Best Growth Stocks to Buy for the Long Term

Best Growth Stocks to Buy for the Long Term

Have you ever looked at the stock market and dreamt of bigger returns? The best growth stocks might be the key.

These are the companies like the Amazons and Apples of the past, forecast to experience explosive revenue and earnings growth, translating to potentially supercharged returns for investors.

In 2023, growth stocks defied expectations. According to a Bloomberg article, they surged by 30%, significantly outperforming the broader S&P 500, which gained 22%. This surprised many, as rising interest rates typically favor value stocks. This strong showing has fueled investor confidence in growth stocks, leading many to favor them over value options in 2024.

Growth stocks are known for their volatility, which makes it not as favourable for some investors due to their prices can swing wildly. To navigate these ups and downs and truly benefit from their growth potential of these top growth stocks to buy now, a long-term investment horizon is crucial.

So, if you’re ready to invest for the future and have the stomach for some market gyrations, growth stocks could be a powerful addition to your investment portfolio.

10 Top Growth Stocks to Buy for the Long Term

1. Eli Lilly and Company (NYSE: LLY)

About the Company:

• Industry: Pharmaceutical
• Description: Eli Lilly and Company, headquartered in Indianapolis, Indiana, is a pharmaceutical firm. The company specializes in offering drugs for clinical depression, weight loss, and various other human pharmaceuticals.

Financial Performance and Analyst Outlook:

• Year-to-Date Share Price Growth: Eli Lilly and Company’s share price has surged by 31.4% since the beginning of the year.
• Analyst Rating: On March 22, analysts at Truist Securities reaffirmed their Buy rating and set a price target of $850 for Eli Lilly and Company (NYSE: LLY).
• Number of Hedge Fund Holders: During the fourth quarter, 102 hedge funds held positions in Eli Lilly and Company (NYSE: LLY), with a combined stake value amounting to $11.2 billion.

2. Salesforce.com, Inc. (NYSE:CRM)

About the Company:

• Industry: Software
• Description: Salesforce.com, Inc. (NYSE:CRM) is an application software company based in San Francisco, California.

  They are a leader in customer relationship management (CRM) technology and offer marketing services that allow businesses to plan, personalize, automate, and optimize customer marketing journeys.

Financial Performance and Analyst Outlook:

• Year-to-Date Share Price Growth: 17.7%
• Analyst Rating: As of March 7, Canaccord Genuity analysts hold a Buy rating and $350 price target on Salesforce.com.
• Number of Hedge Fund Holders: 131 hedge funds held positions in Salesforece.com.

3. Visa Inc. (NYSE: V)

About the Company:

Industry: Payment-processing

Description: Visa Inc. is a global transaction and payment processing services company. It provides a network that enables authorization, clearing, and settlement of payment transactions.

Financial Performance and Analyst Outlook:

• Year-to-Date Share Price Growth: Visa’s share price has grown by a healthy 7.8% so far in 2024.
• Analyst Rating: Leading analysts at Mizuho see Visa as an “Outperformer,” indicating they expect it to outperform the broader market. (Analyst rating as of March 27, 2024).
• Hedge Fund Interest: Visa is held by a significant number of hedge funds (162), suggesting institutional confidence in its future.
• Growth Potential: Analysts project its bottom line (earnings per share) to rise 12.9% for 2024, while revenue is expected to grow by 9.5%.

4. Advanced Micro Devices, Inc. (NASDAQ:AMD)

About the Company:

• Industry: Semiconductor
• Description: Advanced Micro Devices, Inc. (AMD) is a leading innovator in the semiconductor industry, based in Santa Clara, California.

  The company operates in three primary segments:

  • Data Center: Provides high-performance processors for cloud computing and enterprise applications.
  • Client Gaming: Delivers powerful graphics processing units (GPUs) for the gaming market.
  • Embedded: Develops processors for various embedded applications, including industrial and automotive uses.

Financial Performance and Analyst Outlook:

• Year-to-Date Share Price Growth: As of March 30, 2024, AMD boasts an impressive year-to-date share price growth of 29.6%.
• Analyst Rating: On March 11, Cantor Fitzgerald analysts reaffirmed their “Overweight” rating for AMD, indicating their expectation for continued growth and a price target of $190 per share.
• Hedge Fund Interest: AMD is a highly sought-after holding by hedge funds. 120 hedge funds reported owning shares in the company at the end of the fourth quarter, with a combined stake valued at $15.2 billion. This strong institutional interest suggests investor confidence in AMD’s future prospects.

5. Mastercard Incorporated (NYSE:MA)

About The Company:

• Industry: Payment-processing
• Description: Mastercard Incorporated (NYSE: MA) is a global giant in the transaction and payment processing industry.

  Headquartered in Purchase, New York, they offer a wide range of integrated products and value-added services for various players in the financial ecosystem, including account holders, merchants, financial institutions, digital partners, and businesses.

Financial Performance and Analyst Outlook:

• Year-to-Date Share Price Growth: Mastercard’s stock has seen a respectable year-to-date growth of 13.3% as of March 30, 2024.
• Analyst Rating: Mizuho analysts remain bullish on Mastercard, maintaining a “Buy” rating and a $480 price target as of March 27.
• Hedge Fund Interest: Mastercard is a popular holding among hedge funds, with 141 funds reporting ownership at the end of the fourth quarter, representing a combined stake valued at $16.9 billion. This strong institutional interest indicates confidence in Mastercard’s future prospects.
• Largest Shareholder: Akre Capital Management is the most prominent shareholder, holding a significant stake of 5.1 million shares.
• Top Holder: Fisher Asset Management is the most prominent shareholder in AMD, holding a significant stake of 28.3 million shares. This indicates that established investment firms recognize AMD’s long-term value.

6. Microsoft (NYSE:MSFT)

About the Company:

• Industry: Software – Infrastructure
• Description: Microsoft is a household name and a titan in the software industry. They are one of the leading providers of cloud computing solutions through their Azure platform, offering a wide range of infrastructure and platform-as-a-service solutions.

  Microsoft has also established itself as a leader in artificial intelligence through its investments in OpenAI.

Financial Strength and Analyst Outlook:

• Year-to-Date Share Price Growth: Microsoft’s Azure cloud platform is a key driver of growth, experiencing an impressive 30% growth rate in fiscal 2023. This segment is positioned to be the cornerstone of Microsoft’s future.
• Analyst Rating: Morningstar analysts classify Microsoft as a “Large Growth” stock with a “Medium Uncertainty Rating,” suggesting confidence in its long-term growth potential with moderate risk factor.
• Undervalued Potential: Microsoft’s stock is currently trading at a discount, with a “Price/Fair Value” ratio of 0.97, indicating a potential upside of 3% from their estimated fair value of $420 per share.

7. AstraZeneca (NYSE:AZN)

About the Company:

• Industry: Drug Manufacturers – General
• Description: AstraZeneca is a pharmaceutical giant leading the way in drug development. They boast one of the strongest pipelines within the industry, with several promising drugs in the final stages of development that have the potential to become major blockbusters in their respective markets.

Financial Strength and Analyst Outlook:

• Year-to-Date Share Price Growth: While AstraZeneca may not be experiencing significant YTD growth as of today (March 30, 2024), it’s important to note that the company’s share price has increased by around 4.9% in the past month.
• Analyst Rating: Morningstar classifies AstraZeneca as a “Large Growth” stock with a “Medium Uncertainty Rating,” suggesting confidence in its long-term growth potential with moderate risk factors.
• Undervalued Potential: Analysts believe AstraZeneca is currently undervalued, trading at a significant discount (19%) compared to Morningstar’s estimated fair value of $78 per share.
• Profit Potential: AstraZeneca’s robust pipeline of potential blockbuster drugs is a key driver of their long-term growth prospects. The company’s focus on high-margin speciality drugs positions them well for future growth, with analysts anticipating expanding profit margins over the next five years.

8. Experian (LSE:EXPN)

About the Company:

• Industry: Consulting Services (Credit Reporting)
• Description: Experian is a leading global credit bureau, playing a vital role in the financial services industry. They provide credit information and analytics to businesses and consumers, helping assess creditworthiness and manage risk.

Financial Performance and Analyst Outlook:

• Year-to-Date Share Price Growth: As of today (March 31, 2024), Experian’s share price has increased by 10.21% year-to-date.
• Financial Strength: While not receiving the highest rating, Experian’s “Standard” Capital Allocation Rating from Morningstar indicates sound financial management practices.
• Fairly Valued: Analysts suggest Experian’s current stock price is fairly valued, trading near Morningstar’s estimated fair value of $42 per share.
• Growth Potential: Despite potential headwinds from the economic climate, Experian is expected to deliver mid-to-high single-digit revenue growth over the next five years, along with significant margin expansion. The company is also pursuing strategies for geographic diversification and growth through both organic initiatives and acquisitions.
• Analyst Rating: Morningstar classifies Experian as a “Large Growth” stock with a “Medium Uncertainty Rating,” acknowledging its growth potential but also highlighting moderate risk factors, particularly related to the economic environment.

9. JPMorgan Chase & Co. (NYSE:JPM)

About the Company:

• Industry: Financial Services – Banks
• Description: JPMorgan Chase & Co. (JPM) is a titan of the financial services industry, ranking as one of the world’s largest banks with a staggering $3.7 trillion in assets.

  They offer a comprehensive banking and financial services suite to individuals and businesses globally.

  JPMorgan is known for its stability and leadership within the banking sector, having played a key role in acquiring First Republic Bank during the 2023 U.S. regional banking crisis.

Financial Performance and Analyst Outlook:

• Year-to-Date Share Price Growth: As of March 31, 2024, JPMorgan’s share price has grown by 16.40% year-to-date.
• Financial Strength: JPMorgan consistently delivers impressive financial results, boasting double-digit revenue growth throughout all four quarters of 2023. This strong performance highlights their ability to navigate market fluctuations and generate consistent profits.
• Profitability: Analyst Kenneth Leon emphasizes JPMorgan’s leadership position, demonstrating an impressive 17% return on equity in 2023. This signifies their efficient use of capital to generate profits for shareholders.
• Analyst Rating: CFRA, a leading investment research firm, assigns a “buy” rating to JPM stock, indicating their belief in the company’s future growth potential. Additionally, they’ve established a $190 price target, suggesting potential upside for the stock.

10. Tesla Inc. (NYSE:TSLA)

About the Company:

• Industry: Electric Vehicles (EVs)
• Description: Tesla Inc. (TSLA) is a pioneer and undisputed leader in the electric vehicle (EV) market. They design, manufacture, and sell electric cars, battery energy storage from home to utility-scale, solar panels and solar roof tiles, and related products and services.

Financial Performance and Analyst Outlook:

• Year-to-Date Share Price Growth: Tesla’s year-to-date share price performance shows a decline of 29.24%.
• Short-Term Hiccup: While Tesla’s revenue growth slowed down in the fourth quarter of 2023, analysts like Garrett Nelson at Morningstar believe this is a temporary setback.
• Growth Rebound Potential: The opening of new factories in Texas and Germany, coupled with the highly anticipated Cybertruck rollout, is expected to propel Tesla’s growth back on track in 2024. Nelson estimates over 2 million Cybertruck reservations, indicating strong consumer demand. Additionally, the potential first production of Tesla’s next-generation platform in mid-2025 signifies continued innovation and future growth prospects.
• Analyst Rating: Analysts like Nelson project a significant rebound in revenue growth for Tesla, estimating a 23% increase in 2024. CFRA has assigned a “Buy” rating to TSLA stock, with a $275 price target, suggesting significant upside potential from its current price point.

Key Factors to Consider When Choosing Long-Term Growth Stocks

1. Industry trends: Focus on High-Growth Trends

Successful best-growth stock investment is about identifying industries with long-term tailwinds, meaning these sectors are expected to experience sustained growth over a significant period. These tailwinds can be fueled by various forces:

A. Technological Advancements

Think artificial intelligence, cloud computing, and robotics. Companies at the forefront of these disruptions are prime candidates for explosive growth.

B. Demographic Shifts

An aging population or rising middle class in certain regions can create massive new markets for innovative products and services.

C. Evolving Consumer Preferences

The ever-changing desires of consumers can open doors for companies that cater to these shifts, like the rise of sustainable or personalized products.

By aligning yourself with industries experiencing these powerful tailwinds, you position yourself to benefit from the overall growth of the sector, potentially propelling your chosen growth stocks forward.

2. Company Fundamental

Now, let us delve into the intricacies of the companies themselves. It is important not to be swayed by flashy marketing or hype.

Here are the financial fundamentals that distinguish enduring winners from transient trends:

A. Revenue Growth

What it means: When a company’s total revenue keeps growing steadily, the business is expanding and gaining more customers. It is even better if this best growth stock picks up speed over time.

Why it is important: Revenue increases indicate that the company is doing well in attracting more customers, broadening its products, or entering new markets. Essentially, it tells us the company is heading in the right direction with a solid business plan, which will make it one of the best-performing stocks.

B. Profitability

What it means: Just seeing high revenue isn’t enough; when researching the best-performing stocks to invest in, we should also look for companies that turn that revenue into profits.

A helpful measure for this is Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA), which shows a company is profitability before considering financing and accounting factors.

Why it is important: Profitability shows whether a company can consistently earn money. Those that can turn revenue into profit are better equipped to invest in growth, reward shareholders with dividends, and withstand economic challenges.

C. Market Share Dominance

What it means: Having a significant market share means a company leads its industry or niche. This gives it power over pricing, influences industry trends, and benefits from efficiencies due to its size.

Why it is important: A strong market share suggests the company has a solid brand, loyal customers, and runs efficiently. This positions it well for future success in its market.

Additional Fundamentals to Consider

Apart from these key points, it’s essential to look at:

D. Debt Management: Companies with a lot of debt can be risky. It is better to invest in companies with manageable debt levels and a healthy debt-to-equity ratio.

3. Management strength – Look for A Strong Leadership Team

A strong and experienced leadership team is like a skilled captain guiding a ship. Here is what to think about when you are looking at the people in charge:

A. Track Record

Check if the leaders have a history of success, especially in the same field or if they really understand the company’s main business well.

B. Getting Things Done

Having good ideas is just the beginning. The leaders should be able to turn those ideas into a successful business.

C. Focus on New Ideas

Being excited about new ideas is important for growing in the long term.

Look for leaders who care about trying new things and making the company better through research and development.

Note: While it is important to know if the leaders have done well in the past, don’t ignore new companies with great leaders. These companies might not have a long history yet, but they could still have fantastic leaders with big ideas for the future.

Some good examples of strong leadership in growth companies across different industries:

Elon Musk (Tesla, SpaceX): Musk’s relentless pursuit of innovation has revolutionized the electric vehicle industry with Tesla and propelled SpaceX to the forefront of space exploration. His ability to inspire his teams fuels the relentless drive towards the seemingly impossible.

Satya Nadella (Microsoft): When Microsoft faced a crossroads, Nadella took the reins and spearheaded a remarkable turnaround. He recognized the shift in the technological landscape and steered the company towards cloud computing (Azure) and artificial intelligence, solidifying Microsoft’s position as a dominant tech leader once again.

Marc Benioff (Salesforce): A true pioneer, Benioff didn’t just create a cloud-based CRM software company – he redefined customer relationship management. His unwavering focus on customer success, coupled with a strong company culture, has been the engine propelling Salesforce’s explosive growth.

Reed Hastings & Ted Sarandos (Netflix): This dynamic duo didn’t just disrupt the entertainment industry, they redefined it. They transformed Netflix from a humble DVD rental service into a global streaming giant. Their willingness to take calculated risks and embrace new technologies continues to be the key to Netflix’s dominance in the streaming wars.

Su Bae Kim (PayPal): At the forefront of the digital payments revolution, Kim transformed PayPal from a niche online auction payment processor into a major player in the global financial services industry. Her focus on innovation and expanding into new markets like mobile payments has fueled PayPal’s impressive growth trajectory.

4. Financial Health

Financial health is the engine that propels a company forward. Here’s what to examine when looking for the best performing stocks.

A. Debt Levels

Excessive debt can restrict a company’s ability to invest in future growth initiatives. Look for companies with manageable debt levels or a clear plan for debt reduction on the short-term debt and long-term debt.

Some financial metrics to look into are:

• Debt-to-equity ratio
• Interest coverage
• Debt-to-EBITA ratio
• Current Ratio

B. Cash Flow

A strong and consistent cash flow provides the financial runway for future investments in research and development, marketing, and expansion. A company with good cash flow can indicate it is a top growth stock to buy now too.

Companies with robust cash flow are better equipped to navigate economic downturns and seize new opportunities.

I suggest that you look at the Cash Flow Statement for better understanding, which consists of three main sections:

• Cash Flow from Operating Activities

  This section focuses on cash generated or used in the company’s core business activities, including cash received from customers, payments to suppliers, and salaries/wages.

• Cash Flow from Investing Activities:

  Tracks cash flow related to the company’s investments, such as spending on property, plant, and equipment, proceeds from selling investments, and cash used for acquisitions.

• Cash Flow from Financing Activities:

  This section deals with cash flow from the company’s financing sources, including proceeds from issuing debt, repayment of debt principal, and dividend payments to shareholders.

5. Valuation – Evaluating the Right Price for Future Growth

Growth stocks often have a higher price tag than their current earnings.

While you want to catch onto a future star, it’s important not to pay too much. Here’s how to figure out if the price is right:

A. Price-to-Earnings Ratio (P/E Ratio)

This measure compares a company’s stock price to its earnings per share.

A higher P/E ratio means the market is ready to pay more for the company’s potential growth. But if the P/E ratio is too high, it could mean the stock is too expensive.

B. Price-to-Earnings Growth Ratio (PEG Ratio)

This takes the P/E ratio a step further by considering the company’s earnings growth rate.

A lower PEG ratio indicates that the stock price reflects the company’s future earnings potential more accurately.

By looking at these important factors, you can see beyond the excitement and find growth stocks with the potential to become major players in the future.

Just remember, it’s crucial to do your own thorough research before investing in any stock.

Risks Associated with Growth Stocks

While the allure of growth stocks’ potential rewards is undeniable, it’s imperative to acknowledge the inherent risks they entail even though it may be the best-performing stock at the moment:

A. Volatility:

Growth stocks are notorious for their sharp price fluctuations.

Unlike established firms with predictable earnings, growth stocks can undergo significant swings, rendering them less suitable for risk-averse investors.

B. Unproven Track Record:

Some high-growth companies are young and promising, brimming with potential. However, this also means they may lack an extensive history of success.

Without a proven track record of sustained growth and profitability, evaluating their long-term viability becomes challenging.

C. Market Sensitivity:

Growth stocks are often perceived as “fair-weather” investments. They typically outperform the market during bullish phases, driven by investor optimism.

However, growth stocks can be particularly vulnerable during market downturns or economic uncertainty. Investor sentiment can sour swiftly, resulting in sharp price declines.

Additional Tips for Long-Term Growth Stock Investing

Beyond the pivotal factors mentioned earlier, here are some crucial considerations for fostering successful long-term growth stock investment:

A. Diversification:

To hedge against risk, diversifying your portfolio across various growth stocks spanning different industries is vital.

This strategy helps spread risk and mitigates the impact of any single company’s underperformance.

B. Dollar-Cost Averaging (DCA):

Given the inevitability of market fluctuations, employing a strategy like dollar-cost averaging proves beneficial.

This method entails investing a fixed sum of money at regular intervals, regardless of prevailing stock prices.

By doing so, it helps smooth out the cost per share over time, potentially cushioning the effects of short-term market volatility.

An example to give you a clear idea on how DCA works:

Let’s say you are a Meta (FB) fan but don’t enjoy its stock price rollercoaster. Dollar-cost averaging (DCA) offers a solution by allowing you to invest a fixed amount, like $100, every month.

• Month 1: Meta’s stock is $200, so you buy 0.5 shares ($100 divided by $200).
• Month 2: The price drops to $150, enabling you to purchase 0.67 shares with your $100.
• Month 3: The stock surges to $250, and you acquire 0.4 shares.

Over the three months, you’ve invested $300 but now own 1.57 shares. If the average price remained $200, your investment would be $314 (1.57 shares multiplied by $200).

DCA allows you to potentially accumulate more shares when prices are low, averaging your cost per share.

C. Patience:

As growth is inherently a long-term pursuit, exercising patience is paramount in successful growth stock investment, even if you have a portfolio of the best-performing stocks.

Resist the urge to react impulsively to short-term price swings.

Instead, maintain a long-term investment perspective, focusing on the fundamental strengths and enduring growth prospects of the companies in your portfolio.

If you are looking to have a better management of your emotions, take a look at these few books on behavioural finance:

• Irrational Exuberance by Robert Shiller
• The Emotionally Intelligent Investor by Rakeh Mehta
• The Psychology of Money by Morgan Housel

Conclusion

In summary, the allure of the best growth stocks lies in their potential for long-term benefits, presenting opportunities for substantial returns and portfolio expansion. Nonetheless, it is imperative for investors to exercise caution and diligence in their approach.

Thorough research, meticulous assessment of risk factors, and seeking expert financial guidance are pivotal steps in navigating the investment landscape successfully.

By remaining informed and making informed decisions, investors can position themselves to leverage the growth potential of best performing stocks while mitigating risks and advancing towards their financial objectives.

Read also: Investing in Artificial Intelligence: Exploring Top AI ETFs 

Disclaimer: The information contained herein is for educational and informational purposes only and should not be construed as financial advice. Investing involves inherent risks, and past performance is not necessarily indicative of future results. Always consult with a qualified financial professional before making any investment decisions tailored to your individual circumstances and risk tolerance.