These 3 Growth Stocks Are on Sale Right Now

By David Jagielski, The Motley Fool, Trades Of The Day, 2024-06-21

Don't let the S&P 500's soaring valuation and record levels convince you that all or even most stocks are expensive right now — that's far from the case. There are some stocks trading at significantly reduced valuations which could make them enticing buys, especially if you're planning to hold on for the long haul.

Three stocks which you can buy on sale today and that have promising growth prospects include Tesla (TSLA), Snowflake (SNOW), and Shopify (SHOP). Here's why investing $5,000 into these stocks can be a good move to make right now.

1. Tesla

Electric vehicle (EV) maker Tesla used to be a $1 trillion company. Today, its valuation sits at just under $600 billion. There are plenty of reasons to be bearish on the business — its margins are shrinking, competition is intensifying, and the stock still isn't cheap, trading at more than 45 times its trailing earnings.

But there are also plenty of reasons to remain optimistic, too. Tesla is a big name in the EV market, which could position it for success amid the industry's growth despite cheaper options out there. The strong brand it has built up over the years could do for its higher-priced vehicles what Apple‘s brand has done for its premium-priced phones, which is to ensure that demand remains resilient even as competition increases.

There's also the potential for interest rates to come down within the next year. Under more favorable economic conditions, consumer demand may strengthen, leading to better results for Tesla.

Tesla's sales were down 9% for the first three months of 2024, totaling $21.3 billion. And while profits plunged by 55%, the company still posted a decent profit of $1.1 billion, which was a respectable 5% of revenue. It won't be an easy path by any means for Tesla, but with the stock down 27% this year, it could make for an intriguing option for contrarian investors.

2. Snowflake

An even worse-performing stock this year than Tesla is Snowflake. The data-storage stock has faced some unexpected adversity after CEO Frank Slootman announced his retirement earlier this year. Sridhar Ramaswamy, who previously worked at Alphabet-owned Google, has taken over, but investors have remained bearish on Snowflake's stock nonetheless.

A change in CEO can ruffle some feathers as investors try to gauge what that might really mean for the business. But Snowflake remains a promising tech stock to buy. In its first-quarter results for fiscal 2025, which ended on April 30, the company's revenue totaled $828.7 million and rose 33% year over year. And Snowflake expects up to 27% growth for the current quarter.

As more companies need data-storage solutions and artificial intelligence-related analysis, Snowflake can continue to benefit from high levels of demand. The one knock on the business is that it remains unprofitable, and that does pose a risk. But the company generates positive free cash flow, which is a good sign that it can continue to reinvest in its growth and long-term prospects.

I believe investors overreacted to the CEO change earlier this year, and that can make Snowflake an underrated buy right now.

3. Shopify

Shopify has been the best-performing stock on this list even though its shares are down 16% this year. The stock has been rallying recently as investors have likely started to realize the value it possesses, particularly in the long run and as economic conditions improve.

In the first three months of the year, Shopify reported revenue of $1.9 billion, which rose by 23% year over year. The company also posted an operating profit of $86 million, which was a significant improvement from its operating loss of $193 million in the prior-year period.

Being a big name in e-commerce, Shopify has firmly established itself as a top player in the industry. It has proven that it can compete even among a giant such as Amazon. Remarkably, the two companies have even partnered together, and Shopify merchants can offer a “Buy with Prime” option in their stores.

At less than $90 billion in market capitalization, Shopify is a stock which could get a whole lot bigger in the future. Investing in it now while it's on sale can be a great move for growth investors.

— David Jagielski

Source: The Motley Fool

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