As inflation remains stubborn, interest rates squeeze the economy and the financial sector embroils in turmoil, most investors have become bearish. However, the saying “Be greedy while others are fearful” could be applicable here. Here are three growth stocks analysts love, to best capitalize on this opportunity for the long-term.
During the Covid-19 pandemic, many students had to rely on educational technology (EdTech) platforms like Chegg (NYSE:CHGG), which gained significant popularity. As a result, the education technology industry is projected to grow by 16% annually over the next seven years. Chegg, with a current subscriber base of 8.1 million users, has the potential to reach a market of 100 million users.
Chegg’s strong brand is one of its key strengths. It is widely recognized among students, with 87% of American college students being familiar with Chegg. The company’s strong brand has helped reduce its marketing costs. Chegg offers a vast library of solutions from 9,000 textbooks to a Q&A platform staffed by experts. This extensive collection, combined with effective search engine optimization, makes Chegg the go-to platform for reliable answers. Furthermore, word-of-mouth recommendations on campuses contribute significantly to Chegg’s success, with 85% of its traffic coming from unpaid sources.
However, Chegg’s stock has fallen over 63% YTD as investors fear the prevalence of ChatGPT. But management has reported that ChatGPT has not hurt its retention rates. Instead, Chegg is using OpenAI to develop its own Chatbot which will be enhanced by its vast collection of answers. As a result, it has an average price target of $14.95 with a low of $11 by analysts. Furthermore, analysts from BMO Capital, Goldman Sachs and B of A securities have all maintained their price targets in recent weeks. Overall, Chegg has a lot of growth potential and has significant upsides after seeing heavy waves of sell-offs.
Asana (NYSE:ASAN) is an American software company that provides a work management platform for teams. 80% of Fortune 100 companies use Asana to manage, organize and track their work. Asana is recession-resilient as companies are able to reduce costs by using its platform.
In the most recent quarter, Asana beat expectations on both the top and bottom growth line, with a revenue surprise of 3.4% and an earnings surprise of 44%. Furthermore, the company is improving profitability, with cash flow (loss) from operating activities being -$31.1 million, compared to -$39.3 million in the previous year.
Asana also benefits from the fact that it operates in a fast-growing market. According to Grandview Research, Asana’s market is set to grow at a 13.4% CAGR through 2027. With less than 3% market share today, Asana has a lot of room to grow into. However, its stock has fallen down from triple digits in the past few years and has continued to stagnate in the past 6 months. Wall Street analysts now have a median price target of $22, showing that the stock is likely undervalued. Asana can be a long-term winner as it’s centered in a growing industry with growing demands.
Affirm (NASDAQ:AFRM) is a leader in the “Buy now, pay later” (BNPL) industry. BNPL allows consumers to split up their payments in installments – usually with no interest rates. In turn, companies like Affirm profit by charging merchants a commission for each transaction.
The BNPL market is expected to grow at a staggering 45% CAGR to $3.68 trillion in 2030. However, the stock has fallen over 50% in the past year as investors have sold due to deteriorating macroeconomic conditions. Still, Affirm is uniquely positioned to endure. It has access to over 60% of the e-commerce market share as well as exclusive partnerships with major retailers such as Amazon and Walmart.
In addition, consumers are no longer purely using BNPL for expensive one-off purchases, as high inflation has forced consumers to rely on BNPL for non-discretionary items like groceries. As the cost of borrowing continues to rise, Affirm is seeing increased demand because of its ability to offer low to no interest rates. Meanwhile, its margins are protected because its own rates are protected by fix-rate arrangements.
With a median price target of $13.21 by Wall Street analysts, the stock has clearly been oversold and will survive the recession to bring substantial returns to investors in the long term.
On the date of publication, Michael Que 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.