It has been a difficult year in 2022 to say the least for those looking to accrue wealth by growing their portfolio, with the share prices of growth stocks being brutally punished.
Growth is king
However, across the globe a pattern is emerging, and it revolves around central bank policy and inflation.
In Canada, inflation is falling much sharper than analysts had expected. The UK is seeing faster-than-expected falls in inflation, and the same could be said of the US too.
Whisper it quietly, but the signs are promising that we are moving into a new environment, away from the assumed safe havens of cash ISAs and interest-bearing saving accounts. An environment where growth stocks look to once again take their place on the throne as the king-incumbent.
Pain is a companion of growth
Whilst growth stocks come in all shapes and sizes, by mid-2021 I thought many of the more speculative stocks and sectors had become severely over-priced and in need of a dramatic cut.
So, as I sat at my desk, I wondered what events could take place that would justify a halt in these growth stocks progress.
It came in the manner of supply-chain shocks and war on European soil leading to snow-balling interest rates.
So often, when the consensus perspective believes things are bad (or good) and pain (or jubilation) is being felt in the shape of falling (or rising) prices, the opposite is true.
This is because markets move in anticipation of upcoming events and pain is a necessary component of healing, as any good doctor will tell you.
Greedy when others are fearful, and vice versa
Toward the end of 2022, whilst the doom-and-gloom clouds of hindsight covered world media and policy makers (shaping collective consensus), valuations in some of these growth stocks had reached absurd lows and I thought to myself it’s time to pivot.
Sure enough, inflation began falling earlier and more quickly than consensus expected. Consequently, companies like Tesla that suffered huge drops from their all-time highs began rising from the ashes.
On my buy list
Now don’t get me wrong, I personally won’t be buying Tesla shares for now. But there are now a number of companies with attractive valuations for my portfolio.
For example, one growth stock I’m looking at right now in a sector I’ve been monitoring for bargains is Eco Animal Heath Group.
Like many biotech stocks, its share price has suffered significantly given it’s currently not profitable and is trading very near to its 15-year low — down 70% from its 2021 high.
That being said, I like the approach of the business and growth potential of its products and pipeline. Eco focuses on the prevention and treatment of infectious disease in cattle, poultry, sheep, pigs, horses and dogs.
This is an area that I believe is going to become increasingly important, with infectious diseases on the rise and attention placed on food security, in a warming climate.
Risk to reward
Investing in growth stocks can be inherently risky at the best of times. But for my portfolio, the time to buy has arrived.
