As I write, gold has surged above $2,000 an ounce. Among the various reasons for the rally, the precious metal is discounting potential expansionary policies in the second half of 2023. Assuming this scenario to be true, it’s a good time to look at some growth stocks to buy for the medium term.
Expansionary monetary policies would imply a weaker dollar, and as inflation remains high, money will be allocated toward risky asset classes. With significant value in growth stocks, I expect fundamentally strong stories to surge in the next 24 months.
Of course, it makes sense to remain overweight on blue-chip stocks. However, I would not hesitate to allocate 20% to 30% of my portfolio toward growth stocks that are deeply undervalued.
This column focuses on three growth stocks to buy with stories that are backed by good fundamentals. Let’s discuss the reasons that can trigger a big rally in these stocks.
Lithium Americas (LAC)
Lithium Americas (NYSE:LAC) is possibly among the most undervalued growth stocks to buy. After a correction of 45% in the last 12 months, LAC stock has limited downside. On the other hand, the upside potential is significant, considering the asset quality.
To put things into perspective, the Thacker Pass project has an after-tax net present value of $4.95 billion. With a mine life of 40 years, the asset is a cash flow machine. The company has already commenced construction activity in the asset with targeted production activity in 2026. I don’t see financing construction as a challenge. Recently, General Motors (NYSE:GM) infused $650 million in the company for joint development of the asset.
Lithium Americas also has a 44.8% ownership stake in the Cauchari-Olaroz asset in Argentina. The asset is expected to deliver an average annual EBITDA of $308 million. This asset is expected to reach full production of 40,000tpa of lithium carbonate by Q1 2024. Once production commences, the stock is likely to trend higher.
Riot Platforms (RIOT)
The momentum has remained bullish for Bitcoin (BTC-USD), with the cryptocurrency surging by 71% for year-to-date 2023. I expect a healthy upside for Bitcoin miners even after a big rally in the recent past.
Riot Platforms (NASDAQ:RIOT) has been surging higher. However, the stock remains undervalued and can deliver multibagger returns in the next two years. With Bitcoin halving due in 2024, the outlook for cryptocurrencies is positive.
A key reason to like Riot is a strong balance sheet. The company ended 2022 with $230 million in cash and zero debt. Riot also has 7,058 Bitcoin holdings, likely to swell in value in the coming quarters.
Another factor to be bullish about is that the company is a low-cost producer. For 2022, Riot reported a gross mining margin of 60.3%. I expect a significant improvement in margin in 2023. The company has also been boosting mining capacity and expects a hash rate of 12.5EH/s by June 2023.
Polestar Automotive (PSNY)
Polestar Automotive (NASDAQ:PSNY) stock has been depressed for an extended period, and I believe that the selling is overdone. In the next 24 months, PSNY stock can deliver 3x returns. The electric vehicle manufacturer continues to report positive business metrics.
For 2022, Polestar delivered 51,491 cars, and deliveries increased by 80% year-over-year. For the current year, the company has guided for 60% growth in deliveries. This seems entirely likely with Polestar 3 to commence deliveries. It’s also worth noting that the launch of Polestar 4 and 5 is in the pipeline in 2024 and 2025, respectively.
One concern is that operating losses widened significantly in 2022 on a year-on-year basis. However, the company is investing heavily in product development, sales, and marketing. With operating leverage, I expect margins to improve in 2023 and beyond. This is a potential catalyst for the stock.
Polestar is also looking at additional financing through debt or equity. Once financing is in place, I expect PSNY stock to trend higher.
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.