Blue-chip growth stocks are not made overnight. These stocks represent companies that have built their business over years or decades. This comes through a good management team focusing on innovation and industry tailwinds, among other factors. From an investment perspective, the biggest wealth creators are potential blue-chip growth stocks that are grabbed early.
Of course, it’s not easy and takes a lot of research, conviction and patience. The journey from a growth stock to a blue-chip involves depression and deep corrections. The conviction to hold the business pays off handsomely in the long term.
The focus of this column is on potential blue-chip growth stocks to buy. The stocks discussed represent businesses that can make it big in the next five to ten years. Considering an investment horizon until 2030, these ideas can deliver multibagger returns.
Let’s discuss the company and industry factors of these blue-chip growth stocks likely to be catalysts for businesses to grow multi-fold in revenue and cash flows.
Li Auto (LI)
Li Auto (NASDAQ:LI) is a likely massive value creator among Chinese EV companies. Considering the growth trajectory, LI stock looks deeply undervalued at a forward price-earnings ratio of 16.2.
Recently, the stock corrected sharply as the management revised the outlook for Q1 2024 on the downside. What I liked about the company’s press release was the management acknowledging the mistakes. First, the “operating strategy of Li MEGA was mis-paced.” Further, the company ” excessively emphasized sales volume and competition.” With a focus back on creating value for users and operating efficiency, Li Auto is well-positioned for sustained growth.
It’s worth noting that Li ended 2023 with a cash buffer of $14.6 billion. Further, the company might be positioned for annual free cash flow of $8 to $10 billion.
However, Li has remained conservative in spreading its wings too early. The company has continued to focus on China when peers like Nio (NYSE:NIO) and XPeng (NYSE:XPEV) are looking at aggressive international expansion. A focused growth strategy will continue to deliver results and help keep margins attractive.
DraftKings (DKNG)
The iGaming and online sports betting sector will likely get bigger in the United States in the coming years. DraftKings (NASDAQ:DKNG) is a turnaround story and will likely be a massive value creator by 2030.
To put things into perspective, the iGaming and OSB market is expected to grow from $20 billion in 2023 to $30 billion by 2028. This is just for the existing states where DraftKings operates. With legalization likely in more states, the addressable market will get bigger.
Specific to DraftKings, cash burn was a key challenge. However, that has been addressed, and the company is positioned to sustain EBITDA margin expansion. For the current year, the company has guided for revenue and EBITDA of $4.8 billion and $460 million, respectively.
Further, the company expects to achieve adjusted EBITDA of $1.4 billion in 2026 and $2.1 billion by 2028. Again, these estimates are for existing states. With expansion into new states, the EBITDA visibility will be higher. The business is, therefore on-track to be a cash flow machine in the coming years and DKNG stock is likely to deliver multibagger returns.
MakeMyTrip (MMYT)
If we consider a time horizon of ten years, India is likely to be among the fastest growing economies in the world. Be it favorable demographics, a swelling middle-class or China plus one policy, India has the ingredients to create wealth. MakeMyTrip (NASDAQ:MMYT) is therefore among the list of blue-chip growth stocks to consider.
As an overview, MakeMyTrip is the largest online travel and tourism company in India. MMYT stock has surged by 190% in the last 12 months with the industry gaining traction after the pandemic. However, considering the impending growth potential, the stock is worth accumulating on corrections.
To put things into perspective, India had 158 million middle-class households in 2018. This is likely to swell to 300 million by 2030. Further, by the end of the decade, India will have the second largest internet user base. Clearly, there is ample headroom for growth in the travel market.
It’s worth noting that in the financial year 2021, the company reported an adjusted operating loss of $18 million. For the first nine months of the current FY, MakeMyTrip has reported operating profit of $91.8 million. With a strong balance sheet and sustained growth in profitability, the outlook is positive for MMYT stock.
Coupang (CPNG)
E-commerce stocks were hot during the pandemic. However, in a post-pandemic world, there were growth adjustments on the downside. This translated into a downside for some of the best e-commerce stocks. However, with the industry expected to grow at a steady pace, it’s a good time to look at quality growth stocks. Coupang (NYSE:CPNG) stock looks attractive at current levels of $19 and is a potential multibagger.
The first point to note is that Coupang has a big addressable market within Korea. As of 2023, the Korean e-commerce market was valued at $483 billion. The market size is expected to swell to $563 billion by 2027. With steady growth in active users coupled with an upside in average revenue per user, Coupang is well positioned to benefit.
Further, Coupang has been making inroads into other Asian markets (including Southeast Asia). This is likely to ensure that the revenue momentum is sustained. It’s also worth noting that Coupang recently completed the acquisition of Farfetch Holdings. The latter is a global marketplace for the luxury fashion industry. The acquisition gives Coupang entry into the European markets. With healthy cash flows and aggressive investments, Coupang is positioned to create value.
Arm Holdings (ARM)
Arm Holdings (NASDAQ:ARM) stock was listed in September 2023 and has been in an uptrend. I believe that corrections can be used as an opportunity to accumulate the stock. As an overview, Arm Holdings manufactures and licenses central processing unit products and related technologies.
For Q3 2024, Arm reported healthy revenue growth of 14% on a year-on-year basis to $824 million. For the same period, the company reported free cash flow of $251 million. With an annualized FCF potential of $1 billion, Arm is positioned to invest in innovation. I must add here that as royalty revenue swells, free cash flow will be significantly higher in the next five years.
An important point to note is that in 2016, Arm Holdings focused on general purpose CPUs. Currently, the company has AI enabled solutions for mobile, IoT, consumer electronic, automobile, cloud and networking. Therefore, the addressable market is big and as the demand for CPUs swells, Arm will continue to benefit.
Aker BP ASA (AKRBF)
Aker BP ASA (OTCMKTS:AKRBF) is an under-the-radar growth stock with multibagger returns potential. With volatility in oil prices, AKRBF stock has remained sideways in the last 12 months and trades at an attractive valuation. Further, the stock offers a dividend yield of 8.59% and I expect healthy dividend growth in the coming years.
As an overview, Aker BP is an oil and gas company with an asset focus in the Norwegian Continental Shelf. As of 2023, the company reported 2P reserves of 1.72 billion barrels of oil equivalent. The company has grown in the last ten years through multiple mergers and acquisitions.
What’s important to note is that the company’s assets have an attractive break-even. The entire portfolio break-even is at $35 to $40 per barrel. Even if oil trades at $80 to $90 per barrel, there is robust EBITDA and cash flow visibility.
Last year, Aker reported operating cash flow (after taxes) of $5.3 billion. With production growth and potentially higher realized oil prices, OCF is likely to be higher in 2024. This sets stage for dividend growth and aggressive exploration investments.
Lithium Americas (LAC)
Lithium Americas (NYSE:LAC) is among the emerging companies that are likely to make it big in the coming years. Currently, the company commands a market valuation of just $1 billion. I would not be surprised if the valuations swell by 20x or 30x by 2030.
The first catalyst is a potential reversal in lithium and a steady uptrend. That seems entirely likely in the coming years with an impending supply gap. Further, Lithium Americas has ownership of the prized Thacker Pass project.
The asset has an after-tax net present value of $5.7 billion and a mine life of 40 years. Production is expected to commence in 2027 with the first phase (years one to four) likely to deliver an average annual EBITDA of $1.1 billion. The second phase’s annual EBITDA is likely at $2 billion (years five to 40).
Clearly, the asset is poised to be a cash flow machine. Once commercialized, it’s likely that Lithium Americas will scout for more asset acquisitions. This will set the stage for the next phase of growth.
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.