Over the last 12 months, the S&P 500 index has trended higher by almost 22%. During this period, there has been significant price action among growth stocks after a big sell-off witnessed in 2022. However, not all growth stocks have surged higher. There seems to be ample opportunities in terms of undervalued growth stocks with high potential.
It’s very likely that there will be multiple rate cuts in the next 12 to 18 months. With potential expansionary policies, equities are likely to remain in an uptrend. I would therefore consider fresh exposure to some of the undervalued growth stocks with an investment horizon of 24 months.
We have witnessed during the euphoria of 2021 that growth stocks can deliver multibagger returns in a matter of months. I don’t expect a repeat of that euphoria, but I believe that quality growth stocks can surge by 3x or 5x before the end of 2025.
Let’s discuss three names that seem poised to skyrocket backed by strong fundamental developments.
Li Auto (LI)
Li Auto (NASDAQ:LI) is my first pick among undervalued growth stocks to buy. The Company’s growth trajectory has been stellar and LI stock has trended lower. Broad Chinese market sentiments have impacted the stock even as fundamental developments remain exceptional. The correction is therefore a golden buying opportunity.
For 2023, Li Auto reported deliveries growth of 182.2% on a year-on-year basis to 376,030. For the current year, the Company is targeting annual vehicle deliveries of 800,000. I must add that stellar deliveries growth has been associated with strong free cash flows. This is a big positive as the Company has high financial flexibility to invest in innovation and aggressive expansion.
To put things into perspective, Li Auto reported cash and equivalents of $12.13 billion as of Q3 2023. Further, the Company reported free cash flow of $1.8 billion for the quarter. The annualized FCF potential is therefore approximately $8 billion.
Financial flexibility has enabled Li Auto to pursue aggressive retail store expansion within China. It’s likely that international expansion is coming in the next 12 to 24 months. This will be another major growth catalyst.
Riot Platforms (RIOT)
Riot Platforms (NASDAQ:RIOT) is another undervalued growth stock to buy for 3x returns before the end of 2025. The Bitcoin (BTC-USD) miner is fundamentally strong with aggressive expansion plans. Assuming that Bitcoin trades at new all-time highs this year, RIOT is likely to go ballistic.
The first point to note is that Riot reported cash and digital assets of $599 million as of Q3 2023. Further, the Company has a zero-debt balance sheet. Financial flexibility is therefore high and this has enabled Riot to pursue big expansion.
To put things into perspective, Riot reported deployed hash rate capacity of 12.4EH/s as of January. The Company is targeting to increase capacity to 28.8EH/s by the end of the year and further to 38.1EH/s by the end of 2025.
Being a low-cost Bitcoin miner, the Company is positioned for significant EBITDA margin expansion and cash flow upside. RIOT has remained sideways for year-to-date and I believe that current levels are attractive for fresh exposure with Bitcoin trading above $50,000.
Kinross Gold (KGC)
Citigroup believes that there is unlikely to be a soft landing. Further, there are signs of recession by summer. If this holds true, I believe that policymakers are likely to go aggressive on rate cuts. This will translate into a big rally for gold. Investors can therefore consider undervalued gold mining stocks at current levels for a big surge in the second half of 2024.
Kinross Gold (NYSE:KGC) looks undervalued at a forward price-earnings ratio of 14.5. KGC stock also offers an attractive dividend yield of 2.37%.
I must add here that Kinross trades at a market valuation of $6.2 billion. As of Q4 2023, the Company reported a liquidity buffer of $1.9 billion. Further, for 2023, Kinross reported operating cash flow of $1.7 billion. The stock seems clearly undervalued considering the cash flow potential. Assuming that gold trends higher, Kinross is likely to deliver OCF of more than $2 billion.
Another point to note is that Kinross can potentially pursue acquisitions considering the financial flexibility. That’s another likely catalyst for KGC stock surging higher.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
