3 Top Growth Stocks to Buy Hand Over Fist in February | The Motley Fool (2024)

The S&P 500 index is up 21% over the past year and has already set several new all-time highs in 2024. While the market overall is growing well of late, some individual growth stocks are still trading at low valuations that could set the stage for big returns over the next few years.

Let's find out why three Motley Fool contributors believe Toast (TOST 5.12%), Walt Disney (DIS 0.53%), and Coupang (CPNG 0.07%) are due for a rally in the new year.

An early-stage opportunity at a great price

Jennifer Saibil (Toast): It's hard to find great early-stage opportunities. Investors often pounce on great stocks before the general public has a chance to hear about an initial public offering, and top stocks can reach high valuations before they hit many people's radars. So when a great stock's price tanks, it can be a blessing in disguise.

That's what's been happening with Toast. Toast is a catchy name for a disruptive tech stock in the restaurant industry. That may not be the place investors expect to find the next big thing, but Toast is making waves with its software-as-a-service (SaaS) platform that exclusively serves the restaurant industry. It has set out to distinguish itself as a leader by focusing on one specific niche and offering the most comprehensive suite of solutions to fill that niche, with any kind of hardware or software a client could need.

It has been reporting incredible growth despite the sour economic climate. Annualized recurring revenue increased 40% year over year in the 2023 third quarter, and it added more than 6,000 new locations in the quarter for a total of 99,000. If that sounds like a lot, it's still a small percentage of what it perceives as its serviceable addressable market today, and a tiny fraction of the overall global restaurant industry, where it envisions expanding.

However, Toast is one of those high-growth, unprofitable tech stocks that investors have grown wary of. Although gross profit increased 50% year over year in the third quarter, and net loss was about a third of what it was in 2022, the loss still came in at $31 million.

With the bull market of the past 15 months now officially recognized, investors who have been waiting on the sidelines tend to grow more favorable toward these kinds of stocks, and they could finally embrace Toast stock. Toast is down 21% over the past year, but it reports fourth-quarter earnings in February. It trades at a price-to-sales ratio of only 2.5, a cheap valuation for high-growth status, and if it reports solid results, Toast stock could skyrocket.

The magic is coming back

Jeremy Bowman (Disney): It's no secret that Disney stock has been volatile over the past couple of years. Part of the entertainment giant's issues recently revolve around its sluggish reaction to the shift to streaming, and its efforts to play catch-up have weighed on the bottom line. Its streaming division has been generating losses and profits from its linear TV business have been quickly drying up.

However, Disney appears to finally be turning the corner. Management has said that its streaming division will be profitable by September 2024, or the end of this fiscal year, but that could happen sooner as the company raised prices on its streaming services significantly in October 2023. Prices for the ad-free version of Disney+ rose from $11 a month to $14 a month, while the ad-supported plan stayed at $8 a month.

That strategy worked well for Netflix, which just reported its strongest quarter of fourth-quarter subscriber growth ever and has seen strong adoption for its ad-based tier.

Meanwhile, Disney appears to be making moves to leverage some of its linear media assets. It's held talks with the NFL about taking a stake in ESPN. It's also received interest in ABC and its cable channels from buyers, and it's in the process of merging its Indian TV entertainment business with Reliance Industries, a local company. Any of those moves would likely boost investor confidence in the business and should help lift the stock price.

Finally, Disney's theme parks business remains a fast-growing cash cow, and the company said it would nearly double its capital spending on its theme parks over the next decade, which should drive profits higher.

Disney has a lot of upside potential if it can show that it's able to deliver steady bottom-line growth, and that could start in its first-quarter earnings report in February.

This stock is for those who missed out on Amazon

John Ballard (Coupang): eMarketer expects the $5.7 trillion e-commerce market to grow to $8 trillion by 2027, making it a ripe field to look for winners in the next bull market. If you're going to buy a growth stock hand over fist, lots of growth isn't enough. You should look for companies that are turning a profit, are leading their respective market, and can grow for a long time. South Korea's popular online retailer Coupang fits this criteria perfectly. It's a bonus that the stock trades at a cheap valuation.

Coupang's WOW membership service offers customers free shipping and content streaming, which is a page taken right out of Amazon's playbook, and it's reporting similar results. Revenue growth accelerated in 2023, with third-quarter revenue up 21% year over year, but it's got a long runway of growth.

With only a single-digit share of the total retail market, Coupang can grow at high rates for a long time. More importantly, it's a profitable business generating $1.9 billion in free cash flow. The company has ample resources to invest in expanding its selection to win a greater share of retail spending.

The future for this fast-growing e-commerce company is bright. The best part is that investors can buy the stock at a cheap price-to-sales (P/S) ratio of 1.1, a big margin of safety compared to the P/S multiple of 2.6 for the average stock in the S&P 500 index.