Growth stocks are showing some signs of life. After a dismal 2022, growth stocks have gotten off to a much better start in 2023. That’s in large part due to macroeconomic factors. Recent economic data has shown that the rate of inflation is slowing. In addition, yields on long-term government bonds have dropped significantly.
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These are positive factors for growth stocks, companies in which investors try to assess the long-term value of a rapidly expanding business. That said, economic volatility is likely to remain elevated as the Federal Reserve tries to pilot the economy toward a soft landing. While it remains to be seen whether this is a new bull market for growth stocks, these 10 selections stand to benefit from the changing economic winds:
— Autodesk Inc. (ticker: ADSK)
— Unity Software Inc. (U)
— Visa Inc. (V)
— Albemarle Corp. (ALB)
— Charles River Laboratories International Inc. (CRL)
— Danaher Corp. (DHR)
— Microsoft Corp. (MSFT)
— Clearfield Inc. (CLFD)
— Sprinklr Inc. (CXM)
— Grupo Aeroportuario del Pacifico SAB de CV (PAC)
Autodesk Inc. (ADSK)
Autodesk is a leading software-as-a-service technology company focused on imaging and graphic design solutions. Rather than catering to fields such as media or advertising, Autodesk is focused on more industrial applications. Autodesk software allows clients to plan out models of products, factories, blueprints for buildings and other such items. The use of software for modeling allows firms to experiment and try new ideas without tying up real-world resources or facilities.
Autodesk has long had a dominant position within certain industrial niches but has expanded in recent years, such as through an effort to develop leading software for 3D-printing applications. Autodesk has pulled back from its highs around $330 per share in 2021 to less than $200 today, offering investors a significant discount as shares now trade at 27 times forward earnings.
Unity Software Inc. (U)
Unity is a leading graphics engine. This is a type of software that serves as an operating system for video games. Game developers use Unity, or its rival Unreal Engine, to design the graphics, interactions, characters and other elements that go into the composition of a video game.
A key feature of Unity is its interoperability: A developer can make a game for a platform such as PC and easily port it to mobile, console and even augmented/virtual reality. Unity’s strongest market position is in mobile, where it currently is the graphics engine for roughly 70% of top-grossing games. That said, it is also big in the augmented reality space. Meta Platforms Inc. (META) was reportedly interested in buying Unity a few years ago as part of its metaverse plans.
Unity has struggled somewhat in monetizing the platform, and still relies heavily on advertising for revenues. Over time, though, the business should grow. That’s especially true as it expands into other verticals such as e-commerce and video animation.
Visa Inc. (V)
Visa is a perfect growth stock for these unusual times. That’s because it benefits from the current shift out of traditional financial stocks into safer alternatives. Visa’s business model is uniquely safe, as far as payments firms go, because it gets paid on transaction volume. The actual credit risk in the card transaction is taken by the underwriting bank and Visa is not exposed.
Instead, key metrics for Visa include the adoption rate of plastic as opposed to cash, along with the number of cross-border transactions. The pandemic had a mixed impact on Visa. Retailers rushed to install more card and digital payments options while moving away from cash; this was a particularly pronounced and beneficial factor for Visa in emerging markets.
On the other hand, global travel slowed down during the pandemic, reducing the number of lucrative cross-border transactions. As the world economy normalizes, Visa should return to its usual double-digit annualized top-line growth, and shares sell for 27 times forward earnings today.
Albemarle Corp. (ALB)
Albemarle is a U.S.-based company that is one of the world’s leaders in lithium production along with other specialty chemicals such as bromine. It owns significant lithium-producing assets in the United States, Chile and Australia and is planning additional acquisitions in the Australian market.
Lithium should be a tremendous growth market over the next decade or more. That’s because lithium is a key component for the batteries that power electric vehicles and other related products. And Albemarle grew revenues from $3.1 billion in 2017 to $7.3 billion last year amid a surge in both pricing and demand for lithium in recent years.
That said, a slowdown in the Chinese market this year has rocked the lithium sector, with ALB stock falling 30% since February. This has put shares at seven times forward earnings while retaining a strong long-term growth profile.
Charles River Laboratories International Inc. (CRL)
Charles River Laboratories is a health care diagnostics and research firm focused on drug discovery. Specifically, Charles River has long been the leader in providing animals such as rats and mice used in drug trials. Biotech firms have to make sure the animals they perform tests with are standardized and meet all their criteria to ensure that trials have reliable and repeatable results.
In 2021, Charles River played a role in the clinical trials of more than 85% of drugs that ultimately received approval from the Food and Drug Administration. In recent years, Charles River has expanded its operations into fields such as outsourced research and safety assessment services for biotech firms.
Charles River shares have plunged in recent months amid weakness in the biotech sector, which has reduced the amount of research dollars available for clinical trials. But the company’s long-term outlook remains strong thanks to demographics: An aging population will need more cutting-edge drugs that will require Charles Rivers’ lab rats to develop.
[SEE: 9 Growth Stocks That Also Pay Dividends.]
Danaher Corp. (DHR)
Danaher is one of the most successful roll-ups listed in America. The firm is an industrial company now focused primarily on health care. Over the past 20 years, shares have risen 20-fold on the strength of the company’s unceasing M&A program and its time-tested Danaher Business System. This system is a customer-focused approach which ensures all decisions at Danaher revolve around its four pillars: quality, delivery, cost and innovation.
In short, Danaher acquires underperforming assets from others, enhances them to maximize profitability, and uses the resulting cash flow to buy more assets. Rinse and repeat. Nowadays, Danaher is a massive player in vital high-margin parts of the health care ecosystem such as lab tools and equipment. The firm enjoyed a big earnings increase in recent years related to COVID-19 testing and vaccine discovery. Shares have fallen as that tailwind faded, but the long-term prospects remain bright.
Microsoft Corp. (MSFT)
Artificial intelligence is suddenly the hottest trend in the technology industry. There are a number of smaller-capitalization companies pursuing the AI space that have yet to prove their business models.
For investors seeking a large profitable firm with a leading position in the AI space, there’s Microsoft. The company has jumped to a leading position by incorporating OpenAI’s GPT-4 into its Bing search engine. Over time, it should be able to move AI further into Office and other core products, helping to modernize the Windows work environment.
AI systems also require an immense amount of computing power; this ties in well to the firm’s Azure cloud computing ecosystem which can profit as demand for AI services grows. While the exact shape of the AI revolution isn’t yet clear, Microsoft should have several growing revenue streams as artificial intelligence takes off.
Clearfield Inc. (CLFD)
Clearfield is a smaller growth company focused on the broadband internet market. Specifically, Clearfield offers fiber protection, management and delivery services. These are essential for telecom companies as they deploy new fiber capacity at scale.
Clearfield has shown tremendous growth in recent years. It grew revenues from $93 million in 2020 to $271 million in 2022. Some of this was naturally tied to the recent work-from-home trend. Investors apparently don’t think Clearfield’s growth can keep up as CLFD stock has fallen nearly 55% over the past six months. This seems to be an overreaction. While growth will likely slow, shares are going for less than 12 times forward earnings now.
Sprinklr Inc. (CXM)
Sprinklr is a software-as-a-service company focused on customer experience. Specifically, it offers tools and applications to help enterprises manage their brands and image online. Sprinklr helps brands post and respond to customer feedback on platforms such as Twitter.
By helping companies monitor tons of different channels, ad campaigns, keywords and so on, it helps large enterprises keep tabs on how customers are relating to their brands and marketing efforts. The reason for excitement now is that Sprinklr is launching new products designed at taking share away from key rival Sprout Social Inc. (SPT). Sprout shares trade at a lofty 11 times revenue, while Sprinklr sells for just 5.5 times revenue.
Assuming Sprinklr can pick up some of Sprout’s customers, there should be a significant improvement in Sprinklr’s relative valuation. Sprinklr is already profitable, and analysts project at least 15% revenue growth each of the next three years.
Grupo Aeroportuario del Pacifico SAB de CV (PAC)
Mexico’s Grupo Aeroportuario del Pacifico, which translates as Pacific Airports, has a license to operate 14 airports in Mexico and Jamaica. Its primary concessions run until 2048 and include the large cities of Guadalajara and Tijuana along with tourist destinations like Los Cabos and Puerto Vallarta.
Pacifico shares have produced a total return in excess of 600% since the firm’s 2006 initial public offering. What accounts for this incredible success? Mexico has enjoyed a booming tourist market over the years, and those gains accelerated in 2021 as the Mexican government lifted COVID-19 restrictions far sooner than other regional tourist destinations.
Now another tailwind for growth has appeared thanks to nearshoring. As more manufacturing sets up shop in North America, Pacifico’s airports — particularly Guadalajara — stand to benefit. Even after a big rally, Pacifico shares are still selling for less than 20 times forward earnings. That’s even as annual passenger traffic growth has been running in the 20% to 25% range in recent months.
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10 Best Growth Stocks to Buy for 2023 originally appeared on usnews.com
Update 04/14/23: This story was published at an earlier date and has been updated with more information.
