Growth Stocks: A Once-in-a-Decade Opportunity to Get Rich

Growth stocks are generally cheap now. So, this year is a good opportunity to shop for growth stocks, perhaps through ETFs.

Kay Ng

Kay began investing in dividend stocks around 2008 via the concept of value investing. Since then, she has expanded into growth investing, including in small caps. Her passion for investing has only grown over the years! After graduating from UBC with a BSc in Computer Science, she took university courses in financial markets, finance, and financial accounting. She has contributed her works to Motley Fool, Sure Dividend, and Seeking Alpha.

Published March 29, 2023 2:30 pm EDT

| More on: NVEITIXT

Growth stocks haven’t been this cheap in a decade. The selloff in growth stocks last year was triggered by rising interest rates, which has increased the cost of capital. Essentially, it’s costlier for businesses to fund growth. That said, here are a couple of growth stocks that could handsomely reward investors in the coming years.

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TELUS International stock

TELUS International (TSX:TIXT) is one of TELUS’s growth engines. Unlike some growth stocks, the company is actually profitable and generates decent cash flow. Particularly, from 2019 to 2022, TELUS International increased its revenue by 142% to US$2,468 million, increased its net income by 165% to US$183 million, grew its operating cash flow three-fold to US$437 million, and increased its free cash flow 3.7-fold to US$332 million.

Like other growth stocks, last year was a slower year for TELUS International — at least for its revenue. It witnessed revenue growth of 12%. However, it managed to increase its operating cash flow and free cash flow by 55% and 81%, respectively.

TELUS International operates in 28 countries, servicing clients in various industries: communications and media, travel and hospitality, e-commerce, technology, fintech and financial services, games, and healthcare. The company provides end-to-end IT service solutions from idea generation to user experience or user interface design to the final delivery of the solution.

At $27.38 per share at writing, TELUS International trades at about 16.6 times adjusted earnings, while it has the potential to grow at a double-digit rate over the next three to five years. Analysts believe the growth stock is discounted by about 26%, which implies 36% upside potential over the next 12 months.

Nuvei stock

Since hitting a rock bottom in late December 2022, Nuvei (TSX:NVEI) stock has already started turning around. The tech stock has climbed more than 70% from the bottom! Its price-to-earnings ratio appears to be outrageously high at about 98. However, the fact that it trades at about 20 times cash flow seems to be a much more reasonable valuation.

Last year, the stock “only” experienced revenue growth of 16%. As well, it was able to marginally increase its operating cash flow, while its free cash flow fell 8%. In other words, it was a slow year for the company.

Looking at a longer time frame, from 2019 to 2022, Nuvei increased its revenue by 243% to US$843.3 million, grew its operating cash flow 12-fold to US$267.7 million, and grew its free cash flow 18-fold to US$219.3 million.

At $56.54 per share at writing, analysts believe Nuvei stock is discounted by about 24%, which implies 31% upside potential over the next 12 months.

A subsequent economic expansion period, likely signaled by declining interest rates, could trigger another period of substantial growth for these tech stocks.

Also consider growth ETFs that are more diversified

It can be risky to buy individual growth stocks. Investors can reduce risk and gain exposure to growth stocks via growth-oriented exchange-traded funds (ETFs) such as SPDR Portfolio S&P 500 Growth ETF and iShares Russell Mid-Cap ETF. The first ETF’s top holdings include Alphabet, Amazon, Apple, Microsoft, Tesla, UnitedHealth, and Visa. Also, it’d be less work to add to ETF positions over time.