Recently I started to believe that my bullishness about many growth stocks, including some that aren’t yet profitable, was entirely misplaced.
After all, I thought, so many experts and large investors obviously believe that, due to the recent increase in Treasury yields, the vast majority of tech firms without huge amounts of cash will definitely underperform, while all unprofitable companies are doomed. But then I remembered that many experts and market participants, invoking the once-ubiquitous “Don’t fight the Fed” slogan, were 100% sure last year that the Fed’s hikes would lead to a ruinous recession and a drop of the S&P 500 to the 3,000 to 3,200 level.
Of course, neither scenario materialized.
Given this history, I believe that I, along with a few experts, could be on track when we say that the market’s worries about a roughly one percentage point increase in bond yields are way overdone. Anyway, if you agree with my contention that companies with great products can thrive even if rates are a percentage point higher than in July, here are three growth stocks to consider buying.
ServiceNow (NOW)
I’ve long been upbeat on ServiceNow (NASDAQ:NOW), citing the company’s ability to reduce its corporate customers’ costs and its high exposure to AI.
Somewhat validating my thesis, investment bank Baird on Oct. 18 predicted that the firm would report “strong” third-quarter results on Oct. 25. Among the reasons for the bank’s optimism are overall “sentiment and demand trends,” along with NOW’s track record of conservatism when it comes to guidance. Moreover, Baird reported that the U.S. federal government is buying a significant amount of NOW’s products.
If Baird is correct, NOW should report strong Q3 results, leaving NOW stock as one of the growth stocks that’s well-positioned to beat the market this quarter.
And boding well for NOW’s outlook, Germany-based SAP (NASDAQ:SAP), another major firm in the cloud software sector, recently reiterated its forecast of 23%-24% revenue growth in 2023.
Powell Industries (POWL)
According to the International Energy Agency, the amount of money spent on global power grids has to double by 2030 for the world to meet its “climate and clean energy commitment.”
Meanwhile, in the U.S., the Bipartisan Infrastructure Law allocates $65 billion for grid improvements, and the Biden administration recently announced that it would spend $3.45 billion on 58 initiatives that will enhance America’s electric grid.
Powell Industries (NASDAQ:POWL) provides products used to distribute, control, and monitor electricity flows. After the company reported stronger-than-expected second quarter results on Aug. 2, it has greatly outperformed the stock market, climbing from $61.29 on Aug. 1 to $89.41 on Oct 11.
POWL has since pulled back slightly. But given the large amount of money that will be spent globally and nationally to enhance electric grids, I expect POWL stock to rebound tremendously for the rest of 2023.
Roku (ROKU)
Investment bank Evercore recently added Roku (NASDAQ:ROKU) to its “Tactical Outperform list,” as the bank expects Roku to outperform in the near term. The investment bank noted that the stock had fallen 17% between mid-June and Oct. 21, even though “2023 Revenue and EBITDA estimates have risen three times” for the company during that period.
Moreover, Evercore believes that Roku’s Q3 results will beat analysts’ average expectations, with its sales climbing 15% year-over-year, representing the high end of its guidance range. The bank also believes that Roku’s EBITDA can surpass analysts’ average estimates next year.
In previous columns, I’ve noted that I expect Roku to benefit from several positive catalysts, including its commanding position in the streaming operating system market, the increased demand for streaming, and an improved U.S. ad market.
On the date of publication, Larry Ramer 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.
