Q2 Could Bring Upside Opportunity for These Beaten-Down Growth Stocks, Trader Says

Aly Song | Reuters

Value trounced growth in the first quarter.

But the second quarter could mark a turning point for some of those beaten-down growth stocks, says Quint Tatro, president of Joule Financial.

"We caught a lot of flak at the very beginning of the year for not chasing some of these growth names higher, and everybody wanted to pile in and we didn't feel that that was appropriate. The valuations were ridiculously stretched. Now we've seen this incredible demise. Many of these names down 40%, 50%," Tatro told CNBC's "Trading Nation" on Wednesday.

The IVW growth ETF has risen 2% in the first quarter, a fraction of the 10% gain for the IVE value ETF. Growth stocks are those for which investors are willing to pay a premium because of the prospect of future earnings potential; value stocks are those considered cheap relative to the market, often based on valuation.

Tatro still believes in the value story and says betting on growth stocks looks to be a shorter-term trade to take advantage of excessive weakness in those names.

"We are in the cyclical/industrial/value camp over the next several years. I think that's the smart play," he said, "but when you get a divergence like we've seen over the last couple of weeks, you've got to step in and that's what we've been doing and we're benefiting nicely here in the last couple of days."

Tatro is using innovation-focused investor Cathie Wood's ARKK ETF as a way to play upside in growth stocks – Tesla is one of the ETF's most prominent holdings.

Delano Saporu, founder of New Street Advisors, has his eye on another growth stock in the ARKK ETF – Shopify. He points to a recent bullish note from Stifel that predicts an increasing total addressable market.

"What you see in this increase, it's mostly because there are going to be a lot more smaller [and] mid-sized merchants because of the digitalization of small businesses … based on this pandemic story being pulled forward,: he said in the same interview. "So if you're looking for areas to jump in at an attractive point, I think Shopify provides that."

Shopify has pulled back 26% from a February peak and is negative for the year.

Disclosure: Joule has a position in the ARKK ETF. New Street Advisors is long SHOP.

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