VUG: A Buy for the Growth Stock Bubble

Growth stocks were sluggish in H2 last year due to narrowing earnings outperformance and overbought technical conditions. The March/April market crash provided a reset, and growth stocks are now leading the market gains.

Growth stocks have been a hot topic among investors in recent months, with many experiencing a significant rebound following the March/April market crash. The second half of 2024 saw these stocks struggle due to narrowing earnings outperformance and overbought technical conditions. However, the recent market gains have been led by growth stocks, indicating a shift in investor sentiment.

Two notable undervalued growth stocks that have seen remarkable surges are Alibaba and Lululemon Athletica. Alibaba, trading under the ticker BABA, has rebounded by about 50% over the past year, despite facing economic headwinds. Its share price has been undervalued, trading at just 14 times forward earnings estimates, making it an attractive investment opportunity. Alibaba's growth in e-commerce and cloud computing, coupled with its burgeoning AI capabilities, positions it for further growth. For instance, Alibaba's AI-driven map service, Amap, has shown significant potential, indicating the company's commitment to leveraging technology to enhance its services [1].

Lululemon Athletica, trading under the ticker LULU, has also seen a notable surge in its share price. The premium activewear brand has been trading at a steep discount, with its stock at just 13 times this year's consensus earnings estimate. This undervalues the long-term growth potential of the business, which has grown revenue and earnings at high double-digit rates over the last decade. The company's efficient store operations and high profit margins make it a compelling investment. Additionally, Lululemon's focus on international growth, particularly in markets where its brand is still relatively small, positions it for significant expansion [1].

Both Alibaba and Lululemon Athletica have seen their share prices rebound due to their strong fundamentals and undervalued positions. Investors looking for growth opportunities in the market should consider these companies, which have the potential to deliver significant returns in the coming years.

References:
[1] https://www.fool.com/investing/2025/08/18/these-undervalued-growth-stocks-surge-50-2026/