A bull market in stocks is coming. One might even say that it’s forming now. Since hitting a bottom in October 2022, stocks have rallied, with the TSX Composite Index having gained 7% from the lows. We still have a ways to go before we can declare that a new bull market has arrived, but it does look like one is taking shape.
What kinds of stocks would be most suitable to buy in an environment like this one?
There are many options, but growth stocks would have to be near the top of the list. Growth stocks, especially tech stocks, were the category of equities that fell the hardest in the 2022 bear market. Since they are the most beaten-down stocks at the moment, they probably have the most bargains among their ranks.
In this article, I’ll explore three growth stocks that may be worth buying ahead of the next bull market.
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Kinaxis
Kinaxis (TSX:KXS) is a growth stock that I have considered buying. It is a supply chain management software company that helps people manage their essential business functions. Its software uses artificial intelligence (AI) to help businesses predict variables that are relevant to managing their supply chains. For example, Kinaxis’s demand planning feature can forecast times when customers are likely to be buying in high volumes, so that the user can budget for an increase in inventory on those dates.
How is this strategy working for KXS? It’s going pretty well, it seems. In the company’s most recent quarter, revenue grew 44%, gross profit grew 40%, and net income swung from a loss to a $0.30-per-share profit. The stock is certainly not cheap, trading at 86 times earnings and 10 times sales. However, the growth is really spectacular.
Taiwan Semiconductor
Taiwan Semiconductor Manufacturing (NYSE:TSM) is a Taiwanese company that manufactures computer chips. It does not design chips, it takes the designs from manufacturers, builds the chips based on the blueprints, then sells them to the manufacturer that ordered the chip. This might seem like a straightforward business model, but TSM is better at it than any of its competitors are, controlling a whopping 60% of the market.
This year, many semiconductor companies are struggling with declining sales and earnings. Not TSM. In its most recent quarter, its revenue increased 43%, and its earnings increased 78%. That’s some pretty solid growth, yet TSM trades at a mere 15 times earnings. It’s definitely a combination of growth and value that you don’t see very often.
PDD Holdings
PDD Holdings (NASDAQ:PDD), better known as Pinduoduo (the name of one of its services), is a Chinese e-commerce company. It is best known in North America for the app Temu, which allows customers to buy deeply discounted Chinese products and have them shipped to their doorstep reasonably quickly. The app launched just last September, and it seemed to do well post-launch: it quickly reached the number one spot on the U.S. app store charts.
Is that translating into good earnings for PDD Holdings? Tentatively, it seems like the answer to that question is yes. In its most recent quarter, PDD’s revenue increased 43%, its operating income increased 32%, and its adjusted earnings increased 46%. It’s hard to say how much of that growth came from Temu, but whatever way you look at it, PDD is a growing company. It doesn’t hurt that it only trades at 20 times earnings, either!
