After an unambiguously terrible 12 months, one expert has declared now the time to buy up growth stock at rock bottom.
Frazis Capital specialises in "explosive" growth shares, predominantly on the US markets. While it almost doubled clients' money in 2020, the 12 months to October 2022 saw it lose more than 61%.
But in a memo to clients this week, founder and portfolio manager Michael Frazis was upbeat.
"Our strategy from here is to make sure this fund is the single best way to play a recovery in technology and growth," he said.
"Key companies are down 85% to 90%, are trading at 25% free cash flow yields, and are still posting solid revenue growth."
Still many growth stocks at all-time lows
The Nasdaq Composite (NASDAQ: .IXIC) has jumped almost 10% so far this year.
But Frazis believes many stocks are still going for an absolute bargain.
"Many companies are still at lifetime valuation lows," he said.
"At current trend lines, US CPI [inflation] will be sub 2% by May/June this year. This was a Fed-induced slowdown more than anything else. At some point, this headwind will become a tailwind."
Technology and life sciences, which were hammered over the past 12 to 14 months, make up much of Frazis' portfolio.
But recent headlines about ChatGPT demonstrate just how critical these industries are for the future.
"Professional and retail investors are significantly underweight on the sector that historically generates the most wealth, with recent advances in artificial intelligence a powerful reminder of why this is the case."
Cheap shares but the businesses are still growing
Frazis demonstrated how a couple of his holdings that performed poorly in 2022 are now looking healthy for those willing to buy in right now.
"Shopify Inc (NYSE: SHOP) continued to stack revenues throughout 2022 but this was overpowered by a >90% multiple contraction," he said.
"In January, Shopify broke above key moving averages for the first time in over a year. Since it has continued growing throughout this period, the stock can move to significant new highs without valuations ever approaching 2021 levels."
Electric car maker Tesla Inc (NASDAQ: TSLA) saw its shares halve over the past year on the back of worries about production, sales, and chief Elon Musk's distraction with Twitter.
So the stock can be bought on the cheap for a business that's still growing strongly.
"Company reports are still solid. Tesla, which lost ~75% of its value, reported EPS growth of 78% year-on-year, on a forward PE that got as low as 20," said Frazis.
"Tesla just reported Q4 37% revenue growth and 57% GAAP EPS growth."
There are a whole bunch of software companies in the US that are in the same boat.
"On a growth-adjusted basis, software is cheaper than at any point in the last decade," said Frazis.
"We've said this before, but that doesn't make it any less true today: US growth software is a screaming long-term buy."
Frazis reminded his clients that after the bear markets of 1973-74 and 1980-82, stocks posted their strongest-ever returns.
"There will be a point where fast growing tech companies transition from the very worst place to be invested to where they usually are: the very best. We will be there for it."
