The market was positive for the first trading day of the month. While the S&P 500 and Dow Jones Industrial Average were slightly up, the Nasdaq Composite index led the way with a 1.4% gain. In a sign of good news, growth stocks were also up today as the SPDR Portfolio S&P 500 Growth ETF (SPYG) gained 0.9%. This followed a September when SPYG was down -4.6%.
Investors are bracing for volatility this month due to several political issues at the forefront, including the pending election and stalled stimulus talks. Add in the potential for a second wave of the coronavirus and October’s reputation as a historically volatile month, and we could see a rollercoaster of a market over the next 30 days. We also need to consider that earnings season starts in the middle of the month, which will give us a better idea of how companies will follow up their surprising second quarters.
I decided to cut through the noise and find three growth stocks that could see substantial gains this month. I ran a screen that provided a list of companies showing strong near and mid-term momentum and strong near and mid-term sales and earnings growth potential. I then narrowed down the list to focus on companies that should benefit from a number of recent growth catalysts. The following three stocks fit the bill: Alibaba Group Holding (BABA), Peloton Interactive (PTON), and Enphase Energy (ENPH).
Alibaba Group Holding (BABA)
BABA recently held its annual investor conference at the end of September, and two bits of information came out that may trigger a new wave of buying. First, its Chief Financial Officer Maggie Wu stated that BABA’s cloud unit would profit for the first time in the current fiscal year ending March 31, 2021.
The company has been developing its cloud segment for a decade, and it’s the clear market share leader in China. As cloud computing has been a central theme in this year’s stock run-up this year, BABA has another growth catalyst to drive its price higher.
But that wasn’t the only bit of exciting news. Its Cainiao segment, a joint venture founded in 2013 to provide data and technology solutions to third-party carriers, is expected to be profitable on an operating cash flow basis this year. This unit grew at a 55% rate last quarter but had never been profitable. This is a second growth catalyst to add to its already-dominant e-commerce platform.
In the last quarter, BABA had 742 million annual active customers, up 10% from the previous year. Its e-commerce segment generated $18.9 billion last quarter, which was up 34% year over year. The company has a strong cash position that should provide the capital to expand into Southeast Asia, providing more top-line growth over the next few years.
BABA is rated a “Strong Buy” in our POWR Ratings system. It holds straight “A”s in the four components that make up the POWR Ratings, including Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. It is also ranked #1 out of 115 China stocks.
Peloton Interactive (PTON)
PTON has been a colossal growth story this year, as it is up 225% so far. The company is looking to upend the fitness industry through its interactive fitness platform. Last quarter, its revenues grew 172%, following double-digit revenue growth in fiscal 2019, and 99% growth the year before that. The company has 1.1 million subscribers that pay $39 a month to access the fitness platform. Management expects 2 million subscribers in a year.
The company can scale up revenue quickly due to its ability to cover sales & marketing expenses with its four-figure initial purchase price. Then the company generates recurring revenue from a “must-have” subscription to its platform.
While PTON has undoubtedly benefited from the pandemic, its previous top-line growth figures and its future growth potential bodes well for the next few years. In any case, the company should benefit over the coming months due to a second wave of the virus and/or consumer reluctance to go to the gym.
The company is also benefiting from an expansion in its product line. The recent launch of the Bike+ and a smaller Peloton Tread provides the company two lower-cost products that may entice buyers turned off by the $4,295 price tag of the original Peloton Tread (now called Peloton Tread+). Both the Peloton Bike+ and the new Peloton Tread cost $2,495.
PTON is rated a “Strong Buy” in our POWR Ratings system. Similar to BABA, PTON also has straight “A’s” in every POWR component. It is also ranked #5 out of 34 stocks in the Consumer Goods industry.
Enphase Energy (ENPH)
ENPH delivers energy management technology for the solar industry. The company upended the solar industry by pioneering a semiconductor-based microinverter. Solar microinverters are used to convert direct current energy from the solar panel into the alternating current in the home. The company also has a healthy market share in the solar market by manufacturing a fully integrated solar-plus-storage solution.
The company has been benefiting from expanding its geographic presence. It recently began shipping its latest generation microinverters to Australia and Europe for residential and commercial solar customers. ENPH also announced new partnerships with solar distribution companies in Belgium and the Netherlands.
The stock soared 8.4% today due to analyst activity. An analyst at J.P. Morgan (JPM) raised its price target for the stock to $92, and Bank of America (BAC) initiated coverage of the stock with a “Buy” rating and a price target of $93. The stock finished the day at $89.51. Bank of America believes ENPH has a massive opportunity in residential energy storage.
ENPH is rated a “Strong Buy” by our POWR Ratings system. It holds grades of “A” in Trade Grade and Buy & Hold Grade, and a “B” in Peer Grade and Industry Rank. It is also the #2 ranked stock in the Solar industry. The energy storage market is predicted to grow to $500 billion by 2035, providing ENPH with a strong catalyst for robust growth and a much higher price in the months and years to come.
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About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a Consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers.3 Growth Stocks That Could SOAR in October appeared first on StockNews.com