While the broad market may be uncomfortably near record highs right now, this isn't the case for every stock. Some tickers not only didn't get swept higher by the recent marketwide rally, but they are trading down from their peak prices. Fortunately, it's likely for reasons that won't last.
Here are three discounted growth stocks you might want to consider buying while they're still trading at sale prices. Their long-term bullish cases are still well intact.
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1. Roku
If you've been keeping tabs on Roku(NASDAQ: ROKU) of late then you likely know a budding rebound was upended at the end of last month. Although its third-quarter sales and its earnings before interest, taxes, depreciation, and amortization (EBITDA) were both up year over year and its top and bottom lines each topped expectations, guidance for the quarter now underway was disappointing. The company forecasted revenue of $465 million versus the analysts' consensus forecast of $477 million, while Roku's projected Q3 EBITDA of $30 million is short of analysts' expectation of $36.2 million. The immediate post-earnings sell-off now leaves Roku shares 28% below their late-2023 high, and down 84% from their 2021 peak price.
However, the market is missing a couple of key things about this company's business.
First, Roku is in the habit of topping estimates regardless of its guidance. In fact, not counting the unpredictable years of 2022 and 2023 -- when the company was also logging regular losses by investing heavily in its future growth -- Roku has reliably beat analysts' consensus earnings estimates.
And the second (and much bigger) point many investors are underappreciating? The reach of Roku's streaming ecosystem.
As of Pixalate's most recent look, Roku accounts for 37% of North America's connected television market. The next nearest noteworthy rival is Amazon's FireTV platform, but at only 15% market share it enjoys less than half of Roku's domestic reach. Roku's also doing very well in overseas markets like Latin America, where it's made a concerted effort to establish itself.
Being the brand name behind the continent's most popular streaming platform is only half the bullish argument though. Roku is also part of the streaming content landscape. Numbers from TV-ratings service Nielsen say The Roku Channel is more watched within the U.S. than Warner Bros. Discovery's HBO Max or Paramount's Paramount+. That's not insignificant for Roku's home-grown ad-supported streaming service.
Of course, Roku is just riding the ongoing growth of the streaming business, which Precedence Research reports is set to grow at an average annual pace of 21% through 2034.
2. Plug Power
After years of losses and poor performance from its stock, in 2020 it finally looked as if Plug Power(NASDAQ: PLUG) was turning the corner. Shares rallied from less than $2 then to an early 2021 high of $75.49, with pandemic-prompted lockdowns providing investors plenty of time to fall in love with the idea of turning hydrogen fuel into electricity.
The bullishness wouldn't last though. Shares have since given up all of that gain, with investors recognizing that profits remain elusive.
The market has become even more pessimistic about Plug Power's prospects since Donald Trump's election, as the president-elect appears to be more in favor of proven fossil fuels and has openly derided hydrogen fuel as being dangerous. The company's recently ended Q3 results didn't help either. Not only was revenue of $173.7 million down 12% year over year, but it also fell short of the $207.8 million analysts were expecting.
As difficult as it may be to step into a stake in this seemingly struggling company right now, however, the 97% pullback from its 2021 peak may be a prime opportunity to dive in.
See, hydrogen fuel cells like the ones Plug Power manufactures are a key component of energy's future. This type of electricity production leaves no carbon footprint. Although it takes energy to split water into oxygen and hydrogen used by fuel cells to generate electricity, the necessary electrolysis process can be achieved using similarly clean energy sources like solar, or even nuclear power. Hydrogen fuel cells can then be used to electrically power practical equipment like forklifts, automobiles, and even buildings.
So far consumer and institutional interest in this environmentally friendly alternative has been modest. We could be at a turning point though. An outlook from Straits Research suggests the global fuel cell market is poised to grow at an annualized pace of nearly 26% through 2032, with most of this growth taking shape during the latter half of this time frame.
3. Arm Holdings
Finally, when most investors think of computer processors, names like Intel, Qualcomm, and Nvidia come to mind. And understandably so. Their chips are not only found in most personal computers, but they also serve as the brains of many data centers.
As time marches on though, the limitations of Intel's and Qualcomm's architectures are turning into outright hurdles. Developers are finding alternative processing platforms like those offered by Arm Holdings(NASDAQ: ARM) are better suited for certain applications. Chief among Arm's advantages is greater power efficiency, which in turn makes them well suited for use in mobile devices doing heavy-duty artificial intelligence (AI) work. That's a big reason Apple chose Arm processors for its new AI-capable iPhones.
Interest in Arm's technology doesn't end there, however. As the development of Arm-based processors progresses the world is increasingly using them in data centers instead of silicon made by the aforementioned Intel and Advanced Micro Devices. Even Apple itself is reportedly venturing into these waters by designing its own data center silicon around Arm's architecture.
And well it should. Apple's license to use Arm's intellectual property is good until at least 2040.
In this vein, it's important to understand that Arm is predominantly a licensor of intellectual property, as opposed to being a foundry or manufacturer. This means it only generates a modest amount of revenue relative to the rest of the chipmaking industry.
It's consistent and consistently high-margin revenue though, fueled by the fact that about half of all the world's processors -- often the ones you don't think about -- are Arm-based, while nearly 100% of all smartphones use some sort of Arm processor. The stock's 28% pullback from July's high is apt to be a short-lived buying opportunity.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. James Brumley has positions in Warner Bros. Discovery. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Apple, Intel, Nvidia, Qualcomm, Roku, and Warner Bros. Discovery. The Motley Fool recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
