3 Overlooked Growth Stocks That Could Outperform the Market

Stocks to buy

When it comes to growth stocks, the gold investment opportunity is still not lost. Buying quality and overlooked growth stocks at attractive valuations will likely deliver returns that comfortably outperform the markets.

The euphoria of 2021 was possibly the worst time to go overweight on growth stocks. Last year was spent on growth stocks, discounting earnings revision, and the factor of tight monetary policies. With the possibility of a recession in 2023, I would be cautious. However, this is the best time to buy growth stocks for investors with a three-to-five-year investment horizon.

This column discusses overlooked growth stocks that have multibagger potential. These growth stocks represent fundamentally strong companies that have not witnessed a surge in investor interest. However, investors will inevitably notice these growth stocks and will fill the value gap.

Let’s discuss the reasons to be bullish on these growth stocks.

Ticker Company Price
DOX Amdocs Limited $94.84
RIOT Riot Platforms $6.59
BORR Borr Drilling $6.69

Amdocs Limited (DOX)

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Amdocs Limited (NASDAQ:DOX) stock has already been in an uptrend with returns of 20% in the last 12 months. I believe that DOX stock will continue outperforming markets backed by healthy growth. A forward price-earnings ratio of 16.4 indicates that the stock remains undervalued.

Amdocs provides software products and services to communication and media companies globally. The company believes its growth will accelerate with the rollout of 5G. Amdocs has already invested over $1 billion in its next-generation cloud platform.

From a financial perspective, there are two important points to note. For FY2022, Amdocs reported a free cash flow of $665 million. The company has guided for FCF of $700 million for 2023. Clearly, the business is a cash flow machine, providing headroom for dividend growth. Additionally, the company can invest aggressively in innovation.

Further, a significant part of the revenue is recurring. Amdocs currently has a 12-month forward revenue visibility of $3.97 billion. As multi-year contracts swell, the FCF outlook will continue to improve.

Riot Platforms (RIOT)

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After the big crash in cryptocurrencies, investors have remained cautious about crypto stocks. But some attractive opportunities are being overlooked. Riot Platforms (NASDAQ:RIOT) is among the overlooked growth stocks to consider. I will bet on multibagger returns from RIOT stock if Bitcoin (BTC-USD) continues to recover.

A big reason to like Riot is the company’s fundamentals. As of Q3 2022, Riot reported $255 million in cash and zero debt. The strong balance sheet positions the company for aggressive growth if Bitcoin’s recovery sustains.

It’s worth noting that Riot reported a mining capacity of 9.3EH/s as of January. The company expects to boost its hash rate to 12.5EH/s in the first half of 2023. Digital assets will continue to swell, and that provides additional financial flexibility.

Riot is also among the low-cost miners. For the first nine months of 2022, the company reported a gross mining margin of 65.4%. If Bitcoin trades above $35,000 in the coming quarters, Riot is positioned for healthy EBITDA and cash flow upside.

Borr Drilling (BORR)

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I would be cautious when buying a stock that has returned almost 200% in the last 12 months. However, it’s worth noting that Borr Drilling (NYSE:BORR) has surged from deeply oversold levels. With a robust growth outlook for 2023 and continued growth in the order book, the rally for BORR stock is likely to sustain.

As an overview, Borr Drilling is a provider of offshore rig services. The company has a fleet of modern rigs that stands to benefit as the outlook for the oil and gas industry improves.

To put things into perspective, Borr Drilling expects revenue of $435 to $450 million for 2022. For the current year, the company has guided for revenue of $760 million (mid-range). The company has also guided for more than a 100% upside in EBITDA. Robust margin expansion is likely on the back of higher day rates.

With a strong growth outlook, BORR stock will likely remain in an uptrend. Further, new contracts and extensions serve as catalysts for stock upside.

On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.

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