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In this article, we discuss some growth stocks with long-term potential. If you want to read about some more stocks with explosive growth potential, go directly to 5 Growth Stocks with Upside Potential.
We prepared the actual contents of this article back in April this year. At that time, we had picked ten stocks with long-term growth potential. Our stock research was based on fundamentals, analyst ratings and hedge fund sentiment. We are publishing this article today to let our readers see whether the Wall Street analysts and the smart money were right or wrong about these stocks.
You will notice that some stocks in this article gained as much as 50% over the past six months, while others went into a free fall. However, when we wrote the article back in April, we had a long-term time window in mind (about 5 years). While most of the stocks in this list kept losing value over the past few months, the bull cases for many of these companies still hold as of today (November 25). We should also keep in mind that most of the growth stocks in the market got crushed this year amid rising interest rates and a broader rotation towards value stocks. When the market begins to turn the corner in 2023 or 2024, many of these stocks could rebound and reward their investors for the patience.
For each stock we have mentioned its performance in terms of percentage over the past six months as of November 25. While these stocks have been battered in 2022, many analysts and hedge funds still see value in them and believe they can rebound in the near future.
Now, let's start our article which we wrote back in April and see what market experts were predicting at that time.
On April 28, the United States Department of Commerce revealed that the US economy had shrunk by an annual rate of 1.4% during the first quarter of 2022, marking a sharp reversal from the nearly 7% annual growth rate registered during the fourth quarter of 2021. This also represented the weakest growth rate since the pandemic panic of early 2020. Some of the reasons for the slower growth included supply chain disruptions, a widening trade deficit, and a slower pace of inventory investment by businesses.
Even though inventory investments fell, the total business spending during the first quarter increased by more than 9%. Consumer spending also continued to grow at a rate of nearly 3%. These figures indicate that the growth patterns seen towards the end of last year will resume soon as inflation peaks. Growth stocks, like Amazon.com, Inc. (NASDAQ:AMZN) Alphabet Inc. (NASDAQ:GOOG), and Microsoft Corporation (NASDAQ:MSFT), have been given a boost by these numbers as well.
For those who cannot afford to invest in these tech giants due to their higher share price, there are several growth firms that have strong catalysts for growth and are trading at a discount in the current market environment. Market experts also predict that the US economy can register modest growth in the second quarter despite a rate increase. Diane Swonk, the chief economist at accounting firm Grant Thornton, told The Wall Street Journal on April 28 that the domestic economy of the US “remained resilient” but was not a “fairytale economy”.
Photo by Austin Distel on Unsplash
10. Sundial Growers Inc. (NASDAQ:SNDL)
Number of Hedge Fund Holders: 8
Stock performance over the past six months through November 25: -31%
Sundial Growers Inc. (NASDAQ:SNDL) produces and sells cannabis products. On April 1, the US House of Representatives cleared the marijuana legalization bill. The bill, known as the MORE Act, was cleared by 220 votes in favor after an hour of debate. If approved by the Senate, the Act will remove cannabis from the list of federally controlled substances. Democrats hold a small majority in the Senate, brightening the prospects of the bill being passed and leading to a rally in the share price of cannabis firms. Growing consolidation within the industry is also likely to act as a growth catalyst for the stock.
Sundial Growers Inc. (NASDAQ:SNDL) posted earnings for the fourth quarter of 2021 on April 28, reporting a revenue of more than C$22 million, up close to 63% compared to the revenue over the same period last year.
At the end of the fourth quarter of 2021, 8 hedge funds in the database of Insider Monkey held stakes worth $10 million in Sundial Growers Inc. (NASDAQ:SNDL), compared to 7 the preceding quarter worth $8 million.
9. Innovative Industrial Properties, Inc. (NYSE:IIPR)
Number of Hedge Fund Holders: 13
Stock performance over the past six months through November 25: -7%
Innovative Industrial Properties, Inc. (NYSE:IIPR) is a real estate investment trust focused on investments in medical-use cannabis facilities. On April 28, the company announced that it had entered into an amended lease agreement with PharmaCann, a national cannabis brand, that will free up $45 million in funding. The funding will be used for the development of an industrial building for cultivation. The firm has also been growing dividend payments for the past four years consecutively, attesting to the solidity of their business model in a growth sector.
In early January, Piper Sandler analyst Alexander Goldfarb kept an Overweight rating on Innovative Industrial Properties, Inc. (NYSE:IIPR) stock with a price target of $285, identifying new investments and cannabis legalization as some of the growth catalysts for the industry.
At the end of the fourth quarter of 2021, 13 hedge funds in the database of Insider Monkey held stakes worth $273 million in Innovative Industrial Properties, Inc. (NYSE:IIPR), up from 12 in the preceding quarter worth $265 million.
8. Inari Medical, Inc. (NASDAQ:NARI)
Number of Hedge Fund Holders: 16
Stock performance over the past six months through November 25: +21%
Inari Medical, Inc. (NASDAQ:NARI) makes and sells devices for the interventional treatment of venous diseases. The company debuted on the market only a few years ago and has made rapid progress since. For example, it only had sales of around $7 million in 2018. This figure rose to $51 million in 2019, $139 million in 2020, and over $276 million in 2021. One of the premier products of the firm is a catheter-based thrombectomy device that has seen a lot of commercial interest as it is more effective than drugs and other therapies for clot-removal.
On March 23, Bank of America analyst Travis Steed initiated coverage of Inari Medical, Inc. (NASDAQ:NARI) stock with a Buy rating and a price target of $105, noting that the firm had pioneered use of minimally invasive products to remove large blood clots from veins.
Among the hedge funds being tracked by Insider Monkey, Connecticut-based investment firm Point72 Asset Management is a leading shareholder in Inari Medical, Inc. (NASDAQ:NARI) with 447,500 shares worth more than $40 million.
In its Q2 2021 investor letter, Baron Funds, an asset management firm, highlighted a few stocks and Inari Medical, Inc. (NASDAQ:NARI) was one of them. Here is what the fund said:
“Inari Medical, Inc. (NASDAQ:NARI) offers catheter-based devices to remove clots from venous thromboembolism (“VTE”), the third most common vascular condition in the U.S. after heart attacks and strokes, and which can be fatal if left untreated. Shares declined during the quarter as high-growth companies with high valuations sold off. We maintain conviction, as the VTE treatment space is still in the very early days of converting to device-based interventions, and we believe Inari is well positioned to benefit.”
7. Upstart Holdings, Inc. (NASDAQ:UPST)
Number of Hedge Fund Holders: 20
Stock performance over the past six months through November 25: -54%
Upstart Holdings, Inc. (NASDAQ:UPST) owns and runs a cloud-based lending platform that uses artificial intelligence. In early March, the company launched a new mobile-first auto retail online platform for car dealers. According to the firm, the new platform will adapt to the mobile usage of customers and to give dealers more options to customize based on the data. The large car firms that support the auto retail initiatives of Upstart include Volkswagen, Toyota, Lexus, Subaru, and Kia. The company, which sold $4 billion worth of vehicles in 2021, has lots of opportunity to expand in this space.
On April 22, Citi analyst Peter Christiansen maintained a Buy rating on Upstart Holdings, Inc. (NASDAQ:UPST) stock but lowered the price target to $180 from $350, noting that the drawdown in the stock was “unjustified” and based on business model misconceptions.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Third Point is a leading shareholder in Upstart Holdings, Inc. (NASDAQ:UPST) with 12.4 million shares worth more than $3.9 billion.
In its Q4 2021 investor letter, Vulcan Value Partners, an asset management firm, highlighted a few stocks and Upstart Holdings, Inc. (NASDAQ:UPST) was one of them. Here is what the fund said:
“Upstart Holdings, Inc. (NASDAQ:UPST) was another material detractor during the quarter. Upstart is an artificial intelligence (AI) and cloud-based lending platform. Upstart uses over 1600 variables in its AI models. Its lending platform delivers lower default rates, higher approval rates, lower rates for consumers, and higher returns on investment for its bank and institutional clients. As former owners of FICO, we believe Upstart has the potential to be the FICO of the 21st century. Recent stock price volatility has given us an opportunity to follow our investment discipline. During the third quarter of 2021, Upstart’s stock price increased significantly, and we materially reduced our position in the company. Following its most recent earnings release, our value increased but Upstart’s stock price began to decline significantly. With a significantly improved price to value ratio, we added to our position in Upstart Holdings, Inc. (NASDAQ:UPST). We simply took advantage of stock price volatility to manage risk in the portfolio and improve our returns and our prospective returns.”
6. PubMatic, Inc. (NASDAQ:PUBM)
Number of Hedge Fund Holders: 20
Stock performance over the past six months through November 25: -20%
PubMatic, Inc. (NASDAQ:PUBM) provides cloud infrastructure for real-time programmatic advertising transactions. It is one of the few tech stocks that are debt-free and over 10% of the market cap of the firm is made up of cash. Even amid a broader lull around growth offerings in 2021, the firm managed an over 53% year-on-year increase in revenue during the period. It also guided for a 25% growth rate in 2022. The operating margins of the firm are also improving and reached 53% in the fourth quarter of 2021, up from 48% in 2020.
On March 16, RBC Capital analyst Matthew Swanson kept an Outperform rating on PubMatic, Inc. (NASDAQ:PUBM) stock with a price target of $38, noting that the market positioning of the firm was underappreciated and it had a long runway of profitable growth.
At the end of the fourth quarter of 2021, 20 hedge funds in the database of Insider Monkey held stakes worth $109 million in PubMatic, Inc. (NASDAQ:PUBM), up from 15 in the preceding quarter worth $33 million.
Along with Amazon.com, Inc. (NASDAQ:AMZN) Alphabet Inc. (NASDAQ:GOOG), and Microsoft Corporation (NASDAQ:MSFT), PubMatic, Inc. (NASDAQ:PUBM) is one of the growth stocks that hedge funds have on their radar.
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Disclosure. None. 10 Growth Stocks with Upside Potential is originally published on Insider Monkey.
