2 'GARP' Plays in an Overbought Market
Despite the current environment, there are still some reasonably priced growth stocks out there.
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With third-quarter earnings largely out of the way and a rate reduction at this week’s FOMC meeting all but assured, there is not a lot of news flow to move markets over the next few weeks.
Despite being overbought across myriad valuation metrics, I could still see equities grind higher to put a ribbon on another stellar year for investors. Well, at least the ones heavily exposed to the Magnificent Seven, which has driven most of the gains in the market since ChatGPT made its debut late in 2022. There has been some recent rotation toward some of lagging sectors, such as energy, financials, and healthcare.
I continue to expect a much more challenging year for investors and the economy in 2026. The year could see the AI bubble if not pop, at least fizz out a bit. That said, there are still some growth plays within the market that sport reasonable valuations. Today, I will highlight a few of these.
The first is a recent addition to my portfolio — a position which I have established this month via covered call orders. This company is a few years away from profitability but is seeing impressive revenue growth. It is also trying to upend an established and inefficient market.
The Oncology Institute (TOI) operates in five states via 72 clinics owned by affiliate physicians and 14 independently owned clinics. The company works within a quasi-hybrid model (known as a delegated capitation) where it manages the entire oncology benefit for a health plan via largely outpatient services. The firm manages everything from network design to payment adjudication, allowing it to receive a greater per-patient payment.
The Oncology Institute’s model is in response to current inefficiencies in the market, including incentives for physicians to prescribe expensive solutions within a hospital setting. It is a potentially large market where the company is just making initial inroads.
The company should turn cash flow positive by late in 2026 and I believe it should experience years of 20% or better revenue growth. At 60% of this year’s likely revenues, the stock is more than reasonably priced, in my view.
I've had a decent sized covered call holding in Upwork (UPWK) for some time. Those holdings, however, will start to expire in the money over the next six weeks. The shares are up big since the last time I gave them a shout-out in mid-September. That said, I will be looking to reestablish a position on any pullback in the stock.
Upwork is the world’s largest online platform for freelance talent as measured by gross services volume. The company is seeing success with its recently launched enterprise subsidiary, Lifted. Volume is also being boosted substantially by the momentum in AI-powered solutions.
Upwork is quite profitable, buying back shares, and based on Q3 numbers on an annual run rate, has a free cash flow yield of just over 10%. The stock is cheaper still factoring in the over $275 million of net cash and marketable securities on its balance sheet.
At the time of publication, Jensen was long TOI and UPWK.
