Last year was a not-so-subtle reminder that stock market corrections are a normal part of the investing cycle. When the curtain closed on 2022, the benchmark S&P 500 had shed 19% of its value and produced its worst return in 14 years.
But this pales in comparison to the beatdown Wall Street levied on growth stocks. The predominantly technology-driven Nasdaq Composite (NASDAQINDEX: ^IXIC) lost a third of its value last year. Although the near-term outlook for U.S. equities is dicey at best, the drubbing growth stocks have endured has rolled out the red carpet for opportunistic investors to pounce.
If you have both capital to invest (which won’t be needed for bills or emergencies) and the time to see your investment theses play out, the following three innovative growth stocks can quadruple your money by 2033.
The first game-changing growth stock that has the potential to turn an industry on its head and deliver a 300% return in the process by 2033 is cloud-based lending platform Upstart Holdings (NASDAQ: UPST).
Upstart is the literal poster child of euphoria gone bad among growth stocks. Since hitting an all-time high above $400 per share just 15 months ago, Upstart shares have nosedived 96%. The culprit for this drop is rapidly rising interest rates, which have made borrowing money less appetizing for consumers and businesses. Since Upstart’s operating model revolves around vetting loans, the fastest pace of rate hikes in four decades is terrible news.
But just as euphoria sent its valuation to the upside in 2021, excessive pessimism looks to have created an opportunity for growth stock investors to pick up a true innovator at a discount.
Upstart’s secret sauce is its cloud-based lending platform powered by artificial intelligence (AI). Whereas the traditional loan-vetting process can be costly and time-consuming, Upstart’s reliance on AI led to 75% of all loans being fully automated and approved on its platform during the third quarter. It can’t be emphasized enough how powerful a tool it can be to provide loan applicants with quick answers, as well as save lending institutions time and money.
But there’s more to Upstart than simply expediting the loan-vetting process and saving time and money. One of the most interesting aspects of its AI-driven platform is that it’s opened doors for applicants who had previously been shut out of the traditional loan-vetting process. Even though Upstart-approved applicants have lower average credit scores than those that result from the traditional vetting process, the delinquency rates between the two processes have been remarkably similar. What this suggests is that Upstart can widen the pool of customers for its 83 bank and credit union partners without worsening their credit risk.
And if you like large addressable markets, you’re going to love Upstart. For years, Upstart has predominantly focused on personal loan origination. However, it began getting its feet wet last year with auto loan originations and small business loans. On a combined basis, auto loans and small business loans lead to more than $1.4 trillion in yearly originations. That’s about 10 times the size of annual personal loan originations.
Even though the next couple of quarters will undoubtedly be challenging for Upstart, it established a profitable foundation during the previous bull market. Sooner than later, we’ll be back in Upstart’s growth sweet spot once more.
Planet 13 Holdings
The second innovative growth stock that can buck the Nasdaq bear market and help investors see the green — a 300% return, to be precise — by 2033 is U.S. cannabis multistate operator (MSO) Planet 13 Holdings (OTC: PLNH.F).
In early 2021, marijuana stocks were all the buzz on Wall Street. Joe Biden’s presidential victory, coupled with Democrats winning both houses of Congress, was expected to pave the way for federal cannabis reforms. But with the exception of expanded medical research options, any efforts to legalize cannabis or pass banking reforms on Capitol Hill have met with stiff opposition. That’s weighed heavily on Planet 13 and its peers.
But what’s being overlooked is that pot stocks don’t need Washington D.C.’s help to grow or become profitable. While federal cannabis reform would help eliminate certain operating redundancies and likely lower the tax obligations of MSOs, three-quarters of states have legalized medical marijuana.
To add to this point, pot products are typically treated as nondiscretionary goods. What this means is consumers continue to purchase marijuana products regardless of how the U.S. economy performs. In other words, owning pot stocks can be a smart move if a recession were to take shape.
What makes Planet 13 so special is its approach to expansion. Whereas cannabis dispensaries are a dime a dozen in many high-dollar markets, Planet 13’s SuperStore concept is impossible to miss. The company’s Las Vegas SuperStore is bigger than the average-sized Walmart, while the Orange County SuperStore in Santa Ana, California spans 33,000 square feet. These are stores built to make sales as well as provide a personal experience that caters to the nostalgia of cannabis enthusiasts. No other marijuana retailer has come remotely close to matching this operating blueprint.
Planet 13’s other means of rapid growth should come from Florida’s medical marijuana-legal market. Planet 13 is one of 22 MSOs that owns a retail license in the Sunshine State. This license allows operators to open as many dispensaries as they’d like within the state. The initial plan is for Planet 13 to open 14 neighborhood-styled stores spanning 4,750 square feet, with an emphasis placed on selling higher-margin proprietary brands. If adult-use weed is legalized by 2024, it’ll consider opening a SuperStore in Miami.
Being able to offer differentiation in a crowded but fast-growing space is valuable and all the more reason Planet 13 can deliver a 300% return in 10 years.
The third innovative growth stock that’s been beaten down by the Nasdaq bear market and is perfectly positioned to quadruple your money by 2033 is adtech stock PubMatic (NASDAQ: PUBM).
Easily the biggest issue over the past 12 months for PubMatic has been the weakening U.S. economy. With interest rates soaring, advertisers have been paring back their budgets. When the winds of recession begin blowing, it’s normal for this to happen as well as for investors to overreact and pummel any stocks heavily tied to advertising.
But it’s important to understand that this is a two-sided coin. Even though economic contractions, and therefore ad slowdowns, are an inevitable part of the economic cycle, periods of expansion last significantly longer than recessions. Buying ad-driven stocks during recessions has often been a surefire way to take advantage of eventual long-winded bull markets.
What puts PubMatic on this list is the company’s focus on digital advertising. Global digital ad spending is expected to grow by an annualized 14% through 2025, with mobile, digital video, and connected TV (CTV)/over-the-top programmatic ads growing at respective compound annual rates of 20%, 24%, and 27% through 2025.
PubMatic is a sell-side platform (SSP) in the programmatic ad space. In simple terms, this means it helps publishing companies sell their digital display space to advertisers. The thing is, there’s been a lot of consolidation in the SSP arena over the past couple of years. As a result, PubMatic stands out as one of the few choices left for publishers selling their display space.
As I’ve previously noted, a significant percentage of PubMatic’s revenue comes from programmatic ads on CTV. CTV is the fastest-growing digital-ad segment, and it’s helped PubMatic’s organic growth rate handily outpace the industry average.
Furthermore, PubMatic’s decision to design and build its own cloud-based infrastructure, rather than use a third-party provider, should allow it to generate superior operating margins and cash flow as its revenue scales.
With PubMatic debt-free and very profitable on a recurring basis, now is the perfect time for opportunistic investors to strike.
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