Historically, investors looking for growth stocks to buy found the best opportunities during economic expansions, which generally coincided with lower interest rates. That was true of the most recent era as the Federal Reserve held interest rates near zero. As a result, growth stock valuations increased with investors reaping the rewards.
However, inflation at 40-year highs put a stop to the party. The Federal Reserve just instituted nine consecutive rate hikes since March of 2022. As a result, growth stocks to buy fell precipitously. With markets expecting for rates to rise to about 6% by the end of 2023, formerly overpriced growth shares have suddenly become very cheap. For growth stock investors that means there are deals for long-term oriented investors due to those unjustifiably low prices.
Fortinet (NASDAQ:FTNT) is a cybersecurity stock, which held quite strong throughout 2022. All as the growth sector was pummeled. In fact, even after falling from $62 to $49 throughout the year, it fared much better than many of its peers. The narrative in favor of buying FTNT stock is simple: Its growth numbers are strong across the board. In 2022, revenues increased by 32% to $4.42 billion. Product revenue jumped 42% with service revenue rising by 26%. Those growth rates were nearly identical for the company in the fourth quarter which shows the company is among the better performers even as macroeconomic conditions worsen.
The other strong positive for Fortinet is that in being strongly net income positive the company is an anomaly among growth stocks that very often produce large losses. The company has given guidance for 21.5% growth in 2023. It will be affected by a slowdown but again its net income makes it a more reliable choice than many other growth stocks to buy.
Eli Lilly (LLY)
Eli Lilly (NYSE:LLY) isn’t a clear-cut winner as one of the top growth stocks to buy, especially with Mounjaro posting disappointing sales recently. Not helping, the firm’s Alzheimer’s drug solanezumab failed to slow cognitive decline or reduce the progression of the disease.
However, there’s strong reason to believe that Eli Lilly is moving into an era in which its performance will be very good. The company’s diabetes and weight loss portfolio is the main reason for that belief. Eli Lilly is seeking FDA approval for the diabetes drug Mounjaro for weight. Sales of the drug disappointed in the most recent quarter even as Eli Lilly’s overall sales met targets and earnings surpassed expectations.
Mounjaro has faced supply issues so it’s no surprise that sales flagged as a result. The drug is likely to be a blockbuster if it receives FDA weight loss approval as expected. Meanwhile, the company has lowered insulin prices and is clearing the way for more expensive diabetes drugs including Jardiance. You might see the dark undertones in all of this as I do but the profit potential remains clear nonetheless.
I think many investors who choose to ignore Chipotle’s (NYSE:CMG) stock do so because it’s strange to see a fast food company command $1,700 share prices. As a result, it’s very easy to sit out on the notion that Chipotle is overhyped and overpriced. It’s fairly easy to find traditional metrics that confirm such a suspicion. Chipotle’s price-to-earnings (PE) ratio is worse than roughly 75% of its competitors. That would suggest that it is indeed overpriced and that sitting out is a wise choice.
But if you then look at Chipotle’s growth metrics your mind starts to change. For example, the firm’s average revenue per share growth rate over the past 3 years is 15.9% annually. That’s better than 90% of the industry competition. In 2022, revenues grew by 14.4% and margins increased along several measures. In short, CMG stock may appear pricey but when you dig deeper there’s a legitimate reason to consider CMG as one of the top growth stocks to buy.
The fintech sector houses many growth stories including that of Adyen (OTCMKTS:ADYEY) stock. The Dutch payments processor helps firms get paid while providing data insights and other solutions. Shares have approximately 15 to 20% upside based on target prices which is hardly anything to scoff at.
In any case, Adyen’s growth is spectacular. Processed volume reached €767.5 billion in 2022, up 49% YoY. Point of sale volumes accounted for €112.5 billion of that total, increasing by 74%. The company derived €1.3 billion in revenues in the full year, up 33%. That revenue growth held a level through the second half of the year as well.
For me, Adyen makes sense for a few reasons. The average revenue per share has grown by 49% over the past 3 years. That’s within the top 10% of its industry and will surely entice investors. Adyen’s ability to produce massive returns from cheap capital investments is the other reason I’d consider buying. Its 94.25% return on invested capital far exceeds its cost at 5.92%.
Alphabet (GOOG, GOOGL)
Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) last earnings release came two months ago. And we’re all aware of what happened. The company’s extraordinary growth slowed to a relative crawl in 2022. 10% year-over-year growth in a company of Alphabet’s size is still impressive. But it was far lower than the 41% sales growth in 2021. Further, Q4 revenues were nearly flat YoY. The sudden end of the cheap money era switched Google’s fortunes after long helping the firm.
GOOG stock has been pushed lower and now trades at $100. Wall Street thinks it will rise to $125 over the next 12-18 months, though. The math is easy, 25% potential returns for investing in one of the most powerful companies on earth.
The company is alluding to the power of AI to lift it into a new era. Generative AI has been identified as having the potential to strengthen its Cloud business for example. The company is modifying its search business as well. The point is that ad revenue will return with a rebounding economy whether AI affects things a lot or a little. Google still runs the show and that makes it an easy choice for growth investors.
Nutrien (NYSE:NTR) is a company located in Saskatchewan that sells potash, nitrogen, and phosphate. Those nutrients are integral to crop production. So, with Ukraine under siege by Russia, its place as a global agricultural powerhouse remains stunted. That has provided an opportunity for stocks like Nutrien to fill the void. That’s precisely what the firm has done with 2022 sales increasing by 37% to $37.88 billion.
But investors logically wonder whether 2023 will be as strong. The situation in Ukraine is unpredictable but continues to rage. That said, Nutrien’s internal projections regarding 2023 shed some light on the question. 2023 is likely to be better than 2021 but not as strong as 2022 in terms of EBITDA.
The firm has provided 2023 EBITDA guidance between $8.4 billion and $10 billion. That’s higher than the $7.12 billion in 2021 but lower than the $12.17 billion in 2022. That’s still a strong increase between 2021 and 2023 and the company will also continue to serve a North America that desires to be more food independent.
Autodesk (NASDAQ:ADSK) is coming off a record year yet remains undervalued by roughly 15% based on target stock prices(1). Autodesk provides software with applications not only in the automotive industry but across almost any industry requiring design visualization.
The firm’s fourth-quarter story is a strong one. Revenues increased 9% to $1.32 billion, 98% of which was recurring revenue. It’s clear that the company has a strong base of satisfied customers. Further, Autodesk’s total Q4 billings reached $2.12 billion, up 28%. The difference between Q4 sales and billings amounts to $800 million. In other words, Autodesk has a massive pipeline of business to fulfill which is a good problem to have in general.
Even though Autodesk’s cost of revenue increased in 2022 and in Q4, net income growth remained very strong during the same period. In fact, it more than tripled to $293 million in the fourth quarter and rose by 65.5% in 2022 overall.
On the date of publication, Alex Sirois 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, subject to the InvestorPlace.com Publishing Guidelines.