The Top 3 High-Growth Stocks to Buy for Outsized Returns

The S&P 500 index has witnessed a decent recovery from the lows of Oct. 2022. During this period, several oversold stocks have surged. However, there is no dearth of opportunity in the markets. Several high-growth stocks continue to trade at attractive valuations.

Even with concerns related to a recession, I believe that it’s a good time to accumulate growth stocks. It makes sense to buy when fear is the dominant sentiment than to buy during an euphoria. For investors with a holding horizon of 24 to 36 months, this column discusses high-growth stocks for multibagger returns.

Undoubtedly, I would remain overweight on blue-chip stocks that offer an attractive dividend yield. However, at least 30% of the portfolio can be allocated to high-growth stocks that look undervalued. That’s the only way investors can generate returns well above inflation.

Let’s discuss three such companies and the catalysts that are likely to take their stocks higher.

Albemarle Corporation (ALB)

Albemarle Corporation (NYSE:ALB) stock has trended higher by just 13% in the last 12 months. The company is, however, on a high-growth trajectory and looks deeply undervalued. ALB stock trades at a forward price-earnings ratio of 12.3 and offers investors an annual dividend of $1.58.

Talking about the growth momentum, Albemarle expects revenue of $7.3 billion for 2022. At the mid-range of the guidance, revenue is expected to swell to $18.5 billion by 2027. Between this period, adjusted EBITDA is expected to more than double to $7.8 billion. Even beyond 2027, Albemarle expects to increase its lithium conversion capacity.

Clearly, valuations are attractive, considering the impending growth. Furthermore, the growth trajectory implies a strong upside in cash flows and potential for sustained dividend growth. With the supply of lithium likely to remain tight in the coming decade, Albemarle is expected to benefit from a higher realized price. Overall, I would not be surprised if ALB stock delivers 200% returns in the next 24 months.

Li Auto (LI)

It seems that the worst correction for electric vehicle stocks is over. Tesla (NASDAQ:TSLA) stock has already doubled from the lows of 2023. Among high-growth electric vehicle stocks, Li Auto (NASDAQ:LI) is worth considering for multibagger returns.

Even amidst challenges related to supply chain and inflation, Li Auto reported the delivery of 133,246 cars in 2022. On a year-on-year basis, deliveries increased by 47.2%. I believe that growth is likely to accelerate in 2023 and beyond.

The reason to be bullish is a strong line-up of new models. This includes Li L9, Li L8 and Li L7. The company expects to commence delivery of Li L7 Air and Li L8 Air in April 2023.

It’s also worth noting that Li Auto reported cash and equivalents of $7.85 billion as of Q3 2022. The company has ample financial flexibility to pursue aggressive retail expansion within China. Further, expansion in Europe also seems likely. Peers such as Nio (NYSE:NIO) and XPeng (NYSE:XPEV) are already building a presence in the high-growth European markets.

Riot Platforms (RIOT)

Bitcoin (BTC-USD) has staged a small recovery and currently trades near $22,000. Assuming a scenario where Bitcoin trades at $50,000 in the next 12 to 24 months, Riot Platforms (NASDAQ:RIOT) stock is poised for multibagger returns.

Just to put things into perspective, RIOT stock traded near $80 during the euphoric rally for cryptocurrencies. From current levels of $5.7, five-bagger or ten-bagger returns are likely. Of course, this scenario completely depends on the trend for Bitcoin.

Specific to Riot, there are two reasons to like the company. First, Riot has been reporting sustained growth in hashing capacity. The hash rate capacity as of January 2023 was 9.3EH/s. Riot expects to boost capacity to 12.5EH/s in the first half of 2023.

Furthermore, Riot has a strong balance sheet with zero debt and $255 million in cash. The company is well positioned to survive the crypto winter and aggressively expand when the market outlook improves. Being a low-cost producer is another advantage and Riot reported gross mining margin of 65.4% for year-to-date 2022.

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.