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Daniel Grigoriev
Daniel Grigoriev

Growth Stocks To Buy

Dr. Cherry: Because growth stocks tend to operate in a growth business cycle or business sector, finding high potential growth stocks should contain metrics that attempt to confirm or support current growth and best signal sustainable growth patterns. One important feature of a growth company is to ask, "do they possess a unique business service or product in their sector that provides a valuable moat?" This service or product is the lifeline of growth where the company needs to market, produce, deliver, and protect better than competitors and new entrants. Performance metrics to consider are whether the company shows historical increases in earnings over select periods and profit margin analysis, which illustrates how a company can manage costs and increase revenues. Other analysis considerations are the technical chart trend characteristics and experienced market analysts' forward growth and price projections.

growth stocks to buy

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Dr. Cherry: Investing in individual stocks, in general, contains risk factors such as overall market risk and business risk, among others. The characteristics of growth stocks can make them riskier than their value stock counterparts. As their name suggests, growth stock companies tend to be in a growing business phase. The growing stage could consist of younger and smaller companies with an unproven product or entity track record that tend to use much of their revenues and raised capital to grow the business. These growth characteristics, among others, tend to make growth stocks riskier through higher stock price volatility or reactions to market, company, economic, and political risks, to name a few, thus more significant exposure to downside stock price pressure. However, as investors should avail themselves of the downside cautions of growth stock risk, the upside potential should also be considered. With additional risk comes the prospect of added returns. Because growth companies have the potential for higher company growth rates, growing from earlier business stages to mature business stages, growth stocks could potentially experience higher returns over shorter time horizons. Above all, investors should consider their risk tolerance, capacity, portfolio allocations, and goals to accept the higher risk of growth stocks.

Dr. Cherry: Growth and value stocks tend to differ in a few areas, such as company size, business stage, and revenues to return gains to the shareholder. Growth stocks tend to be in the emerging markets or small or mid-cap company size areas whereas value stock companies tend to be large-cap. The size of companies tends to be the lens of what business stage a company resides. Growth stocks tend to be in the early to mid-business stages, the growth stages (although a small segment of large companies can be growth companies too), and value stock companies tend to be larger, more mature business stage companies. The value stock companies tend to be trading at a discount, "on-sale," or a premium, "overvalued," to their valuation, thus their name, finding value. Growth stock companies tend to reinvest their earnings back into the company and return value to shareholders solely through stock price appreciation. In comparison, value companies may return earnings to investors through a dividend, representing income to an investor and complements stock price appreciation. This income and stock price appreciation mean a total return approach.

Investors bid up the p/e ratios of some stocks because, despite low current earnings relative to their market values, they expect earnings to grow at high rates. These are traditionally defined as growth stocks. Tesla stock is a good example of a growth stock, with its 154 p/e multiple and 73% earnings growth rate (using Yahoo Finance data).

Technology stocks have been among the greatest casualties of the recent bear market. The Nasdaq-100 index plunged 33% in 2022, well beyond the 20% threshold that usually defines bear territory.

While there are plenty of quality technology stocks trading at discounts to their all-time highs, here's why Sea Limited (SE 0.49%) and Workiva (WK 4.43%) might be two standout performers when a new bull market comes around.

It's fairly typical for technology companies to invest heavily in growth at the expense of profitability, because building a large customer base is often key to making a business' economics work. Plus, it opens the door to more monetization opportunities in the future. Sea Limited is a perfect example of that phenomenon; it owns a portfolio of digital platforms spanning the e-commerce, gaming, and payment industries.

Sea Limited's e-commerce segment, which is driven by its Shopee hybrid consumer-to-consumer and business-to-consumer platform, posted even greater growth. It attracted $244.8 million in gross orders in 2017, which has since soared 30-fold to $7.6 billion in 2022. It's primarily focused on serving the fast-growing Southeast Asia region.

But that blistering growth has not come cheap, because Sea Limited burned more than $8.3 billion at the bottom line in the period from 2017 to 2022. Sales and marketing has been the company's largest investment. It spent more than $3 billion per year in each of the last two years on that line item alone.

But I've taken you on this journey for a reason: In the fourth quarter of 2022, Sea Limited delivered $422 million in net income -- a profit that took investors by surprise, and sent the stock surging more than 21% on the day following the result's announcement. The company is committed to balancing growth and profitability going forward, which will be a welcome sight in this difficult economic climate, where investors have shunned loss-making tech companies.

The point is, Workiva has the expertise to lead the charge in the new world where ESG reporting will be commonplace. The segment is just ramping up, but the company has 5,664 business customers overall that might all fall under ESG mandates eventually, and that would drive organic growth for Workiva. To begin with, its 1,345 large customers spending $100,000 or more annually might be the most viable candidates.

Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft, Salesforce, Sea Limited, and Workiva. The Motley Fool has a disclosure policy.

After a strong rally to start the year, growth stocks are starting to slide once again. And it's understandable why. Inflation appeared to be letting up for a bit, but data has started trending the wrong way. As a result, the Federal Reserve has redoubled its rhetoric around higher interest rates and putting out the inflationary fire.

This is not ideal for the tech industry. Investors have to be particularly cautious with growth stocks given the macroeconomic headwinds running against the sector. That said, it's not all bad news. Valuations have come down a long way. For growth stocks which still have strong fundamentals, forward returns from here could be stellar. These 10 growth stocks have what it takes to prosper despite current inclement conditions:

A Chilean mining company probably isn't the first thing most people think of as a growth stock. However, this company is a leading purveyor of lithium. As such, SQM is an integral part of the emerging electric vehicle and battery story. And it has the growth to back that up. SQM's revenues have soared from $1.9 billion in 2019 to more than $10 billion annually today. The world is in desperate need of more affordable lithium supplies. SQM has both the ample reserves and the favorable geography to deliver a reliable supply of lithium to its customers.

Clearfield is a smaller growth company focused on the market opportunity in broadband internet. The company provides fiber protection, management and delivery services. In effect, it provides the tools and services necessary for telecom companies to deploy new broadband solutions at scale.

Clearfield has enjoyed tremendous growth in recent years. Revenues jumped from $93 million in 2020 to $271 million in 2022. Some of that is tied to the stay- and work-at-home trends seen over the past several years. However, broadband investments are done on a long-term basis, so upswings tend to go on for years at a time. As companies like Verizon Communications Inc. (VZ) continue to invest billions more in speeding up their networks, it creates an ongoing opportunity for Clearfield. Meanwhile, Clearfield shares have dropped by about 50% over the past few months. That puts shares at just 14 times forward earnings today.

In any case, Visa has seen its revenues move to new all-time highs now that the world economy has reopened. Visa has a stunning growth record with revenues growing at a compound annualized growth rate of 11%, free cash flow at 15%, and earnings at 24% over the past decade, respectively. While Visa's operations are already delivering record results, shares are still merely flat compared to where they were trading prior to the onset of the pandemic. That makes for a great entry point.

XP is a leading Brazilian brokerage platform and investment banking company. The company found an opportunity in the market, bringing an approach focused on digital distribution. This shook up the traditional Brazilian brokerage business, given that they hadn't invested as much in technology. In addition, XP has taken steps to try to educate younger traders and broaden the investor class within Brazil. This was well-timed given the surge in new trading seen around the world since 2020 with the rise of meme stocks and cryptocurrencies.

The continued growth of credit card companies also creates opportunities for the merchant acquirers. These are the companies that provide credit card terminals and associated software and services to merchants. As Visa and Mastercard grow, the size of the merchant acquirer market grows in tandem. Global Payments, in particular, powers solutions for its clients to accept cards, checks, electronic payments and digital wallet transactions. It also powers back-end solutions such as tax accounting, analytic tools and fraud protection. 041b061a72


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