneers, big and little. And when the market goes your way you become fearful that the next day will take away your profit, and you get out—too soon. Fear keeps you from making as much money as you ought to.
“The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping he must fear; instead of fearing he must hope.”
I can vouch for Mr. Livermore here—I’ve been deeply involved in the stock market game for more than 20 years now, and I can tell you it plays with your “regular” psyche. For instance, when I see a headline that says, “Consumer Confidence Reaches 15-Year High” or see someone on Twitter preaching about his/her performance, the first thing that pops into my head is: “Hmm—sentiment is getting a bit complacent out there, which might not be good for the market.” Instead of getting giddy, I pull in a bit.
But the converse is also true, which plays into the current environment: While it’s never fun to lose money, I actually perk up a bit as everyone else gets dour and the headlines are bearish (Inverted yield curve! Recession! Tariffs!). The reason is that I know another uptrend is coming sooner or later, and also because weak markets make it easier to identify strong growth stocks—they’re the ones refusing to go down!
Don’t get me wrong—I never root for the market to go down. But the market doesn’t care what anyone wants, so when it does enter into a correction, I pick up my screening to stay on top of what stocks are being accumulated by institutional investors even in the face of worrisome macro events.
Thus, my Cabot Wealth Daily column this week is keeping it simple and straightforward—I’m going over three growth stocks that have solid stories, good numbers and act like they want to head higher … if the market can get out of its own way. As I frequently write, good stocks can go bad in a hurry in bad markets, so don’t take this as a bunch of buy recommendations. But at this point, these are three names that could be part of the market’s leadership parade for the next uptrend. I’m calling them three future growth stock leaders.
We’ll go in alphabetical order:
3 Future Growth Stock Leaders
Future Growth Stock Leader #1: Carvana (CVNA)
Story: Carvana is looking to upend the gigantic used car industry ($764 billion!) by selling cars online, offering customers better selection (more than 10,000), a best-in-class website (360-degree views, exterior and interior), financing, trade-in offers and, oftentimes, next-day delivery.
Numbers: Revenues have been growing at triple-digit rates for a while (up 107% in Q2), and while the bottom line is still deep in the red as the firm invests in new reconditioning facilities and logistics, some sub-metrics (gross profit up 181% last quarter) show promise.
Chart: CVNA plunged 60% during the market’s implosion last year, but that was followed by a giant-volume advance (notice all the big black weekly volume bars in February and early March) through April, a reasonable three-month sideways consolidation and then another round of major buying following the Q2 report. Further wobbles are possible if the market has another leg down, but CVNA certainly looks like it wants to head higher.
Future Growth Stock Leader #2: Guardant Health (GH)
Story: You won’t find many growth stories bigger than this: Guardant is slowly replacing the standard of tissue biopsies with liquid (blood) biopsies, with a platform (dubbed 360) that has similar ID rates as tissue biopsies for many cancers, yet are obviously non-invasive and get results back in about half the time.
Numbers: As with Carvana, Guardant is losing money, but revenue growth is off the charts, up 120% and 179% over the past two quarters. The company has just a single-digit market share in its core market (testing for those who already have cancer), with the total market north of $6 billion—i.e., there’s a very long runway of growth here.
Chart: GH built a nice post-IPO base and then went vertical in February and March before the inevitable sharp pullback. But instead of wallowing, GH has been trending higher since early May—including a nice pop to new highs after earnings two weeks ago. And it continued to trade firmly despite the market’s volatility.
Future Growth Stock Leader #3: Pinterest (PINS)
Story: While Facebook (FB) has its struggles, some newer social media platforms are thriving. Snap (SNAP) is one we’re high on, and another is Pinterest, which offers a visual-based platform for users to find ideas (everything from recipes to hairstyles to room layouts to ribbons for girls cheerleading), while allowing sellers (many small businesses, but some big ones too) chances to offer ideas—and links to products, too.
Numbers: Pinterest ended June with 300 million active users, 225 million of which are overseas. And it’s continuing that trend, opening six more international markets, and behind the scenes, improved its ad system for clients. The result is a pickup in monetization, with revenues surging between 54% and 64% during the past four quarters, while earnings are just shy of breakeven. Also impressive: Despite being a recent IPO, PINS has nearly $150 million of trading volume per day, a strong sign that institutions are involved.
Chart: PINS came public in April and after an initial pop etched a good-looking post-IPO base through much of July. The earnings reaction was excellent earlier this month, and while it’s been choppy, the stock has given up none of those gains despite the news-driven stock market of the past few weeks. In fact, it looks like it wants to break out on the upside!
Of course, there are many other resilient growth stocks out there, and when the time is right, I’ll begin to move back into some of them. (That time might be closer than many think based on my market timing indicators.) But these three future growth stock leaders are definitely among those that should be near the top of most investors’ shopping list.