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The negative momentum in stocks this month might be alarming - but dollar-cost averaging is a strategy that helps investors take advantage of the underlying volatility associated with the equity markets. Since it's impossible to time the markets, it makes sense to allocate a certain portion of your capital toward buying quality stocks trading at a discount each month.
For example, in 2022, many tech stocks experienced a massive decline in valuations… before sprinting right back to historic highs during the first half of 2023. That means periods when stocks are declining, like the one we're in now, are ideal for bargain-hunting investors looking to build their portfolios.
That said, here are three growth stocks you can consider buying on the dip right now.
Palo Alto Networks
Palo Alto Networks (PANW) is part of the cybersecurity market, and is arguably among the hottest tech stocks on Wall Street. Shares of Palo Alto have surged over 1,350% in the past decade, easily outpacing the broader markets.
More recently, the tech stock is down about 12% from its July all-time highs, valuing it at a market cap of almost $70 billion.
Despite a sluggish macro environment, Palo Alto is forecast to increase sales by 18.7% year over year to $8.18 billion in fiscal 2024 (ending in July). And enterprises seem unlikely to compromise on cybersecurity expenditures, allowing Palo Alto to generate cash flows across business cycles. Moreover, its free cash flow is estimated at $3.27 billion, indicating a margin of 40%.
PANW is priced at 42x forward earnings, which might seem expensive. However, its earnings are forecast to rise by 27% annually in the next five years.
Out of the 36 analysts tracking PANW, 31 recommend “strong buy,” two recommend “moderate buy,” and three recommend “hold.” The average price target for Palo Alto Networks stock is $275.08, indicating an upside potential of 21.7% from current levels.
Shopify
Part of the e-commerce segment, Shopify (SHOP) stock is down 27% from its 52-week highs. The company is successfully building a global e-commerce operating ecosystem, and equips merchants with a portfolio of tools and capabilities to help grow their online presence.
In Q2 of 2023, Shopify increased gross merchandise volume (GMV) by 17% to $55 billion. This metric measures the total value of goods sold on an e-commerce platform. Comparatively, sales were up 31% at $1.7 billion, while operating income stood at $146 million, accounting for 9% of revenue.
Shopify has onboarded over 2 million merchants on its platform, allowing it to grow merchant solutions revenue by 35% to $1.3 billion, while subscription sales were up 21% at $444 million. The company’s monthly recurring revenue, or MRR, increased 30% to $139 million, indicating an annual run rate of $1.67 billion.
Priced at 10x forward sales, Shopify stock is somewhat expensive, despite the drawdown in share price.
However, analysts remain bullish on the Canadian e-commerce heavyweight. Out of the 37 analysts covering Shopify stock, 15 recommend “strong buy,” one recommends “moderate buy,” 20 recommend “hold,” and one recommends “strong sell.” The average price target for Shopify stock is $68.74, which is 33% above its current price.
Unity Software
The final stock on my list is Unity Software (U), which operates a platform providing real-time 3D development tools and services. Unity offers a portfolio of software-powered solutions to create, run, and monetize 2D and 3D content for multiple devices, including mobiles, tablets, consoles, PCs, and augmented and virtual reality.
Unity stock went public in late 2021, and currently trades 39% below its mid-July 52-week highs.
Earlier this year, Unity announced a partnership with Apple (AAPL) where the two companies would develop spatial reality applications for the latter’s Vision Pro headset. Priced at $3,499, Apple is expected to produce 400,000 units of the headset next year.
Unity has increased sales from $541 million in 2019 to $1.4 billion in 2022. It is on pace to end 2023 with sales of $2.2 billion, an increase of nearly 57% year over year. Plus, it is forecast to swing to earnings of $1.14 per share in 2024, improved from its loss of $0.39 per share in 2022. Priced at 27.5x forward earnings, Unity stock is trading at a discount, given its growth forecasts.
Out of the 17 analysts covering Unity stock, eight recommend “strong buy,” one recommends “moderate buy,” six recommend “hold,” one recommends “moderate sell,” and two recommend “strong sell.” The average price target for Unity is $44.43, which is over 45% higher than current levels.
