When looking for growth stocks, it may feel like investors have missed the boat. Growth names such as Nvidia and Amazon are close to all-time highs, and when high-profile investors like Warren Buffett attract attention for selling stocks, one can forgive an investor for concluding that the bull market might be over.
Nonetheless, other well-known investors have bought stocks in recent weeks, and many stocks either never recovered to their 2021 highs or retreated after a sell-off earlier in the year. Thus, investors can still find buying opportunities, and these stocks might be great places to start.
AMD
Advanced Micro Devices (NASDAQ: AMD) is down by 34% from its March peak. The chip design company has stood out for its ability to compete in the central processing unit (CPU), graphics processing unit (GPU), and embedded markets, often closing competitive gaps in a short time.
The gap it's currently trying to close is with Nvidia, which presently dominates the artificial intelligence (AI) accelerator market. Admittedly, AMD's revenue in the third quarter of 2024 grew by 18%, a pittance compared to Nvidia's triple-digit yearly revenue growth in recent quarters.
However, something critical is happening to its financials. The data center segment, which includes its AI accelerators, makes up 52% of company revenue, and its revenue grew by 122%. This has made the massive 69% revenue drop in the gaming segment less significant, as this once-critical segment is now only 7% of AMD's revenue.
Moreover, Nvidia's data center segment now makes up 88% of that company's revenue. AMD is on track for a similar transformation of its business, a factor that should accelerate AMD's overall revenue growth.
Additionally, while forward price-to-earnings (P/E) ratios are similar, AMD trades at a price-to-sales (P/S) ratio of 10, far below Nvidia's at 39. That could mean AMD's stock price does not reflect a significant portion of its potential growth, creating an opportunity for investors.
Dutch Bros
For all the focus on Starbucks, coffee stock investors could overlook a potential opportunity in Dutch Bros (NYSE: BROS). The Oregon-based beverage chain has undergone a rapid expansion in recent years.
Indeed, between Starbucks, private chains, and numerous independents, coffee shops are a highly competitive business. Nonetheless, Dutch Bros has grown to over 950 locations in 18 states, nearly double its 503 shops from three years ago when it launched its initial public offering (IPO). This gives it a distinct advantage over Starbucks, which has largely saturated the U.S. market and relies heavily on China for its growth.
Dutch Bros stock is down over 45% as its September 2021 IPO gave way to declines in the 2022 bear market. Still, investors may want to consider the stock when looking at its growth. In Q3 2024, revenue of $338 million rose 28%, with a 20% increase in the number of locations and a rise in same-shop sales fueling its growth.
Admittedly, its recent move to profitability has left Dutch Bros with a high P/E ratio. However, despite its rapid growth, its P/S ratio is 3.2, barely above the sales multiple of 3.0 for Starbucks. Considering Dutch Bros' potential for rapid growth in its home market, investors should consider buying before more people and institutions notice this differential.
Innovative Industrial
Innovative Industrial Properties (IIP) (NYSE: IIPR) is not a household name, but investors should take note of its niche in the real estate and cannabis industries. It is a real estate investment trust (REIT) that rents facilities to medical cannabis growers.
The company develops properties on its own. Nonetheless, it has earned much revenue through its sale-leaseback program. This allows it to buy properties and then lease them back to former owners, giving cash-strapped companies funding while fostering sources of revenue for IIP.
Its stock is still down 62% from its 2021 high, as the company dealt with delinquent tenants during the 2022 bear market. However, it is also up over 75% from its 2023 low. It proved itself adept at finding new tenants or selling properties when tenants stopped paying, thus boosting confidence in the stock.
Innovative Industrial Properties has hiked its payout at least once yearly since its first dividend in 2017. At $7.60 per year, its dividend yield is 5.8%, well above the 1.25% average for the S&P 500.
Additionally, its normalized funds from operations (FFO) income, a measure of a REIT's free cash flow, of $8.13 for the last 12 months show it covers those dividend costs. That takes its price-to-FFO ratio to just 14, and with that low valuation, this growth stock with a massive, rising dividend should drive significant returns over time.
Where to invest $1,000 right now
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Will Healy has positions in Advanced Micro Devices and Innovative Industrial Properties. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Innovative Industrial Properties, Nvidia, and Starbucks. The Motley Fool recommends Dutch Bros. The Motley Fool has a disclosure policy.
