After a glorious 2023 for the bulls, the stock market has been sluggish this year. Market volatility is unavoidable; however, pullbacks can present an opportunity for investors to buy growth stocks in fast-growing industries. Most growth stocks are evolving businesses with strong fundamentals that have the potential to provide excellent long-term returns.
The first name on my list is Qualcomm Incorporated (QCOM). While Qualcomm struggled last year due to macroeconomic headwinds that constrained consumer spending on electronics, fiscal 2024 looks promising.
Fintech company Nu Holdings (NU) is the second growth stock on my list, and has seen its revenue grow dramatically in the last few quarters.
Let's look at why Wall Street expects these two growth stocks to rise 27% to 48% over the next year.
Qualcomm Incorporated
Founded in 1985, Qualcomm (QCOM) has grown from a wireless technology provider to a global leader in 3G, 4G, and now 5G technologies. Its Snapdragon processors have become a symbol of high-performance mobile computing, powering devices from a wide range of manufacturers around the world.
QCOM stock has gained 11.6% year-to-date, compared to the Nasdaq Composite's ($NASX) gain of 6.3%.
After last year's struggles, the first quarter of fiscal 2024 marked a turning point for the company. Total revenue rose 5% year on year to $9.9 billion, while adjusted diluted earnings per share (EPS) increased 16% to $2.75 per share.
Notably, the company reports in two business segments. In the first quarter, QCT (Qualcomm CDMA Technologies), which includes its chip business that powers handsets, automotive, and IoT (Internet of Things), increased 7% from a year earlier. On the other hand, revenue for the QTL (Qualcomm Technology Licensing) licensing business fell 4%.
The smartphone market is still struggling, but a recovery is on the way with the help of artificial intelligence (AI). In Q1, handset chip and automotive chip sales increased by 16% and 31%, respectively, while IoT chip sales fell 32% year on year.
Qualcomm pays an attractive dividend yield of 2.15%, which is higher than the sector average of 1.37%. Furthermore, its forward dividend payout ratio of 30.5% indicates that the company's current earnings can support dividend payments, with room for dividend growth. Recently, Qualcomm increased its quarterly dividend by 6% to $0.85 per share.
Cristiano Amon, President, and CEO, stated, “Looking ahead, we are building on this momentum with our leading Snapdragon platforms and technology differentiation in connectivity, computing, and on-device generative AI, across Handsets, Automotive, PC, XR, and Industrial IoT.”
The company will release its Q2 fiscal 2024 results on May 1 after the market closes. In Q2, management expects revenue to be between $8.9 billion and $9.7 billion, with earnings per share ranging between $2.20 and $2.40. By comparison, analysts expect EPS of $2.31 and revenue of $9.33 billion.
For the full fiscal year 2024, analysts expect a 6.4% increase in revenue to $38.14 billion, with earnings rising 15.5% to $9.74 per share. Revenue and earnings are expected to increase by 9.2% and 12%, respectively, in fiscal 2025.
The slow recovery of smartphone sales may continue to be a challenge for Qualcomm this year. However, Qualcomm's integration of next-generation on-device generative AI features into its offerings, with the launch of Snapdragon X Elite for personal computers and the Snapdragon 8 Gen 3 for smartphones, may boost revenue going forward. Additionally, strategic partnerships with key industry players, such as Amazon and Apple, may also help Qualcomm improve its market presence and revenue streams.
As a result, I believe that growth in its other segments, combined with a recovery in the smartphone market, bodes well for the company's long-term, AI-led growth prospects.
Trading at 16 times forward 2024 earnings - lower than its five-year historical price-to-earnings average ratio of 23 - Qualcomm seems to be a reasonably priced AI pick now.
Overall, Wall Street rates QCOM stock a “moderate buy.” Out of the 26 analysts that cover the stock, 15 rate it a “strong buy,” 10 rate it a “hold,” and one rates it a “strong sell.” QCOM has surpassed its average target price of $159.81, though its high target price of $205 implies a potential upside of 27% in the next 12 months.
Nu Holdings
NU Holdings is a relatively new player in the financial services industry, but it has quickly gained recognition for its disruptive approach to traditional finance and innovative offerings. The company uses technology to provide seamless, customer-focused financial solutions, with a diverse product portfolio that includes credit cards, NuAccounts, personal loans, and insurance policies.
NU stock has gained 29% YTD, outperforming the S&P 500 Index’s ($SPX) gain of 6.9%.
NU Holdings added 4.8 million customers in the fourth quarter, bringing the global total to 93.9 million in 2023. NU is now Latin America's fifth-largest financial institution, thanks to its impressive growth in customers. The company has seen its revenue grow by double digits in the last few quarters.
In addition, its monthly average revenue per active customer increased by 23% during Q4. In 2023, total revenue increased by a whopping 67.5% to $8.03 billion. Likewise, the company reported a full-year net profit of $0.21 per diluted share, up from a loss of $0.07 in 2022.
NU has also maintained its margins, with gross margins consistently ranging between 40% and 50% over the last few quarters.
Wall Street analysts have high hopes for this small digital bank valued at $49.8 billion. Analysts predict a 38.9% increase in revenue to $11.1 billion in fiscal year 2024, with earnings rising 74.3% to $0.37 per share. Revenue and earnings are expected to grow by 27.1% and 53.5%, respectively, in fiscal 2025. Trading at 28 times forward 2024 earnings, NU stock seems cheap relative to the massive earnings growth estimated in the next two years.
Overall, Wall Street rates NU stock a “moderate buy.” Out of the 11 analysts that cover the stock, seven rate it a “strong buy,” while four rate it a “hold.” NU stock is trading close to its average target price of $10.83, while its high target price of $16 implies a potential upside of 48.6% in the next 12 months.
As the digital financial services landscape continues to evolve, NU Holdings' prospects appear promising. With robust revenue growth, healthy profit margins, and prudent risk management practices, NU is an excellent growth stock to buy now.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
