June 13, 2024

The Art of Investment

Mastering the Stock Market Strategies

3 Growth Stocks to Buy at 52-Week Lows in May

4 min read

It’s been an incredible year for growth stocks. As measured by the Nasdaq 100 Index, growth stocks have rallied 35% over the past 12 months. And starting from the Fall 2022 lows, the Nasdaq 100 has now rallied more than 70% in total. But investors haven’t completely missed out on easy money with these growth stocks at 52-week lows.

Certainly, valuations have gotten rather stretched in a lot of leading areas like AI and semiconductor manufacturers. However, even amid this seemingly non-stop tech stock bull market, there are still some bargains to be found.

In fact, all three of these growth stocks to buy now are currently at or just above their 52-week lows. While these companies are currently reporting downbeat earnings and are in something of a cyclical trough, these three growth stocks have what it takes to get back on track and see their shares post major recoveries in the back half of 2024.

Cisco (CSCO)

Where and Why You Can Steal Cisco Stock

Source: Valeriya Zankovych / Shutterstock.com

Cisco (NASDAQ:CSCO) is a leading communications technology company.

Most investors probably know Cisco for its internet networking gear, such as routers and network switching systems. And to be sure, communications hardware remains a large chunk of Cisco’s business.

However, Cisco has evolved its operations fairly dramatically in recent years. It has transitioned to a far more subscription-driven recurring revenue model. Increasingly, Cisco layers on higher value-added software and services such as cybersecurity on top of its networking gear.

As a result, Cisco’s overall business quality has significantly improved. Its revenue streams are more consistent and predictable, and subscription revenues tend to deliver higher profit margins as well.

In the near-term, hardware sales are down sharply as customers are still absorbing networking equipment bought over the past two years. This has caused CSCO stock to fall to 52-week lows.

Shares are a bargain here. Hidden in the negative headlines, in the most recent quarter, Cisco grew total annualized recurring revenues 22% year-over-year to $29.2 billion. Its recent acquisition of Splunk offers Cisco an attractive quickly-growing source of subscription revenues.

Networking gear is still a cyclical industry and Cisco is currently near the bottom of the cycle. But the company’s long-term outlook remains healthy. With the sell-off, shares go for less than 13 times forward earnings and offer a 3.4% dividend yield.

Endava (DAVA)

The logo for Endava (DAVA) displayed on an office building.

Source: BalkansCat / Shutterstock.com

Endava (NYSE:DAVA) is an IT consulting shop with a focus on financial services businesses such as insurance, banks and payments processors.

The core business model at Endava is to provide IT services via outsourcing. Essentially, Endava hires skilled IT workers in lower cost-of-living countries such as Poland, Colombia and Vietnam and uses this workforce to fulfill IT contracts for multinational companies.

Endava has enjoyed tremendous success with this business model. It has tripled revenues and increased profitability dramatically in recent years. In particular, Endava saw outsized growth during the early days of the pandemic as firms rushed to beef up their digital offerings for the rush of e-commerce and app-based financial offerings that took off during this period.

That digital gold rush has now ended. As the economy reopened, the velocity of new IT and digital evolution spending has slowed. Given Endava’s specific focus on the financial services industry, its clients have been especially hard-hit by the recent jitters in the banking and payments sectors.

All this has resulted in a full-on collapse in DAVA stock, with shares falling more than 80% peak-to-trough. That’s pretty remarkable given that Endava’s revenues have barely slipped from prior levels and analysts see Endava delivering record top-line results for the fiscal year ending June 2025. This makes DAVA stock a fantastic buy near its all-time low stock price.

Unity Software (U)

In this photo illustration Unity Software Inc. (U stock) logo is seen on a mobile phone and a computer screen. Growth stocks at 52-week lows

Source: viewimage / Shutterstock.com

Unity Software (NYSE:U) is one of the two primary third-party graphics engines that video game developers use to produce their games.

The company’s calling card is its interoperability. Unity is plug-and-play. A developer can build a game in Unity and quickly port it across PC, console, mobile and even virtual and augmented reality.

That last point is a key part of Unity’s appeal. Unity is one of Apple’s (NASDAQ:AAPL) primary partners in developing apps for the Apple Vision Pro. Unity is also integral to Meta’s (NASDAQ:META) Oculus ecosystem.

While Unity’s technical chops are not in question, the company’s commercial strategy has been less pleasing. Unity has relied heavily on advertising within mobile games to drive revenue, this is a relatively low-quality revenue stream that analysts are nervous about. Unity attempted to raise prices on developers last year, but this caused a firestorm and was walked back.

That misstep led to Unity’s CEO exiting the company. Matthew Bromberg, a longtime gaming industry executive, comes in as the new Unity head. Fresh leadership and increasing opportunities in the AR/VR arena and the metaverse could be just the thing to help Unity rebound from its current 52-week-low stock price.

On the date of publication, Ian Bezek held a long position in U and DAVA stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.

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