2 Growth Stocks Bay Street Might Be Sleeping On, but I’m Not

I’m not sleeping on Taiwan Semiconductor (NYSE:TSM) stock. Shopify (TSX:SHOP) is a Canadian stock with similar growth rates.

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Bay Street seems to be sleeping on many growth stocks. If you look at the typical bank-offered mutual fund, you’ll see that it’s stuffed with a lot of large cap banks, utilities, and energy companies. Not that there’s anything wrong with such companies, but growth is lacking in many “defensive” portfolios of which they are a part. In this article, I will explore two growth stocks that Bay Street is sleeping on, though I am not.

Taiwan Semiconductor

Taiwan Semiconductor Manufacturing (NYSE:TSM) is a Taiwanese semiconductor manufacturing company that has done some impressive growing this year. In its most recent quarter, it delivered:

  • $18.3 billion in revenue, up 16.5%.
  • $1.40 in earnings per share (EPS), up 8.9%.
  • A 53.1% gross margin.
  • A 42% operating margin.
  • A 38% net margin.

Pretty good numbers. Revenue and EPS both topped analysts’ expectations, and the stock rose after earnings came out. As NVIDIA’s contract manufacturer, TSM takes a partial share in that company’s AI-fuelled success. It’s a pretty good company to bet on if you want something like NVIDIA but cheaper.

PDD Holdings

PDD Holdings (NYSE:PDD) is a Chinese e-commerce company that just put out a phenomenal earnings release. The company grew its revenue 131% and earnings 200% year over year in the first quarter. Both figures were well ahead of what analysts expected. PDD’s trading was lukewarm on the day its earnings came out, possibly because analysts who researched the stock thought the numbers were too good to be true. The EPS result was around double what analysts had expected, so it was natural to be suspicious. However, a day after earnings day, the stock rallied by more than 5%, continuing the gains into Friday. It was a pretty good showing from China’s rising e-commerce star.

A Canadian growth star

Although I don’t personally own shares in it, Shopify Inc (TSX:SHOP) is a Canadian e-commerce company that shares some characteristics with the companies mentioned above. The company has high growth, is profitable, and is something of a “unicorn” among Canadian tech companies.

In its most recent quarter, Shopify delivered:

  • $61 billion in gross merchandise volume, up 23%.
  • $1.9 billion in revenue, up 23%.
  • $151 million in monthly recurring revenue, up 32%.
  • $957 million in gross profit, up 33%.
  • $232 million in free cash flow, up 86%.
  • Guidance for high-teens percentage growth in the year ahead.

On the whole, the numbers were pretty good. They didn’t kick off a big rally in Shopify’s stock, but they were encouraging enough to provide hope that Shopify will continue growing into the future.

Foolish takeaway

Bay Street doesn’t seem to be betting on the companies of the future, but many individual investors are. Personally, I have a few “innovative” growth names in my portfolio, including two of the three mentioned in this article. I don’t think “innovation” is worth an infinite price, or that most investors should hold nothing but tech. But certainly, you need at least a little of it in your portfolio if you want to realize high returns.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has positions in Taiwan Semiconductor Manufacturing and PDD Holdings. The Motley Fool has positions in and recommends Shopify. The Motley Fool recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

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