At times of volatility, it can be hard for even experienced investors to stay the course. Yet over time, stocks have consistently increased in value. And growth stocks tend to be among the ones that show the largest gains. Growth stocks are companies that analysts believe will grow at a rate that is significantly above the market average.
These stocks are also characterized by companies that invest a significant portion of its profits back into its business in order to accelerate growth. This is opposed to value stocks that make returning a portion of its profits to shareholders a priority. This typically occurs in the form of a dividend.
One misconception of growth stocks is that they have a high correlation with the market. It’s true that when the market is moving higher, these stocks tend to outperform. However, when the market is moving lower, these stocks sometimes perform better.
So why should you consider buying growth stocks now? The reason is this. In many cases, the company’s underlying fundamentals are still positive, but the sentiment has changed. And that means it’s a good time to buy these stocks on sale.
Quick Links
- Chipotle Mexican Grill
- Ross Stores
- Freeport-McMoRan
- Valero Energy
- Builder’s FirstSource
- Axon Enterprise
- Shopify
#1 - Chipotle Mexican Grill (NYSE:CMG)
I’ve been impressed with how strong of a comeback story exists with Chipotle Mexican Grill (NYSE: CMG). The company has fought its way back from multiple events that would have derailed many companies. In the process, the company has re-established itself as the main choice for fast-casual dining. The company’s focus on food quality will continue in the fall of 2021 with a limited-time Mexican-inspired smoked brisket menu item.
CMG stock has dropped 4% in the last month. Yet even though the stock is still trading near the high-end of its 52-week range, analysts expect a much higher upside. The MarketBeat screener ranks Chipotle ranks as one of the top 10 most upgraded stocks by analysts in the last 90 days. One reason for analyst optimism is the company’s consistent earnings-per-share growth. In the first three quarters of 2021, the company already has outpaced its earnings for all of 2019 which will be the tougher comparison.
About Chipotle Mexican Grill
Chipotle Mexican Grill, Inc, together with its subsidiaries, owns and operates Chipotle Mexican Grill restaurants. It sells food and beverages through offering burritos, burrito bowls, quesadillas, tacos, and salads. The company also provides delivery and related services its app and website. It has operations in the United States, Canada, France, Germany, and the United Kingdom.
Read More - Current Price
- $58.88
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 18 Buy Ratings, 9 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $65.27 (10.9% Upside)
#2 - Ross Stores (NASDAQ:ROST)
It might seem like a strange time to be investing in retail stocks. Brick-and-mortar sales are still likely to be suppressed due to concerns over mutations in the novel coronavirus. That was the case for Ross Stores (NASDAQ: ROST) which saw store traffic decrease due to concerns over the Delta variant. And this is a sector that will be particularly impacted by supply chain concerns. Many industry experts are saying this holiday season may be unlike anything consumers are used to if they haven’t bought early.
With that said, ROST stock is trading at the low end of its 52-week range. And even though the overall outlook of analysts is mixed since the company’s last earnings report, the overall expectation is for ROST stock price to grow 26% in the next 12 months. That’s a good reason for buy-and-hold investors to consider the stock. Another good reason is that Ross Stores is that company has reinstated its dividend that it suspended at the onset of the pandemic. Prior to the suspension, Ross Stores had joined the ranks of the dividend aristocrats. Investors should note that the dividend was reinstated at its pre-pandemic level.
About Ross Stores
Ross Stores, Inc, together with its subsidiaries, operates off-price retail apparel and home fashion stores under the Ross Dress for Less and dd's DISCOUNTS brand names in the United States. Its stores primarily offer apparel, accessories, footwear, and home fashions. The company's Ross Dress for Less stores sell its products at department and specialty stores to middle income households; and dd's DISCOUNTS stores sell its products at department and discount stores for households with moderate income.
Read More - Current Price
- $139.32
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 13 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $169.50 (21.7% Upside)
#3 - Freeport-McMoRan (NYSE:FCX)
Market timing is always a risky proposition. Investors that were bidding up electric vehicle (EV) stocks found that out the hard way. However, that doesn’t mean the longer-term effort toward decarbonizing won’t stay in effect. It’s becoming good business. And this is particularly true for companies involved in mining metals such as Freeport-McMoRan (NYSE: FCX).
The metal of particular interest in Freeport-McMoRan’s case is copper, which is expected to see robust demand. Copper usage has already increased significantly as industrial and construction activity has picked up as the economy reopens. If Congress can manage to pass an infrastructure bill, Freeport-McMoRan would stand to be one of the largest beneficiaries.
An analyst from Bank of America (NYSE: BAC) recently initiated coverage on FCX stock and gave it a buy rating. The bullish outlook was based, in part, on a belief in the company’s ability to increase copper output by 34% through 2028. Although he refrained from issuing a price target, the consensus target is for FCX stock to grow by 17% in the next 12 months.
About Freeport-McMoRan
Freeport-McMoRan Inc engages in the mining of mineral properties in North America, South America, and Indonesia. It primarily explores for copper, gold, molybdenum, silver, and other metals. The company's assets include the Grasberg minerals district in Indonesia; Morenci, Bagdad, Safford, Sierrita, and Miami in Arizona; Chino and Tyrone in New Mexico; and Henderson and Climax in Colorado, North America, as well as Cerro Verde in Peru and El Abra in Chile.
Read More - Current Price
- $43.70
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 9 Buy Ratings, 5 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $54.00 (23.6% Upside)
#4 - Valero Energy (NYSE:VLO)
Buying shares of Freeport-McMoRan is a bet on the new economy. Investing in Valero Energy (NYSE: VLO) is a reminder that the more things change the more they stay the same. Oil prices have climbed this year as the economy reopens and the infrastructure for renewable energy remains a work in progress. With that in mind, investors should have an eye on quality names in the traditional energy sector. And Valero fits that description.
Over the last five years, investors have seen a little good and a little bad with VLO stock. Still, patient investors have been rewarded with a 32% gain in the company’s stock price. And they’ve collected an attractive dividend while they were at it. Valero has an impressive dividend yield (currently over 5.5%) and it has increased its dividend payout each of the last 11 years. The MarketBeat screener ranks Valero in the top 50 of dividend stocks. Analysts project a 16% gain in the company’s stock price from its $70.36 price as of this writing.
About Valero Energy
Valero Energy Corporation manufactures, markets, and sells petroleum-based and low-carbon liquid transportation fuels and petrochemical products in the United States, Canada, the United Kingdom, Ireland, Latin America, Mexico, Peru, and internationally. It operates through three segments: Refining, Renewable Diesel, and Ethanol.
Read More - Current Price
- $141.20
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 11 Buy Ratings, 3 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $155.86 (10.4% Upside)
#5 - Builder’s FirstSource (NYSE:BLDR)
The homebuilding sector has been one of the hottest sectors both during the pandemic and as the economy reopens. Demand for new homes is likely to continue as many Americans have committed to relocating. This trend should provide strong support for Builder’s FirstSource (NASDAQ: BLDR) stock which is already up 31% for the year. Builder’s FirstSource is a leading supplier of building products and integrated services to professional homebuilders.
BLDR stock is currently trading near its 52-week high as well as the consensus price target of the analyst community. However, since the company reported earnings in August, a number of analysts have boosted their price targets for the stock suggesting that there could be a significant upside ahead.
A catalyst for the stock may be the company’s shift toward prefabricated solutions for items like roof trusses that are drawing the attention of builders who are looking for ways to shorten the time of their build cycles while also helping to reduce the rising labor costs.
About Builders FirstSource
Builders FirstSource, Inc, together with its subsidiaries, manufactures and supplies building materials, manufactured components, and construction services to professional homebuilders, sub-contractors, remodelers, and consumers in the United States. It offers lumber and lumber sheet goods comprising dimensional lumber, plywood, and oriented strand board products that are used in on-site house framing; manufactured products, such as wood floor and roof trusses, floor trusses, wall panels, stairs, and engineered wood products; and windows, and interior and exterior door units, as well as interior trims and custom products comprising intricate mouldings, stair parts, and columns under the Synboard brand name.
Read More - Current Price
- $174.95
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 15 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $206.47 (18.0% Upside)
#6 - Axon Enterprise (NASDAQ:AXON)
Remember in the introduction that growth stocks are notable for their ability to outpace the market. That certainly describes Axon Enterprise (NASDAQ: AXON) which has seen its stock increase by 52% thus far in 2021. However, investors who were aware of and invested in AXON stock in January 2018 have been rewarded with a 565% gain.
The company is most known for its Taser product, which launched the category of non-lethal weapons technology. Axon is expanding its product offerings into areas such as body cameras and Evidence.com, a cloud-based digital evidence platform. And although the company is frequently associated with law enforcement agencies, it also does business in correctional departments, fire and EMS departments, and even the U.S. military.
As our nation saw in 2020, there will be an increasing need for the company’s solution in an attempt to address issues of social justice. And from that perspective, Axon Enterprise is delivering for its customers and its shareholders.
About Axon Enterprise
Axon Enterprise, Inc develops, manufactures, and sells conducted energy devices (CEDs) under the TASER brand in the United States and internationally. It operates through two segments, Software and Sensors, and TASER. The company also offers hardware and cloud-based software solutions that enable law enforcement to capture, securely store, manage, share, and analyze video and other digital evidence.
Read More - Current Price
- $609.82
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 12 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $427.83 (29.8% Downside)
#7 - Shopify (NYSE:SHOP)
For many years, when investors combined the words e-commerce with growth stocks the answer was always Amazon (NASDAQ: AMZN). And the tech giant remains an investable stock for many reasons. However, at the moment, Shopify (NYSE: SHOP) is likely to be the better bet.
Investors are notoriously a “what have you done for me lately” bunch. To that end, SHOP stock is up 25% in 2021; Amazon is up just 3%. Let me reiterate, this isn’t to say AMZN isn’t a quality investment. However, if you’re a growth-minded investor, Shopify is looking like a better bet.
The key to the company’s recent success has been its ability to grab new clients. In fact, the company, which has largely been known for catering to small- and medium-sized businesses is now making inroads with larger businesses. And the company’s software now allows all their customers to provide in-store and curbside pickup that will be essential ingredients to any business as the economy reopens.
About Shopify
Shopify Inc, a commerce company, provides a commerce platform and services in Canada, the United States, Europe, the Middle East, Africa, the Asia Pacific, Australia, China, and Latin America. The company's platform enables merchants to displays, manages, markets, and sells its products through various sales channels, including web and mobile storefronts, physical retail locations, pop-up shops, social media storefronts, native mobile apps, buy buttons, and marketplaces; and enables to manage products and inventory, process orders and payments, fulfill and ship orders, new buyers and build customer relationships, source products, leverage analytics and reporting, manage cash, payments and transactions, and access financing.
Read More - Current Price
- $103.97
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 24 Buy Ratings, 16 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $94.95 (8.7% Downside)
Growth stocks tend to be expensive by market standards. This may mean they are trading at a high price-to-earnings (P/E) ratio if the company is profitable. Or it could have a high price-to-sales (P/S) ratio if it is not yet profitable. By itself, this doesn’t mean you should stay away from the stock. If the company meets or exceeds its growth expectations, the stock is likely to climb much higher.
However, if the company fails to meet expectations, the stock may decline sharply. Investors can see this in the tech sector where many growth stocks will take a sharp move downward if earnings and/or revenue do not meet analysts’ expectations.
Growth stocks should not be thought of as speculative investments. They have a place in virtually any investor’s portfolio. Risk-averse investors may choose to allocate less to growth stocks.
Alternately, they may opt to invest in growth stocks through an exchange-traded fund (ETF) that specializes in growth stocks. The fund’s prospectus will outline the fund’s investment objective and its historical performance in relation to the broader market.
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