Growth stocks have a high beta, and the price action can be significant even on small positive or negative catalysts. The flip side is that there is a risk of significant wealth erosion in a quick time. The way to eliminate this risk is diversification across blue-chip and growth stocks. However, any deep correction also provides a good opportunity to consider buying quality growth stocks.
This column focuses on three growth stocks that have declined by 50% in the last few quarters. I believe these are quality ideas from the growth space that face temporary headwinds. Once the challenges wane, these growth stocks will likely surge higher.
With the possibility of rate cuts in the second half of 2024, I expect the S&P to trend higher. Further, a broader rally seems to be on the cards, and these growth stocks can rally 50% to 100% in the next two to three quarters.
Li Auto (LI)
Li Auto (NASDAQ:LI) surged to 52-week highs in February. However, the stock has plunged in the last few months and is lower by 50% year-to-date. I see this as a good buying opportunity, with LI stock trading at a forward P/E of 16.1.
The first reason for the correction in the EV stock is the company’s readjustment of growth expectations. Further, with the European Union announcing tariffs on Chinese EVs, industry sentiments have been negative.
However, it’s worth noting that Li Auto has remained focused exclusively on the Chinese markets. There has been some speculation on international expansion. However, if rumours are to be believed, Li Auto is planning an entry into the Middle East.
Among the positives, Li Auto ended Q1 2024 with a robust cash buffer of $13.7 billion. This provides ample flexibility for aggressive expansion in China and investment in innovation. The EV company is targeting to launch level 3 self-driving technology next year. Therefore, the long-term outlook is positive, and deep correction is a good opportunity for accumulation.
Lithium Americas (LAC)
Lithium Americas (NYSE:LAC) is possibly the most undervalued lithium miner after a 56% year-to-date correction. The sharp decline has been due to lower lithium prices and has been accelerated by equity dilution.
At a market valuation of $610 million, Lithium Americas is a steal. The company’s Thacker Pass project has an after-tax net present value of $5.7 billion. Further, once both phases are commercialized, the asset will likely deliver an annual EBITDA of $2 billion. The stock is massively undervalued for this cash flow machine.
Another important point is that the company has received a conditional commitment for a $2.26 billion loan from the U.S. Department of Energy. This is likely to support the construction of the Thacker Pass project. With the project financing gap closed, it’s a matter of time before LAC stock surges higher.
Blink Charging (BLNK)
Blink Charging (NASDAQ:BLNK) stock has been largely sideways in the last two quarters. However, over a 12-month period, the EV charging stock has declined by 54%. The recent consolidation indicates that the stock has bottomed. Given positive business metrics, I expect a sharp rally in the next 12 to 18 months.
It’s worth noting that Blink has been on a high-growth trajectory. For Q1 2024, the company reported revenue growth of 73% on a year-on-year basis to $37.6 billion. I don’t see concerns about top-line growth with ample scope for penetration in the U.S. and Europe.
However, the concern was sustained cash burn. This challenge has been addressed, and Blink has guided us toward a positive adjusted EBITDA by December. I believe EBITDA margin expansion will likely sustain in 2025 on the back of operating leverage and higher services (recurring) revenue. With these positives, BLNK stock is likely to rally from oversold levels.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.