2 growth stocks to invest $500 in right now
Growth stocks are down in 2022 for a variety of reasons, from lingering pandemic-related supply chain issues to tough comparisons with a blistering 2021 to a hawkish Federal Reserve raising interest rates to control soaring inflation in order to avoid a recession.
This explains, in part, why the shares of Fortinet (FTNT -0.79%) and Skyworks Solutions (SWKS -0.32%) were beaten in 2022 despite impressive earnings. Fortinet’s stock price is down 30.3% this year and Skyworks shares are down 36%.
While price declines are generally not a good thing for stocks, they open up opportunities for investors looking to buy battered stocks of promising companies at relatively attractive valuations. Let’s look at the reasons why putting $500 into Fortinet and Skyworks might turn out to be a prudent long-term decision.
Cybersecurity specialist Fortinet has largely outperformed the broader market over the past decade. The stock has gained more than 800% during this period, easily surpassing the S&P500166% over the same period. So a $500 investment in Fortinet stock ten years ago is worth more than $4,500 now.
It wouldn’t be surprising to see the company repeat this impressive performance over the next decade. Indeed, the size of the market in which Fortinet operates is expected to grow at a faster rate in the future thanks to an increase in cyber threats.
The global cybersecurity market is expected to be worth nearly $501 billion by 2030, growing 12% annually from 2022 through the end of the decade. By comparison, global spending on cybersecurity has grown from $60 billion in 2012 to around $150 billion last year. So, Fortinet’s end-market opportunity could more than triple over the next eight years, which would be a nice step up from the 2.5x growth seen over the past decade.
More importantly, Fortinet is well on its way to taking advantage of this lucrative opportunity. The company is growing at a faster rate than the cybersecurity market, as evidenced by its second quarter 2022 results. Fortinet’s total revenue jumped 29% year-over-year to 1 $.03 billion, while adjusted net income rose to $0.24 per share from $0.19 per share a year ago.
The company’s deferred revenue (money collected in advance for services that will be rendered later and not yet recognized as revenue) has grown at a faster rate than its actual revenue. Fortinet’s deferred revenue grew 35% year-over-year to $2.9 billion. The rapid growth of this metric is an indicator of a strong future revenue pipeline for Fortinet.
Fortinet management expects revenue to grow at a compound annual growth rate of 22% through 2025. Analysts are also optimistic about its outlook, predicting annual earnings growth of 23% for the five coming years. All of this indicates that Fortinet is a cybersecurity stock worth investing $500 in, especially since it currently trades at 40 times forward earnings, a ratio below its average multiple of 47 on five years.
Skyworks Solutions is another battered stock investors may want to buy right now, as it trades at just 12.7 times earnings, a discount to the 22 multiple of S&P 500 earnings. the stock’s forward earnings of 8.6 is also attractive and indicates an improvement in its bottom line.
Buying Skyworks at this valuation seems like a good idea given its catalysts and attractive dividend. It’s worth noting that a $500 investment in Skyworks ten years ago would now be worth nearly $2,000 despite its stock price falling sharply over the past year, assuming dividends were reinvested.
It would not be surprising to see the company deliver healthy growth in the future also thanks to the secular demand for its chips, which are used in multiple applications ranging from smartphones to automotive to data centers and the Internet of Things (IoT). These multiple end markets drove healthy growth for Skyworks in the third quarter of fiscal 2022, which ended July 1, 2022.
The company’s revenue rose 10% year-over-year to $1.23 billion, driven by strong demand for 5G smartphone chips. Additionally, Skyworks is seeing an increase in demand for chips used in electric vehicles and wearable devices. The chipmaker has also won several design contracts from European equipment vendors to power massive MIMO (multiple-input, multiple-output) 5G deployments.
It should be noted that all of these markets are on track for impressive long-term growth. The demand for 5G chipsets, for example, is expected to increase at an annual rate of almost 27% until 2027. Meanwhile, the automotive chipset market is expected to register an annual growth of 12% over the same period.
So, investors looking to buy a semiconductor stock that could give their long-term portfolios a nice boost may want to take a closer look at Skyworks stock, as it’s trading attractively right now. moment and seems on track to maintain its growth momentum.
Harsh Chauhan has no position in the stocks mentioned. The Motley Fool fills positions and recommends Fortinet. The Motley Fool recommends Skyworks Solutions. The Motley Fool has a disclosure policy.