Growth stocks have performed terribly during the first half of the year. For example, the S&P 500 Growth Stock ETF is down 27% so far this year (down 16.55% over one year). This has made several options start to look attractive in my opinion. Following such a slump, we could be due a recovery as part of the new stock market cycle. With that in mind, here are two stocks that I think I’m going to buy.
A recovery with high volatility
The first stock in question is CMC Markets (LSE:CMCX). As a retail trading platform, the company has experienced high growth since the start of the pandemic. However, this growth has been stunted recently, something that has been reflected with the 39% fall in the share price over the past year.
In the full-year results released last month, the company noted a fall in profit due to the lack of “unusually significant trading volumes” from Covid-19. Net operating income fell by 31% versus the financial year ending 2021. However, income was still up 12% on a two-year basis, when comparing it to the pre-pandemic year.
In my opinion, the stock is a good growth buy for 2022 onwards. I’m not going to get caught up too much in the year-on-year decline in finances, as the pandemic artificially boosted numbers. Yet if high volatility was a gauge that helped to increase profitability for the company, then the 2022 financial year should be strong. So far this year we’ve experienced soaring commodity prices, falling stock markets and whipping currency action. All of this should aid CMC Markets.
The main risk to my view is if numbers continue to fall in the next trading update. This could cause any momentum generated during the pandemic to be lost completely.
A newly-listed growth stock
The second company I’m thinking about buying shares in is Moonpig (LSE:MOON). It’s another classic case of a growth stock hindered by the market cycle. The online card and gifting business increased turnover rapidly over the past few years, leading to the business going public in February 2021. The uncertainty and concern around stocks in recent months mean that the share price is down 52% over the last year.
Revenue for 2021 fell by 17.3%, however the EBITDA margin remained at a very healthy 24.6%. If this kind of profit margin is retained for the coming years, I think the business will be able to post a profit (or at least avoid a hefty loss).
Further, I think that if we do enter a stock market recovery, demand should be strong for products. The card side of the business should have consistent demand through good times and bad. Yet the experiences side of the business (an area of investment for the company) is more sensitive to consumer demand. So if we see the economy pick up, I think this division could really take off.
One concern I have is the fact that some big investors sold out recently. Back in May, some early stage institutional investors sold shares, which could have been linked to the end of the tie-in period to hold the shares after the IPO.