Growth stocks remain firmly out of favour. And as a Fool, that suits me just fine. The way I see it, any period of weakness is an opportunity to snap up brilliant companies on the cheap before the inevitable recovery in investor confidence.
Today, I’m revealing three examples occupying spots on my buy list.
Games Workshop
I already own stock in fantasy figure maker Games Workshop (LSE: GAW) and I’m looking to add more.
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Like most listed companies, the owner of the Warhammer 40,000 brand is having a nasty 2022. Shares are down almost 30% year-to-date as stock markets fret over, well, pretty much everything.
I don’t see this situation changing immediately. Like other retailers, Games could suffer as its legion of fanatical followers understandably prioritise paying their bills. For this reason, the next update we receive from the FTSE 250 member could make for tough reading.
For someone with a longer timeline however, I think a price-to-earnings (P/E) ratio of a little under 19 is already great value, relative to the quality of the underlying business. Attractions here include big margins, a seriously-strong balance sheet, a dominant position in a niche market and plenty of scope to push its valuable IP in new directions.
XP Power
Next on my buy list is power solutions provider XP Power (LSE: XPP). It’s another firm that’s been heavily rejected in 2022 with shares tumbling nearly 65%. Again, I wonder if the market has become overly pessimistic here.
Now don’t get me wrong, things are pretty grim at XP Power. Revenue growth has been held back by component shortages and a resurgence of Covid-19 in China. A rapidly rising debt pile is not something I like to see either.
Once again however, I suspect this is already reflected in the price. A P/E of 10 could prove wonderful value when the good times return. And given just how important the company’s products are, I think the chances of this happening are pretty high. It already had a record order book of £285m going into the second half of 2022.
In the meantime, there’s a 5.2% dividend yield for me to re-invest back into the market (and, potentially, the very company this cash originated from).
Fevertree Drinks
A third growth stock I’m looking to invest in is premium tonic water purveyor Fevertree Drinks (LSE: FEVR). Shares have crashed almost 70% in 2022 through a toxic mix of increasing costs, labour shortages across the pond and less glass being available.
Are any of these headwinds permanent? I don’t think so. And that’s where my Foolish instincts kick in. Ignoring the share price movement, I reckon this remains a great company with a strong premium brand that’s quickly developing a following in the US.
But there’s a problem. Fevertree shares change hands at a P/E of 40. At face value, that’s (very) punchy considering margins have been squeezed hard in recent years. And as purse strings tighten, a bad 2022 could easily turn into an equally tricky 2023.
On the flip side, Fevertree boasts strong finances to weather the storm. And when energy prices do calm down and discretionary income bounces back, I can see drinkers pushing the boat out once again.
Will I buy before then? I just might!
