Historically, growth stocks have thrived during economic expansions and periods of low interest rates. This was the case from the end of the global financial crisis until recently, as growth stocks outperformed value stocks and the S&P 500 as a whole.
However, the era of low interest rates and high stock valuations is now over. With inflation at 40-year highs, the bond market is predicting that the Federal Reserve will raise the fed funds rate to between 5.50% and 6.0% by the end of 2023, making investors concerned about rising interest rates abandon growth stocks and shift their focus to value stocks.
As a result, the once sky-high valuations of growth stocks have decreased, presenting attractive buying opportunities for long-term investors seeking to benefit from a rebound. Bank of America recently released its updated list of the best growth stocks, known as the “Growth 10,” which comprises the top growth stocks that its analysts believe offer the most potential upside.
Investors who are willing to take a long-term view may consider buying these growth stocks, as they offer attractive opportunities in the current market environment. While rising interest rates may be a concern for some, the future prospects of these companies, coupled with the potential for continued economic growth, make them an appealing investment option.
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Diverse Mix of Companies Among Top Growth Stocks by EPS This Month
This month’s top growth stocks include a diverse mix of companies, such as up-and-coming electric vehicle manufacturer Lucid Group Inc., airline Copa Holdings SA, and one of the world’s largest oil tanker companies, Frontline PLC. These companies have shown above-average revenue and earnings growth, driven by underlying fundamentals or industry dynamics, rewarding investors with double-digit returns year-to-date.
These companies have outperformed both the Russell 1000 Index, which is up 7% this year, and the Russell 1000 Growth Index, which is up 14%. Despite the challenges of rising interest rates, inflation, and supply chain disruptions, these companies demonstrate that growth can still be achieved in this tough macro environment.
The top growth stocks are classified into three categories: fastest earnings-per-share (EPS) growth, fastest sales growth, and combined EPS and sales growth. The statistics for these categories are accurate as of March 27.
The stocks with the highest year-over-year (YOY) EPS growth for the most recent quarter are among the top growth stocks, indicating that these companies’ business is growing and generating more money that it can reinvest or return to shareholders. Companies with quarterly EPS growth of more than 2,500% were excluded as outliers.
Overview of Top Performing Companies by EPS
Copa Holdings SA, (NYSE: CPA) based in Panama, operates 372 daily flights to destinations in North, Central, and South America, as well as the Caribbean, using its fleet of 97 aircraft. The company’s annual report showed a 30.6% year-over-year increase in revenues during the fourth quarter of 2022, driven by higher air travel demand. In February, the load factors were 85.9%, surpassing pre-COVID levels of 83.6%.
GlobalFoundries Inc. (NASDAQ: GFS) produces semiconductors across facilities on three continents. In 2022, the company reported record gross margin and net income. In February, it announced an exclusive agreement with General Motors to manufacture microchips in the US.
Aptiv PLC (NYSE: APTV) designs and produces vehicle components that focus on connectivity, safety, and environmental sustainability. With 131 manufacturing facilities in 48 countries, the company increased revenues by 12% year-over-year in 2022, with operating margins rising from 8.8% to 9.1%. Despite macroeconomic uncertainty and supply chain disruptions, the company expects growth to continue in 2023, with guidance for $18.7 billion to $19.3 billion in revenues, an increase of 7 to 10 percent.
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Top Growth Stocks Based on Sales Growth
These are the stocks with the highest year-over-year (YOY) sales growth for the most recent quarter, indicating companies that can grow revenue through organic or new methods. This information can help investors identify growing companies that have not yet reached profitability, and may offer potential investment opportunities.
It’s important to note that sales growth alone may not reflect the overall strength of a business, and factors such as accounting methods can significantly influence earnings-per-share (EPS). Furthermore, sales growth for money-losing businesses can be harmful if the companies have no plans to reach profitability.
Outliers were excluded from the analysis, and companies with a quarterly revenue growth of more than 2,500% were not considered. By analyzing the sales growth of these companies, investors can better understand the strength of a company’s revenue stream and make informed investment decisions.
Overview of Lucid Group Inc., Mirum Pharmaceuticals Inc., and Nano Dimension Ltd.
Lucid Group Inc. (NASDAQ: LCID) designs and manufactures luxury electric vehicles. In 2022, the company produced 7,180 vehicles and delivered 4,326, generating $608 million in revenues. In comparison, in 2021, the company produced about 400 cars and delivered about 300. Lucid Group is considered one of the most closely watched newcomers to the electric vehicle scene.
Mirum Pharmaceuticals Inc. (NASDAQ: MRIM) is a biotech company focused on the development and commercialization of drugs for orphan diseases, particularly liver-related disorders. In 2022, Mirum’s lead drug Livmarli generated revenues of $75 million, with expectations for 50% U.S. net sales growth this year.
Nano Dimension Ltd. (NASDAQ: NNDM) provides intelligent machines for additively manufactured electronics, which involves printing full circuit boards and high-performance electronic devices. The company ended 2022 with $44 million in revenues, up from $10.5 million in 2021, primarily driven by its buyout of Amantec, a medical, jewelry, and industrial parts printer.
Top Growth Stocks Based on EPS and Revenue
These are the top growth stocks ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly year-over-year (YOY) percentage revenue growth and most recent quarterly YOY EPS growth. Both sales and earnings are critical factors in the success of a company, and this approach offers a more comprehensive view of a company’s potential for growth.
By analyzing both EPS and revenue growth, investors can better understand a company’s ability to generate profits while expanding its customer base. This information can be useful in identifying companies with strong fundamentals and potential for long-term growth.
Overview of Frontline PLC, Copa Holdings SA, and NexTier Oilfield Solutions Inc.
Frontline PLC (NYSE: FRO) owns one of the largest oil tanker fleets in the world, with 82 vessels operating across multiple global destinations. The company recently reported its highest quarterly net income in 14 years, amounting to $215.5 million, owing to surging Chinese demand for crude. Strong market rates also allowed Frontline to pay down $60 million of the $275 million owing on its revolving credit facility.
Copa Holdings SA (NYSE: CPA), described above, operates 372 daily flights to destinations in the Caribbean as well as North, Central, and South America through its fleet of 97 aircraft. The company reported a 30.6% year-over-year increase in revenues during the fourth quarter of 2022, driven by higher air travel demand.
NexTier Oilfield Solutions Inc. (NYSE: NEX) provides a multitude of well solutions to oil companies in the United States, including logistics, fracturing equipment, well sealing, and digital and ESG solutions. In 2022, thanks to last year’s oil price rally, NexTier increased revenue to $3.24 billion, up 128% year-over-year. Net income was $215 million compared with a loss of $119 million in 2021. The company repurchased 11.5 million shares in the fourth quarter and still ended the year with liquidity of $634 million.
Pros and Cons of Investing in Growth Stocks
Investing in growth stocks can offer exceptional returns, as evidenced by the past decade’s impressive returns underpinned by low inflation and a healthy global economy. Despite a correction in 2022, the Vanguard Growth Index Fund (VUG) still boasts an annualized return of 13% over the past 10 years, highlighting the gains that growth stocks can add to an investor’s portfolio.
One of the advantages of investing in growth stocks is that many of these stocks are household names in well-known companies, giving investors a sense of familiarity and confidence in their investment choices. While big tech names like Apple and Microsoft are often associated with growth stocks, the group also includes popular consumer goods and services companies such as Visa (NYSE: V) and T-Mobile (NASDAQ: TMUS).
However, investing in growth stocks also entails risks, such as increased volatility and susceptibility to market sell-offs. The beta of a growth stock can help investors gauge its volatility and the extent to which it is exposed to market fluctuations. For example, NVIDIA Corporation (NASDAQ: NVDA) has a beta of 1.76, indicating that if the S&P 500 falls by 1%, NVIDIA’s stock price is likely to decline by 1.76%. Additionally, growth stocks can become overvalued, leading to bubbles that burst when investor sentiment outpaces company fundamentals, as seen in the late 1990s with internet stocks that skyrocketed in price despite generating no earnings.
In conclusion, investing in growth stocks can be rewarding, but investors must also be aware of the risks associated with these stocks. By weighing the pros and cons and conducting careful analysis, investors can make informed decisions and potentially achieve strong returns in their portfolio.
Gregory Timmons
Only Headline Contributor
On the date of publication, Gregory Timmons did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer/contributor.
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