While growth stocks have come back into favor this year, there are a number of growth stocks down 20% or more from their 2023 highs. While some might see this as a red flag, astute investors recognize it as a potential opportunity.
Growth stocks often carry a premium price tag, and that’s certainly the case for many names this year. After delivering its best performance for the first seven months of the year since the mid-1970s, the Nasdaq Composite is outperforming the Dow Jones Industrial Average by the widest margin ever.
But there are a number of bargain growth stocks that have not yet joined the party. Given their underlying fundamental strength, investors will want to scoop them up at discounted prices while they still can.
Walt Disney (DIS)
Investors hunting for discounted growth stocks should find the recent downtrend in Walt Disney (NYSE:DIS) attractive. Shares are down more than 20% over the past six months, causing some to wonder whether the “House of Mouse” has lost its magic. Yet, a closer examination of Disney’s fiscal second-quarter results, released in May, offers a more complex storyline.
The company reported results that were in line with expectations on the top and bottom lines. Revenue climbed 13% year over year to $21.8 billion, while net income skyrocketed 150% to $1.49 billion. Improving margins signal increased operational efficiency, and the company added $1.94 billion to its cash pile, bringing its total cash to $10.4 billion at the quarter’s end.
Yet, the stock sold off sharply following the earnings release and has not recovered. So, what gives?
I believe the answer lies in a series of challenges facing the entertainment conglomerate in recent years. The pandemic forced Disney to shut down its theme parks and resorts, cutting off a significant revenue stream. In response, former Chief Executive Officer (CEO) Bob Chapek shifted the company’s focus and resources to streaming services. Streaming costs skyrocketed and have yet to produce any real profits.
Yet, the company is poised for a turnaround after Disney brought back Chapek’s predecessor, Bob Iger, last year and recently extended his contract until 2026. Investors cheered the news because if anyone can right the ship, it’s Iger.
Though concerns exist over Disney’s television and streaming services, the company’s overall financial health suggests a potential opportunity for bargain hunters.
Lucid Group (LCID)
Shares of electric vehicle (EV) maker Lucid Group (NASDAQ:LCID) are down 42% over the past six months after topping out in late January. Production issues, weaker-than-expected demand, back-to-back quarterly revenue misses and wider-than-expected losses have weighed on shares.
Like Lucid, the EV sector is experiencing growing pains, but the long-term trajectory of the industry is clear. While Lucid is small and still in the early stages of production, this means there is a lot of room for potential growth. First-quarter revenue surged 159% year over year to $149.4 million, while the company said it has enough cash to last into next year.
Lucid announced in late May that it planned to raise about $3 billion through a new stock offering. In a big vote of confidence for the company, $1.8 billion of that is coming from a private placement of stock with Saudi Arabia’s Public Investment Fund, which owns about 60% of the EV maker.
Investors willing to take a risk on this discounted growth stock could be rewarded handsomely.
Warner Bros Discovery (WBD)
Warner Bros Discovery (NASDAQ:WBD) is down 18% over the past six months and 23% from its 2023 high, made in February. Yet, it may just be one of those cheap growth stocks that prove to be a diamond in the rough.
The company is scheduled to report second-quarter earnings tomorrow before the bell. For the first quarter, revenue of $10.7 billion was in line with estimates, although the company reported a surprise loss despite its U.S. streaming business turning a profit.
Warner Bros faces several challenges as it heads into its Q2 report. The company has billions of dollars of debt that it working to pare down. Strikes by Hollywood unions and a series of box-office disappointments certainly haven’t helped matters.
Yet, there is reason for optimism given the huge success of its “Barbie” movie. The summer blockbuster has been smashing box-office records and looks like it could gross more than $1 billion globally.
Cautious investors may want to wait to see what tomorrow’s earnings announcement brings. A post-earnings sell-off could make this discounted growth stock even more of a bargain.
On the publication date, Faizan Farooque did not hold (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.