The tech stock selloff in July surprised the market but not those investors who were paying attention. As far back as April, Goldman Sachs (NYSE:GS) warned of the coming decline. Its analysts said sector rotation could hurt the market and told investors to look outside of technology stocks for new investment ideas.

It was a prescient call but the market may be ready for a new leg up. The likelihood of interest rate cuts by the Federal Reserve is all but assured. Chairman Jerome Powell says economic data shows “The time has come for policy to adjust.” 

While Goldman Sachs analysts haven’t given up on tech stocks, some of their latest upgrades and target price adjustments have been outside the sector. Below are two growth stocks the investment house says are due for double-digit rallies over the next year.

24/7 Wall St. Insights:

• Goldman Sachs warned back in April of a coming tech stock selloff and recommended looking elsewhere for profits.
• The investment firm is looking to other markets and sectors for the next growth stocks to buy.
• If you want to pick up some of the most high upside stocks in the market “on sale,” check out our brand-new “The Next NVIDIA” report that lays out the next megatrends in AI and the companies we’re confident can dominate them and give investors 10x returns.

MercadoLibre (MELI)

Latin America’s leading e-commerce and fintech platform MercadoLibre (NASDAQ:MELI) is enjoying unprecedented growth. Second-quarter revenue surged 59% from the year-ago period to over $9.4 billion while net income was up nearly 90% year-over-year. 

All of MercadoLibre’s markets contributed towards its growth in the period as both e-commerce gross merchandise value (GMV) and fintech total payment volume (TPV) soared. GMV was up 20% for the quarter while TPV jumped 36%. Its home market of Brazil remains strong, but Mexico is seeing tremendous uptake across all segments. E-commerce sales were up 66%while the fintech side rose 34%.

The only weakness it saw was in its Argentine business, but the country experienced a significant currency devaluation that drove down the value of its performance. Still, MELI’s user base tripled in the quarter while assets under management for the last 18 months more than doubled.

Overall, MercadoLibre saw strong growth, including in its advertising business and logistics, despite higher costs. It led Goldman Sachs analyst Irma Sgarz to reiterate her buy rating on the Latin American company but also hike her price target on the stock 14%. Sgarz raised her one-year price level to $2,480 per share from $2,180. With MELI stock trading just below $2,000 per share, it implies a 25% increase is in store.

That is the market high for the stock as the consensus Wall Street outlook is a more muted $2,064 per share, suggesting MercadoLibre is fairly priced now. There seem few limits, though, on how far MELI stock can rise and with shares up 27% year-to-date, MercadoLibre looks reasy to reach Goldman’s price targets.

Royalty Pharma (RPRX)

Royalty Pharma (NASDAQ:RPRX) isn’t your typical biotech. Instead of engaging in research and development efforts itself, it makes lump-sum payments to other biotechs to do the hard work in exchange for a share of the cash flows down the road. It is the largest buyer of biopharmaceutical royalties. 

The pharma stock has chosen wisely over the years and today has a robust portfolio of therapies that are paying it well. Royalty receipts grew 11% in the second quarter to $605 million particularly from its asthma treatment Trelegy made by GSK (NYSE:GSK). Revenue jumped 32% to $48 million for the treatment. It also saw 15% gains from its biggest revenue contributor, Vertex Pharmaceuticals’ (NASDAQ:VRTX) cystic fibrosis franchise. Revenue hit $195 million, or 32% of Royalty’s total revenue.

However, Vertex is awaiting approval on a new once-a-day CF treatment called venza triple, which would impact Royalty Pharma’s revenue stream as it would be subject to a much lower single-digit royalty rate. Yet it’s not as alarming as it seems. The royalties on the CF franchise would not disappear as Vertex’s Trikafta remains a leading treatment in the field. It should still reward Royalty Pharma handsomely for years to come.

The company also has a strong portfolio of marketed and pipeline drugs that could offset any losses from the CF franchise. Roche’s (OTC:RHHBY) Evrysdi, for example, a treatment for spinal muscular atrophy, a rare disorder, saw royalties surge 91% last quarter to $25 million.

Management raised its revenue guidance for the year, even with the ongoing Vertex issue. Goldman Sachs liked what it saw and reiterated its buy recommendation and upped its one-year price target to $51 per share. That represents 82% upside from Royalty Pharma’s current price, though Wall Street has a more modest $42 per share consensus outlook.  

With a bright future and strong growth prospects, Royalty Pharma seems considerably undervalued at current prices.

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