Investors looking for growth in 2024 face a challenging environment. Interest rates are still relatively high after aggressive tightening by the Federal Reserve in 2022 and 2023. This has increased borrowing costs and slowed economic activity. Meanwhile, inflation remains stubbornly elevated, eating into consumer purchasing power.
However, even in difficult markets, astute investors can find high-quality growth stocks trading at reasonable valuations. By focusing on companies with durable competitive advantages, strong free cash flow, and secular growth drivers, investors can position their portfolios to outperform over the long run.
Here are 10 of the best stocks to buy for growth in 2024:
1. Apple (AAPL)
Apple is one of the world’s largest and most profitable public companies. The tech giant has built a wide economic moat around its brand and products, including the iPhone, iPad, Mac, AirPods, and Apple Watch. Apple’s installed base of over 1.8 billion active devices provides a recurring revenue stream as users purchase apps, services, and accessories.
In 2022, Apple generated over $394 billion in revenue and $99 billion in free cash flow. The company returned over $107 billion to shareholders via dividends and buybacks. Apple still has plenty of growth potential in services like Apple TV+, Apple Music, Apple Pay, iCloud, and more. The stock trades at a reasonable 25 times forward earnings estimates.
2. Microsoft (MSFT)
Microsoft is a technology leader in cloud computing, software, gaming, and more. The company has leveraged its strong free cash flow generation to build a dominant position in enterprise software and cloud infrastructure. Microsoft Azure is the second largest public cloud platform after Amazon Web Services.
The company’s diversified product portfolio includes Office 365 productivity software, the Windows operating system, Surface PCs and tablets, the Xbox gaming platform, LinkedIn, and Teams communications software. Microsoft has an economic moat based on network effects and high switching costs for enterprise customers. The stock trades at a reasonable 28 times forward earnings estimates.
3. Visa (V)
As the world’s largest payment processor, Visa benefits from the secular shift from cash to digital payments. The company has built a wide economic moat based on its trusted brand, vast payment network, and client relationships. Visa takes a small cut of every transaction on its network, providing recurring revenue and excellent profit margins.
In 2022, Visa generated $29 billion in revenue and nearly $18 billion in free cash flow. The company sees an enormous long-term growth opportunity as more payments go digital globally. Visa stock trades at a reasonable 27 times forward earnings estimates. The company also pays a dividend, yielding 0.8%.
4. Adobe (ADBE)
Adobe is the global leader in digital media and digital marketing software. The company’s creative products, like Photoshop, Illustrator, and Premiere Pro, are industry standard tools for design professionals. On the marketing side, Adobe offers analytics, campaign management, and advertising solutions.
Adobe has built durable competitive advantages and high switching costs thanks to the mission-critical nature of its software products. The company is expanding into new areas like e-commerce and customer data platforms to drive growth. Adobe has consistently increased revenue and earnings at double-digit percentage rates. The stock trades at a reasonable 29 times forward earnings estimates.
5. Nvidia (NVDA)
Nvidia is the dominant player in graphics processing units (GPUs) for gaming and data centers. The company’s GPUs provide unmatched performance for computationally intensive tasks like game physics, AI workloads, machine learning, and more. Nvidia has leveraged its technology leadership to build a wide economic moat.
In the gaming market, Nvidia owns over 80% market share. The company’s data center revenue surged 58% in its most recent quarter. Nvidia is expanding into high-growth industries like self-driving vehicles, robotics, and the metaverse. The stock isn’t cheap at 45 times forward earnings estimates, but Nvidia deserves a premium valuation given its growth trajectory.
6. MercadoLibre (MELI)
MercadoLibre is the leading e-commerce and digital payments platform in Latin America. The company operates the largest online marketplace, payments processor, and logistics network in the region. MercadoLibre is well-positioned to benefit from the twin tailwinds of internet adoption and e-commerce penetration.
In the most recent quarter, MercadoLibre grew revenue by 74% in local currencies. The company has an economic moat based on network effects, switching costs, and cost advantages. Latin America represents a massive underpenetrated market opportunity for MercadoLibre. The stock trades at a premium of 51 times forward earnings, but growth investors should be willing to pay up for this unique asset.
7. Salesforce (CRM)
Salesforce is the #1 provider of customer relationship management (CRM) software globally. The company pioneered the software-as-a-service (SaaS) model. Salesforce serves over 150,000 customers, including many large enterprises. The company has built durable competitive advantages thanks to its cloud-based architecture, AppExchange marketplace, and trusted brand.
Salesforce still has an enormous growth runway as more businesses adopt its sales, service, marketing, analytics, and commerce cloud solutions. The recent acquisition of Slack added a fast-growing enterprise communications platform. Salesforce has consistently grown revenue at 20%+ rates annually. The stock trades at reasonable 27 times forward earnings estimates.
8. Block (SQ)
Block, formerly known as Square, operates a high-growth financial services and digital payments ecosystem. The company’s Square hardware and software enable small businesses to process payments in-store and online. Block’s Cash App offers peer-to-peer payments, stock trading, and bitcoin transactions for consumers.
In the third quarter of 2022, Block grew gross profit by 43% year-over-year. The company sees a massive long-term growth opportunity in financial services for small businesses and individuals. Block has advantages from its trusted brand, two-sided network, developer ecosystem, and banking charter. The stock trades at a reasonable 54 times forward earnings estimates.
9. Meta Platforms (META)
Meta Platforms owns industry-leading social media and digital advertising platforms, including Facebook, Instagram, Messenger, and WhatsApp. These apps have over 3.6 billion monthly active users between them. Meta has built an economic moat based on network effects, high switching costs, and economies of scale.
The company generated $116 billion in revenue and $46 billion in operating income over the last 12 months. Meta is investing aggressively in next-generation platforms like augmented and virtual reality to drive future growth. Meta stock trades at a historically low 15 times forward earnings estimates after declining over 60% in 2022.
10. Constellation Software (CSU)
While less known than other stocks on this list, Constellation Software is a high-quality compounder investors should have on their radar. The company acquires and manages niche vertical market software businesses across the globe. Constellation takes a long-term approach to creating value for shareholders and acquired companies.
Over the past decade, Constellation has generated a 28% compounded annual growth rate in revenue and a 39% CAGR in free cash flow per share. The company has quietly built up a portfolio of hundreds of software businesses serving specific industries and markets. Constellation Software stock isn’t cheap at 32 times forward earnings estimates but deserves a premium valuation given its track record.
Finding great growth stocks to buy in 2024 requires diligence and discipline. Focus on companies possessing durable competitive advantages, leadership in growing industries, talented management teams, and reasonable valuations for expected growth.
Leading growth stocks like Apple, Microsoft, and Visa have proven their ability to compound earnings and free cash flow over time. Emerging leaders in e-commerce, cloud computing, digital payments, and other secular growth trends still have vast runways ahead.
Constructing a diversified portfolio of high-quality growth stocks can reward investors willing to accept some volatility in exchange for potential outsized returns over the long run. Reinvesting dividends and letting winners ride compounds wealth.
FAQs About Growth Stocks for 2024
What are the characteristics of a growth stock?
Growth stocks are shares of companies expected to grow revenues and earnings faster than the broader market. Typical characteristics of growth stocks include:
- High revenue growth rates from new products or services
- Operating in industries with secular tailwinds
- Reinvesting most profits into expansion over dividends
- Have potential for expansion into new markets
- Command premium valuations like high P/E multiples
Top growth stocks often disrupt industries and establish competitive advantages or economic moats that allow them to consistently gain market share.
How are growth stocks different from value stocks?
Growth stocks focus primarily on rapid expansion, while value stocks focus on dividends and lower valuations. Growth stocks usually have higher price-to-earnings (P/E) ratios than value stocks because investors are willing to pay a premium for their earnings growth potential.
Value stocks often have lower P/E ratios and higher dividend yields. Investors in value stocks focus on established companies trading below their intrinsic worth. The key metric for growth stocks is future earnings potential, while value stocks hinge on current assets and profitability.
Should I buy growth stocks for 2024?
Growth stocks can be appropriate for 2024 if you have a long time horizon and understand the risks. While growth stocks carry higher valuations and volatility, they have historically delivered higher total returns over long periods compared to value stocks.
Investors need to be selective, however, as not all growth stocks perform equally. Focus on companies with durable competitive advantages, proven track records, strong free cash flow, and reasonable valuations given their growth outlooks. A basket of high-quality growth stocks can enhance portfolio returns over time.
What risks do growth stocks carry?
Growth stocks carry a higher volatility risk than value stocks. Growth companies usually have higher betas than the overall market. Their stocks are more sensitive to economic cycles and sentiment shifts.
Some of the key risks associated with growth stocks include:
- Increased competition eating into market share
- New technologies or offerings disrupting the business
- Loss of key talent or management missteps
- Slowdown in revenue or earnings growth
- Overvaluation and growth expectations are too high
Growth stocks declined significantly in 2022 as the Federal Reserve raised interest rates. Rising rates disproportionately impact high multiple growth stocks. Investors should build in a margin of safety with growth stock valuations and diversify across multiple companies and sectors.
Having a long-term investment horizon is critical when investing in growth stocks. The underlying businesses need time to compound earnings and cash flows. Trying to time growth stocks usually leads to poor results.
How should I analyze growth stocks?
When analyzing growth stocks, key financial metrics to evaluate include:
- Revenue growth: Look for companies that have consistently grown annual revenue at high double-digit or triple-digit percentage rates. Expanding revenue indicates product-market fit and increasing demand.
- Earnings growth: Rising profits alongside revenue provide confidence that the business model is viable. Analyze earnings quality as well.
- Margins: High or expanding gross and operating margins indicate a competitive advantage and potential for operating leverage as revenue grows.
- Free cash flow: This measures leftover cash after capital expenditures required to grow the business. Look for FCF as a percentage of revenue.
- Return on invested capital: This metric measures profit generated relative to capital invested back into the business. ROIC should exceed the weighted average cost of capital.
- Valuation: Compare valuation ratios like P/E, PEG, and P/S to growth rates and historical averages. Build in an appropriate margin of safety.
What are examples of top growth stocks for a portfolio?
Some examples of high-quality growth stocks across various sectors include:
- Technology: Apple, Microsoft, Nvidia, Visa, Salesforce
- Consumer Discretionary: Amazon, Tesla, Nike, Starbucks, Home Depot
- Healthcare: UnitedHealth, Eli Lilly, Intuitive Surgical, Thermo Fisher Scientific, Danaher
- Communication Services: Meta Platforms, Alphabet, Netflix, Walt Disney
- Industrials: Deere & Company, Union Pacific, Lockheed Martin, Honeywell
A diversified portfolio might allocate 10-20% to growth stocks, with the remainder in value stocks, core dividend payers, and fixed income. Rebalance periodically to maintain target allocations.
In another related article, How to Invest in Stocks on Cash App: The Ultimate Guide for Beginners
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