We recently compiled a list of the 15 Best Growth Stocks to Buy for the Next 5 Years. In this article, we are going to take a look at where Carvana Co. (NYSE:CVNA) stands against the other growth stocks.
Kevin Mahn, President & CIO at Hennion & Walsh Asset Management, recently appeared on CNBC on January 6 to discuss the current market momentum and emphasize the need for investors to be selective in 2025 to find growth opportunities. He highlighted that while the MAG7 have led the market recently, their leadership may not continue. Mahn referenced historical data, noting that since 1950, there have been nine instances where the market rallied by 20% or more, with the market rising in eight of those cases. However, he pointed out that gains in the following year averaged only 3.6%, indicating a need for careful selection. He also acknowledged recent market trends, including a decline in the S&P 500’s performance and a potential shift in investor sentiment following events like the Santa Claus Rally.
He predicted a path of lower interest rates, expecting 50 basis points of cuts this year instead of the previously anticipated 100 basis points. Mahn suggested that this environment would create favorable conditions for stocks and bonds but urged investors to diversify beyond mega-cap tech stocks into sectors like biotech and aerospace. Earlier on January 3 as well, Mahn noted that after two consecutive years of gains, a third year of strong performance appears unlikely. He remarked that it seems the Grinch got in the way of the Santa Claus rally this year.
He also addressed concerns from investors tempted to time the market or sell their holdings. He warned against trying to time the market, describing it as often futile. Instead, he advocated for rebalancing portfolios to align with long-term goals and risk tolerance. He suggested that the economic landscape is changing, with lower interest rates and stagnant economic growth expected moving forward. Mahn advised investors to take profits from sectors that previously led the market and consider reallocating those funds into different areas poised for future growth. He highlighted biotech as a promising sector, noting bipartisan agreement on the need to lower drug prices. This shift could lead large-cap pharmaceutical companies to seek new revenue sources, making smaller biotech firms attractive.
Methodology
We first sifted through online rankings, and internet lists to compile a list of the top growth stocks to buy for the next 5 years. We then selected the stocks with high 5-year revenue growth and high analysts’ upside potential. From those we picked 15 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q3 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A customer buying a used car with the help of a finance specialist.
Carvana Co. (NYSE:CVNA)
Number of Hedge Fund Holders: 66
5-Year Revenue CAGR: 29.69%
Upside Potential as of January 15: 18.79%
Carvana Co. (NYSE:CVNA) is an online used car retailer known for its innovative approach to car buying. As the fastest-growing online used car dealer in the US, it offers a seamless digital experience where customers can browse, finance, and purchase vehicles entirely online. It eliminates the need for traditional dealership visits.
The company demonstrated strong scalability and market expansion potential in Q3 2024. It achieved record profitability with a net income of $148 million, solidifying its position as the most profitable public automotive retailer. Its infrastructure is built for significant scale, with reconditioning capacity for over 1 million retail units annually and physical real estate supporting over 3 million units per year.
With 40 million used vehicle transactions annually, and Carvana Co. (NYSE:CVNA) currently holding only 1% market share, a vast untapped market remains. The company is pursuing this opportunity through key growth drivers such as expanding inventory selection, enhancing customer experience, and increasing brand awareness. Carvana Co. (NYSE:CVNA) stock surged 5.03% in the first week of January to $198.35 after RBC upgraded its rating to Outperform and raised the price target to $280. This follows the company’s reinstatement of a $4 billion loan deal with Ally Financial.
Optimist Fund stated the following regarding Carvana Co. (NYSE:CVNA) in its Q3 2024 investor letter:
“Carvana Co. (NYSE:CVNA) continues to perform well with unit growth accelerating from mid-teens in Q1 to over 30% in Q2, while achieving double the adjusted EBITDA margins of the automotive retail sector. It remains our largest position.”
Overall CVNA ranks 8th on our list of the best growth stocks to buy for the next 5 years. As we acknowledge the growth potential of CVNA as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CVNA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.
Disclosure: None. This article is originally published at Insider Monkey.