In this article, we discuss the 10 cheap growth stocks to buy today.
Growth stocks have enjoyed a record bull run at the market in the past few years, outperforming their value counterparts by the widest margins since the dotcom era at the turn of the millennium. Even though growth equities retreated a bit in the past few months as inflation fears rose, they have since staged a comeback as a new variant of COVID-19 sweeps the world and prompts lockdowns. Business news platform CNBC has released a Next Generation 50 Index to mark the rise of tech companies across the globe.
Some of the top growth stocks in this index include Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), and Alphabet Inc. (NASDAQ:GOOG), among others. These stocks provide services that are key to the global economy as well as the personal and professional lives of the young generation. Jim Cramer, a former hedge fund manager and host of Mad Money on CNBC, has termed these companies “senior growth stocks” but highlighted some “higher risk, higher reward” options as well.
As the valuations of tech giants cross into the trillions, a lot of investors who cannot afford these expensive stocks are looking towards cheaper companies to load their portfolios with the same growth potential. Some of these cheaper options are discussed below.
Our Methodology
The companies that are trading at relatively cheap prices compared to their growth potential were selected for the list. The real-time share prices of the stocks, as of December 13, are mentioned alongside other details for further clarity.
In order to provide readers with some context for their investment choices, the business fundamentals and analyst ratings for the stocks were also considered. Hedge fund sentiment was included as a classifier as well.
The hedge fund sentiment around each stock was calculated using the data of 867 hedge funds tracked by Insider Monkey.
Cheap Growth Stocks to Buy Today
10. Digital Ally, Inc. (NASDAQ:DGLY)
Number of Hedge Fund Holders: 3
Real-Time Share Price as of December 13: $1.11
Digital Ally, Inc. (NASDAQ:DGLY) markets electronic equipment and services. As concerns around policing grow across the world, the stock has room to climb higher as the company is one of the most renowned providers of body cams used by law enforcement personnel.
Digital Ally, Inc. (NASDAQ:DGLY) recently beat market estimates on earnings per share and revenue for the third quarter by $0.20 and $1.7 million respectively. On December 6, the company approved a $10 million share buyback program.
At the end of the third quarter of 2021, 3 hedge funds in the database of Insider Monkey held stakes worth $2 million in Digital Ally, Inc. (NASDAQ:DGLY), compared to 4 in the preceding quarter worth $934,000.
Just like Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), and Alphabet Inc. (NASDAQ:GOOG), Digital Ally, Inc. (NASDAQ:DGLY) is one of the stocks that growth investors are buying.
9. LightInTheBox Holding Co., Ltd. (NYSE:LITB)
Number of Hedge Fund Holders: 3
Real-Time Share Price as of December 12: $1.08
LightInTheBox Holding Co., Ltd. (NYSE:LITB) owns and runs a cross-border ecommerce platform. The firm has been growing margins steadily in the past few months despite tough competition from retail giants and looks set to grow them further in the coming months.
In earnings results for the third quarter, posted in early December, LightInTheBox Holding Co., Ltd. (NYSE:LITB) reported a revenue of $98 million. The company has a market cap of $121 million and was founded in 2007.
At the end of the third quarter of 2021, 3 hedge funds in the database of Insider Monkey held stakes worth $3.3 million in LightInTheBox Holding Co., Ltd. (NYSE:LITB), compared to 4 in the preceding quarter worth $6.4 million.
8. Cronos Group Inc. (NASDAQ:CRON)
Number of Hedge Fund Holders: 7
Real-Time Share Price as of December 12: $4.26
Cronos Group Inc. (NASDAQ:CRON) is a pharma firm that focuses on cannabis products. The introduction of legislation that removes marijuana as a banned substance in the US and leaves reform related to it up to the state promises to bode well for the future of cannabis firms.
Cronos Group Inc. (NASDAQ:CRON) stock has also surged amid reports that the new ruling coalition in Germany is in favor of legalizing marijuana. The coalition plans to allow recreational use of the cannabis products sold through licensed stores.
Among the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in Cronos Group Inc. (NASDAQ:CRON) with 762,114 shares worth more than $4.3 million.
7. Otonomo Technologies Ltd. (NASDAQ:OTMO)
Number of Hedge Fund Holders: 10
Real-Time Share Price as of December 12: $3.90
Otonomo Technologies Ltd. (NASDAQ:OTMO) operates an automated data services platform. As vehicle data becomes paramount for safety and security purposes, the company could grow existing partnerships with car makers like BMW, Mitsubishi, and others for the long-term.
Otonomo Technologies Ltd. (NASDAQ:OTMO) posted nine-month earnings on November 12, reporting a revenue of $0.66 million over the period. The cash and cash equivalents at the end of September were around $232 million.
Among the hedge funds being tracked by Insider Monkey, New York-based firm Rima Senvest Management is a leading shareholder in Otonomo Technologies Ltd. (NASDAQ:OTMO) with 3.2 million shares worth more than $15 million.
6. Lithium Americas Corp. (NYSE:LAC)
Number of Hedge Fund Holders: 12
Real-Time Share Price as of December 12: $33.61
Lithium Americas Corp. (NYSE:LAC) is a Canadian resource firm with core interests in the lithium business. The firm has lots of potential to grow as the demand for lithium skyrockets in tandem with the rise in production of electric vehicles across the world in the next few years.
On November 24, investment advisory B Riley raised the price target on Lithium Americas Corp. (NYSE:LAC) stock to $44 from $25 and maintained a Buy rating, noting the potential of growth projects of the firm and higher price assumptions as long-term growth catalysts.
Among the hedge funds being tracked by Insider Monkey, Singapore-based investment firm Himension Capital is a leading shareholder in Lithium Americas Corp. (NYSE:LAC) with 2.2 million shares worth more than $50 million.
In addition to Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), and Alphabet Inc. (NASDAQ:GOOG), Lithium Americas Corp. (NYSE:LAC) is one of the stocks on the radar of elite investors.
In its Q1 2021 investor letter, Massif Capital, an asset management firm, highlighted a few stocks and Lithium Americas Corp. (NYSE:LAC) was one of them. Here is what the fund said:
“Lithium Americas: The volatility noted above in LAC has resulted in solid returns via our options trades around our core equity position. At the current time, we are short calls on LAC, as we have done multiple times throughout the position’s life, expiring on May 21, 2021, at a $17.5 and $22.5 strike price. The volume of contracts sold at each strike corresponds to the size of the equity position we want should the calls expire in the money, and the underlying equity gets called away from us. The thought process behind this trade construction is that if we know the size of the position we want at a particular price point, there is no reason not to accumulate additional returns by pre-selling the stock we would have sold anyway.
High levels of volatility positively impact the price of options, increasing the premium we can earn from selling covered calls. To date, we have sold covered calls on LAC that have expired worthless four times, yielding a roughly 7% return on the equity position’s current value or 71bps for the portfolio overall. The outstanding covered calls appear to be trending towards a similar worthless expiration. If they do, the covered call trades on LAC will result in us owning the shares with committed capital of -$0.28 per share.
Although we believe in the fullness of time LAC warrants a $30+ valuation, the prices achieved in early January of this year were not justified by the underlying fundamentals. Some will argue we should have sold down our position. We had already established our option positions and believe LAC is an emerging major in the lithium mining industry. Thus, we decided to maintain the position unchanged. Although still relatively high, the current $15 per share valuation is not crazy compared to where we think the firm should be trading based on fundamentals, so we are no longer overly concerned with the position as is.
LAC management also took advantage of the volatility issuing stock on January 22 for $22 a share. The ~$400 million in proceeds will be used to develop Thacker Pass, the US-based clay lithium deposit, which will likely be the largest producing Lithium mine in America when turned on. In our opinion, the stock issuance could not have come at a better time. LAC management has advanced the project through various development stages (de-risking), but with the share issuance, they have significantly reduced the need to bring in an outside partner to develop the asset as the first phase of the project is expected to cost roughly $581 million. After-tax and at an 8% discount rate, the Thacker Pass project’s present value is approximately $2.6 billion (the firm’s current market capitalization is $1.5 billion). Although the share issuance was dilutive, increasing the total shares by 17%, we believe it will, in the long run, prove a forward-looking, value-additive decision by management.
The lithium market remains an area of interest and focus for us. This reflects our belief that the most exciting investment opportunities to capture secular trends in EV’s and batteries are found upstream in the mining industry. It is also a reflection that there is a greater diversity of lithium investment opportunities relative to other battery metals.”
5. UpHealth, Inc. (NYSE:UPH)
Number of Hedge Fund Holders: 12
Real-Time Share Price as of December 12: $2.45
UpHealth, Inc. (NYSE:UPH) is a digital healthcare provider. As a new variant of COVID-19 prompts further lockdowns, digital health firms are gaining traction once again. UpHealth is one of these companies and could benefit from the situation.
UpHealth, Inc. (NYSE:UPH) posted earnings for the third quarter on November 10, reporting earnings per share of $0.28 and a revenue of $49 million. Lake Street analyst Frank Takkinen has a Buy rating on the stock with a price target of $6.
At the end of the third quarter of 2021, 12 hedge funds in the database of Insider Monkey held stakes worth $4 million in UpHealth, Inc. (NYSE:UPH), the same as in the preceding quarter worth $10 million.
4. Pixelworks, Inc. (NASDAQ:PXLW)
Number of Hedge Fund Holders: 12
Real-Time Share Price as of December 12: $4.70
Pixelworks, Inc. (NASDAQ:PXLW) markets semiconductor and software solutions. The firm stands to benefit from increased government spending and new tax breaks as Washington seeks to decrease American reliance on Chinese chip makers in the coming months and years.
Needham analyst Rajvindra Gill recently initiated coverage of Pixelworks, Inc. (NASDAQ:PXLW) stock with a Buy rating and a price target of $7, underlining that the firm had room to grow over the next few months and could sign on tech giant Huawei as a customer.
At the end of the third quarter of 2021, 12 hedge funds in the database of Insider Monkey held stakes worth $27 million in Pixelworks, Inc. (NASDAQ:PXLW), up from 10 in the previous quarter worth $9 million.
3. United Microelectronics Corporation (NYSE:UMC)
Number of Hedge Fund Holders: 13
Real-Time Share Price as of December 12: $11.33
United Microelectronics Corporation (NYSE:UMC) owns and runs a semiconductor wafer foundry. Global semiconductor sales have been steadily climbing as the world becomes more reliant on electronics devices. United Microelectronics stands to benefit from this shift to digital.
On December 6, United Microelectronics Corporation (NYSE:UMC) announced sales numbers for the month of November, reporting that net sales over the period had reached NT$19.6 billion, up more than 33% year-on-year.
At the end of the third quarter of 2021, 13 hedge funds in the database of Insider Monkey held stakes worth $151 million in United Microelectronics Corporation (NYSE:UMC), up from 10 in the preceding quarter worth $141 million.
2. StoneCo Ltd. (NASDAQ:STNE)
Number of Hedge Fund Holders: 37
Real-Time Share Price as of December 12: $17.68
StoneCo Ltd. (NASDAQ: STNE) provides financial technology solutions. With the rise of fintech and crypto, companies like StoneCo have become the fastest growth-drivers of the modern economy in the past few years and look set to continue this streak for a long time.
StoneCo Ltd. (NASDAQ: STNE) posted earnings for the third quarter in mid-November, reporting a revenue of R$1.4 billion, up more than 57% compared to the revenue over the same period last year.
At the end of the third quarter of 2021, 37 hedge funds in the database of Insider Monkey held stakes worth $2.2 billion in StoneCo Ltd. (NASDAQ:STNE), down from 44 the preceding quarter worth $2.7 billion.
In its Q2 2021 investor letter, JDP Capital Management, an asset management firm, highlighted a few stocks and StoneCo Ltd. (NASDAQ:STNE) was one of them. Here is what the fund said:
“StoneCo (NYSE: STNE) has been in our portfolio since early 2019 and has appreciated 225% since. In the first half of 2021 the stock was down nearly 20% and was a drag on the fund’s performance.
Stone is a leading fintec company in Brazil that provides back-office software, loans and other financial services to small and medium sized businesses (SMBs). We have discussed Stone in past letters and the company’s “ladder up” from a card processor to a supplier of enterprise software used to sell financial products on top of such as working capital loans.
The company generates a lot of cash that it reinvests to acquire or build new financial products for its customer base. Since we invested, the company has grown the number of SMB clients by 3x, revenue by 2.3x, and net income by 2.2×11.
The pandemic’s impact on SMBs in Brazil has been severe, especially for the many retailers who are only now adopting an e-commerce strategy. In the first half of 2021 Stone increased loss provisions on its lending product, and overall growth has slowed somewhat. The stock’s decline earlier this year was not surprising, but investors are now ignoring progress that has enhanced Stone’s position for coming out much stronger when the recovery begins.
StoneCo Q1 2021 Earnings Call: “Based on (i) our learnings with lockdowns last year, (ii) recent client transactional data and (iii) learnings from the dynamics of countries where vaccines are widespread, we expect that once vaccination scale (which we think will happen in the second half of 2021), the economic recovery will be fast and – although delayed – Brazil is moving in the right direction. For these reasons, we have made an informed decision to be ready for recovery by investing in growth…”
“…In the first quarter, we decided to increase our salesforce headcount by 24%, marketing investments by 33%, customer service and logistics headcount by 32% and technology headcount by 20% in order to be the fastest player when our economy comes back to normal levels.”
“I want to start our presentation by highlighting that Brazil went through a second wave of COVID in the first quarter of ’21, which imposed commerce restrictions in several cities throughout the country. Those restrictions were felt by our clients with average TVP reaching a low in the end of March…
…But similar to the behavior we saw in the comeback from the first lockdown in 2020, we already observed significant and quick recovery with average TPV in May achieving levels above January 2021. As Thiago mentioned, we expect that once vaccinations are scaled, the economy recovery of the country will be fast.”
In terms of COVID recovery opportunities within our portfolio, Stone might be the most “coiled” because the impact on Brazilian small businesses has been so traumatic. In addition, Stone is part of a much larger and fast-moving transition happening in Brazil around the digitalization of financial services. The speed of this transition is unique to Brazil because the Central Bank is actively trying to reduce the country’s previous dependency on a small handful of large banks. Important progress in the first half of 2021 included closing on the long-awaited acquisition of Linx, a mature provider of enterprise software with a large footprint across Brazil. The acquisition will provide Stone meaningful cross-selling opportunities and a more diversified customer base.”
1. Zynga Inc. (NASDAQ:ZNGA)
Number of Hedge Fund Holders: 52
Real-Time Share Price as of December 12: $6.24
Zynga Inc. (NASDAQ:ZNGA) provides social gaming services. Mobile gaming and social services related to these games have exploded in popularity in the past few years. Zynga has been a beneficiary of this growth and is a market-leader in this regard.
JPMorgan analyst David Karnovsky has an Overweight rating on Zynga Inc. (NASDAQ:ZNGA) stock with a price target of $10. In a recent investor note, the analyst highlighted the pipeline potential and upcoming acquisitions of the firm as growth catalysts for the long-term.
At the end of the third quarter of 2021, 52 hedge funds in the database of Insider Monkey held stakes worth $603 million in Zynga Inc. (NASDAQ:ZNGA), up from 49 in the previous quarter worth $1 billion.
In its Q4 2020 investor letter, Artisan Partners Limited Partnership, an asset management firm, highlighted a few stocks and Zynga Inc. (NASDAQ:ZNGA) was one of them. Here is what the fund said:
“We also added to our position in Zynga. Our multiyear investment campaign in Zynga has been based on a new management team’s ability to drive steady growth in the company’s base portfolio of games, expand margins, reinvigorate the new game development pipeline and use its strong balance sheet to acquire complementary games and studios. Shares have been pressured in recent quarters, presumably because of investor concerns about the company’s moderating growth rate and Apple’s pending new privacy policy which will make it more difficult for Zynga to both efficiently acquire new players and sell advertising in its games. We believe the company has multiple growth levers it can pull in the periods ahead, including the rollout of new games, acquisitions, further penetration into international markets and entry into new gaming categories, to name a few. Furthermore, our research suggests the Apple privacy policy change is manageable for larger mobile game developers such as Zynga. Given our strong conviction in the profit cycle, we used recent weakness to add to our position.”
You can also take a peek at 10 Penny Stocks Redditors are Buying in August and 10 Best Nickel Stocks to Buy Now.
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Disclosure. None. 10 Cheap Growth Stocks to Buy Today is originally published on Insider Monkey.
