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Late last week, the S&P 500 pulled back over 10% from recent highs. This technically means it’s in a correction, which some investors might view as a red flag. However, a drop of that magnitude presents opportunities, especially with growth stocks. Here’s part of my watchlist that I’ve built over the weekend.
Potential in payments
PayPal (NASDAQ:PYPL) is down 12% in the past month. Over a longer one-year period, it’s up 10%. The global digital payments platform generates revenue through multiple streams. Most of it comes from transaction fees, charged to merchants when payments are made. It also makes money from foreign exchange, premium services and credit provisions.
I’ve put the stock on my watchlist because I think it could do well this year. CEO Alex Chriss has recently focused on improving profitability by cutting operational costs and enhancing AI-driven automation. I like this push to make use of new tech, such as integrating AI-powered fraud detection and smart payment solutions. Ultimately, this should drive deeper engagement with customers and make them more comfortable to spend more using PayPal.
One risk is the increasingly competitive payments sector. It’s no longer enough to offer a good payment solution. Other companies are providing more add-ons and enhancements to woo clients. PayPal needs to focus on constantly innovating in order to not get left behind.
Backing active management
Another company on my list is T Rowe Price Group (NASDAQ:TROW). The stock has taken a 14% hit in the last month and is down 19% in the last year. Last week it hit fresh 52-week lows.
One reason for the drop is that investors have increasingly favoured low-cost index funds and exchange-traded funds over actively managed funds like T Rowe Price offers. After all, given the performance of the past couple of years from the S&P 500, some have decided to buy an index tracker.
However, I think this may change this year. The sharp drop in the S&P 500 shows that an index tracker might not be the best move during volatile times. Rather, this is the environment where active stock-picking can really outperform. Further, I expect the US Federal Reserve to continue cutting interest rates this year. With a lower base rate, more money should move out of cash and into the stock market. This could help to increase the assets under management for T Rowe Price.
Of course, I do have concerns with the stock. With a lot of uncertainty at the moment around tariffs, as well as ongoing conflicts in Europe and the Middle East, investors might continue to move money out of T Rowe Price and sit in cash. This would be negative for company revenues.
I have both growth shares on my watchlist right now. I’m going to monitor how the S&P 500 performs over the coming few weeks. If the sell-off shows signs of easing, I’d strongly consider buying these two for my portfolio.
