A Bull Market Is Coming: 3 Growth Stocks That Could Thrive

These growth stocks all trade undervalued and have tonnes of long-term potential, making them some of the best to buy while they’re cheap.

| More on:

With interest rates nearing their peak this year as inflation has rapidly cooled off, policymakers are still hopeful that the economy can experience a soft landing. If that’s the case, the market could rebound and begin to rally sooner than expected, lifting the valuations of all stocks, especially high-quality growth stocks that are trading ultra-cheap in this environment.

Growth stocks have been some of the hardest-hit stocks in this environment for several reasons.

First off, higher interest rates not only make it more difficult for a lot of these companies to fund their growth, but they also make dividend stocks and bonds more attractive, causing growth stocks to fall significantly in value.

In addition, in this uncertain environment, many investors are looking to shore up their portfolios and buy more reliable and defensive stocks rather than higher-risk growth stocks.

Another reason is that prior to a market downturn, many of these growth stocks trade with significant premiums. So as uncertainty picks up and their growth potential slows down in a worsening economy, naturally, their valuations are impacted more significantly than stocks that didn’t have as much of a premium.

Therefore, since growth stocks are some of the cheapest companies on the market today, they’ll inevitably have some of the best recoveries as the market rebounds.

And even if we don’t get a soft landing, economic cycles are natural, so eventually, there will be a recovery and a bull market to follow.

Therefore, while you can buy high-quality growth stocks at ultra-cheap valuations, they’re some of the best investments to make. And while there are numerous stocks trading undervalued today, here are three of the best to consider buying now.

One of the top residential REITs in Canada

Although some growth stocks are certainly riskier than others, there are some that are reliable, such as a residential real estate stocks like InterRent REIT (TSX:IIP.UN). IIP.UN still trades undervalued and could rally significantly in a bull market.

With rapidly rising interest rates over the last year and a half, it has become more expensive for InterRent to operate its business, especially considering it’s consistently investing in growth.

The REIT is constantly looking to add new properties to its portfolio, or invest in its existing properties to increase their value and the income that they can generate.

Therefore, while this stock trades off its highs, and without such a significant growth premium, it’s one of the best to buy now.

Over the last five years, InterRent’s average forward price-to-adjusted funds from operations (P/AFFO) ratio was 31.5 times. Today, however, it trades at a P/AFFO ratio of just 25.5 times.

Plus, when the economic environment improves, its earnings are expected to jump significantly, bringing its valuation down even more, which is why it’s one of the best growth stocks to buy now.

Two impressive growth stocks to buy and hold for the long haul

Canadian Tire (TSX:CTC.A) has always been a popular retailer in Canada and one of the best-known brands. However, in recent years, it has really begun to show what a high-quality company it can be, and how much growth potential it has.

It even performed exceptionally well through the pandemic, when many of its retail competitors struggled.

In the current environment, though, the stock is being temporarily impacted. Therefore, while you can buy it ultra-cheap, it’s one of the best investments you can make today.

Analysts expect that by 2025 it will be able to generate normalized earnings per share of more than $20.

And considering that over the last 10 years, it averaged a forward price-to-earnings (P/E) ratio of 12.8 times. If Canadian Tire could reach that valuation again as both the market and economy recovered, its share price could climb to more than $250.

goeasy (TSX:GSY) is another impressive stock that’s trading dirt cheap today. After growing its sales by more than 110% over the last five years, investors are now worried that the current economic environment could impact profitability.

So far, however, the specialty finance company has continued to prove how robust its loan book is and kept its charge-off rates in line with targets.

Therefore, while it trades at a forward P/E ratio of just 7.4 times, it’s easily one of the best growth stocks to buy today.

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 Daniel Da Costa has positions in goeasy. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Investing

Man data analyze
Tech Stocks

3 Reasons Celestica Stock Is a Screaming Buy Now

These three reasons make Celestica stock a screaming buy for long-term investors.

Read more »

profit rises over time
Dividend Stocks

These 2 Dow Stocks Are Set to Soar in 2025 and Beyond

Two Dow Jones stocks are screaming buys but Canadians must hold them in an RRSP or RRIF to avoid paying…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Use Your TFSA to Earn Ultimate Passive Income

If you have a TFSA, then you have the key to creating ultimate passive income. All you need is a…

Read more »

Confused person shrugging
Dividend Stocks

Better Buy: Fortis Stock or Hydro One Stock?

Let's do a compare and contrast of these two top utilities stocks right now, shall we?

Read more »

A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies."
Dividend Stocks

Boost Your Passive Income: 2 Canadian High-Yielders at a Bargain

Nutrien (TSX:NTR) stock and another play that appear like fantastic dividend bargains in mid-November.

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Metals and Mining Stocks

Invest $7,000 in This Dividend Stock for $672 in Passive Income

High yield can be an essential requirement when you need to start even a modestly sized passive income with a…

Read more »

telehealth stocks
Tech Stocks

Well Health Stock: Buy, Sell, or Hold?

Another record-breaking quarter and strong demand sets the stage for continued momentum for Well Health stock.

Read more »

3 colorful arrows racing straight up on a black background.
Dividend Stocks

TSX Stocks Soaring Higher With No Signs of Slowing

Three TSX stocks continue to beat the market and could soar higher in an improving investment landscape.

Read more »