The TSX Composite Index surged 2.8% in the first week of May as hopes of interest rate cuts in June revived. The remainder of the month will see the influx of first-quarter earnings that could drive the stock prices of individual stocks. However, the market will remain volatile depending on the developments in the war situation in the Middle East. The last four months of 2024 showed the same volatility as in 2023.
The March inflation numbers of the United States raised concerns that the Fed might slow its 2024 interest rate cuts to just one. Economists earlier expected three rate cuts in 2024. These concerns pulled down a rallying TSX. However, a new hope of a June rate cut has revived the market. Despite all the volatility, the TSX Composite Index has surged 7% so far this year.
This growth stock has market-beating potential
Investors hope the market will come out of its bearishness and return to its growth trajectory. One stock that has the potential to beat the market and grow your invested amount is Hive Digital Technologies (TSXV:HIVE).
What makes HIVE a high-growth stock? Its volatility, small market cap, and exposure to two fast-growing segments of artificial intelligence (AI) and Bitcoin mining. HIVE has a market cap of $300 million and a beta of 4.3. Beta is a measure of volatility. The market has a beta of 1. Any stock with a beta above 1 shows that it is more volatile, and Hive is 4 times more volatile than the market.
Behind its volatility is the significant dependence on Bitcoin. Although Hive has ventured into providing its graphic processing units (GPU) – based in data centres to support AI computing – Bitcoin mining remains its core revenue generator. The profit margins fall as Bitcoin mining gets tougher. However, Hive has an early-mover advantage because of which its inventory has earlier high-margin Bitcoins mined.
The company is now looking to grow its revenue from AI computing, which could reduce the volatility and put it on a growth path. I have always said HIVE stock is a buy at or below $4. Looking at the past trajectory of crypto, it tends to do well in a strong economy, and HIVE stock moves in tandem with Bitcoin prices. HIVE stock has dipped 20% since late April to below $3.30 as Bitcoin prices fell. It could surge above $6 as the global economy shows signs of strength, an 80% upside.
How to invest in this growth stock
HIVE is a volatile stock. So be careful not to invest a significantly huge amount in it. You can adopt a dual investing strategy with HIVE. Since it’s a cyclical stock, buying below $4 and selling above $6 can bring you short-term gains. However, do not make these short-term investments through your Tax-Free Savings Account (TFSA). The Canada Revenue Agency (CRA) doesn’t allow trading in the TFSA, and several transactions could attract the CRA’s attention.
If you are investing through the TFSA, you can keep adding HIVE shares whenever the price falls below $4. After four to five years or in the next crypto bubble, you could consider selling all shares in this company.
Hive has a strong balance sheet that can help it withstand setbacks like the Ethereum merge. And Hive has exposure to the safest crypto coin, which has the status of digital gold.
Investor takeaway
Hive could help you diversify your portfolio across alternate asset classes, giving your investment a chance to grow in every economic scenario.
