10 Best Growth Stocks to Buy for the Long Term

August 19, 2024August 12, 2024 Editor

Growth stocks had the upper hand in 2023: The Morningstar US Growth Index outperformed the Morningstar US Value Index by more than 26 full percentage points for the year. But the early gap in 2024 year-to-date returns has disappeared as value stocks have outperformed.

What does this reversal mean for growth stocks?

“Between some pullback and a few modest increases in our fair values this year, stocks within the growth category continue to trade near fair value,” observes Morningstar’s senior US market strategist Dave Sekera. “However, within the growth category, stocks trading at much of a discount to fair value have become harder to find. We prefer investing in higher-quality companies with wide economic moats.”

Our best growth stocks to buy for the long term share a few qualities:

They land in the growth portion of the Morningstar Style Box.
The stocks are from companies included on Morningstar’s list of the Best Companies to Own for 2024. Companies on this list have wide Morningstar Economic Moat Ratings and predictable cash flows, and they are run by management teams that make smart capital-allocation decisions.
They look reasonably priced, which means they’re trading below or near Morningstar’s fair value estimates.

10 Best Growth Stocks to Buy for the Long Term

The 10 most undervalued growth stocks from Morningstar’s Best Companies to Own list as of Aug. 6, 2024, were:

Taiwan Semiconductor Manufacturing TSM
NXP Semiconductors NXPI
Rentokil Initial RTO
Microsoft MSFT
Airbus EADSY
Amazon.com AMZN
Autodesk ADSK
BAE Systems BAESY
Experian EXPGY
Dassault Systèmes DASTY

Here’s a little bit about each of these growth stocks for the long term.

Taiwan Semiconductor Manufacturing

Price/Fair Value: 0.73
Morningstar Uncertainty Rating: Medium
Morningstar Style Box: Large Growth
Morningstar Capital Allocation Rating: Exemplary
Industry: Semiconductors

Taiwan Semiconductor Manufacturing rejoins and tops our list of best growth stocks to buy. Taiwan Semiconductor is the world’s largest dedicated contract chip manufacturer, with an almost 60% market share. The firm’s disciplined approach to capital spending in 2024—and possibly in the next few years—reduces risks of oversupply and allows more flexibility in cutting-edge research to maintain its leadership, argues Morningstar analyst Phelix Lee. Taiwan Semiconductor stands to benefit from the growth of artificial intelligence, the Internet of Things, and high-performance computing applications, which may last decades. Taiwan Semiconductor stock trades 27% below our fair value estimate of $213 per share.

NXP Semiconductors

Price/Fair Value: 0.74
Morningstar Uncertainty Rating: Medium
Morningstar Style Box: Large Growth
Morningstar Capital Allocation Rating: Standard
Industry: Semiconductors

Another big name in the semiconductor space, NXP Semiconductors is new to our list of best growth stocks to buy. The firm is one of the largest suppliers of semiconductors for the automotive market and a significant player in the analog and mixed-signal chip markets generally. “We believe the company has a strong position in the automotive, industrial, mobile, and communications infrastructure markets,” says Morningstar strategist Brian Colello. NXP maintains its position through a combination of switching costs and intangible assets. Although the company sells into cyclical industries, the strength of these competitive advantages gives us confidence that it will generate excess returns over the cost of capital over the next decade and beyond. NXP Semiconductors stock trades 26% below our fair value estimate of $320 per share.

Rentokil Initial

Price/Fair Value: 0.75
Morningstar Uncertainty Rating: Medium
Morningstar Style Box: Large Growth
Morningstar Capital Allocation Rating: Exemplary
Industry: Specialty Business Services

Rentokil Initial’s strategy is sharply focused on the attainment and maintenance of market share leadership in the highly localized pest-control and hygiene-service markets it competes in. Rentokil Initial has completed over 200 acquisitions since 2015, focusing on acquisition targets that build the geographic density of its customers. The late-2022 acquisition of Terminix Global Holdings was a transformative and moat-reinforcing deal and created a new US market share leader, says Morningstar senior analyst Grant Slade. Pest-control targets remain Rentokil’s top mergers-and-acquisitions priority, but tuck-in candidates for the hygiene segment are now also set to become a focus. The successful execution of the strategy has delivered a durable cost advantage for the pest-control business—the source of our wide economic moat rating for Rentokil Initial. Rentokil Initial stock trades at a 25% discount to our fair value estimate of $39.50 per share.

Microsoft

Price/Fair Value: 0.82
Morningstar Uncertainty Rating: Medium
Morningstar Style Box: Large Growth
Morningstar Capital Allocation Rating: Exemplary
Industry: Software—Infrastructure

Microsoft is one of two public cloud providers that can deliver a wide variety of platform-as-a-service/infrastructure-as-a-service solutions at scale. Based on its investment in OpenAI, the company has also emerged as a leader in artificial intelligence, says Morningstar senior analyst Dan Romanoff. The company offers impressive revenue growth with high and expanding margins and deepening ties with customers. We believe that Azure is the centerpiece of the new Microsoft; even though we estimate it is already an approximately $75 billion business, it grew at an impressive 30% rate in fiscal 2024. Microsoft stock is currently 18% undervalued relative to our $490 fair value estimate, which we increased from $435 per share after the company delivered another good quarter.

Airbus

Price/Fair Value: 0.83
Morningstar Uncertainty Rating: Medium
Morningstar Style Box: Large Growth
Morningstar Capital Allocation Rating: Exemplary
Industry: Aerospace and Defense

Airbus is trading 17% below our fair value estimate. The company primarily generates revenue by manufacturing commercial aircraft. It benefits immensely from being in a duopoly with Boeing BA in the market for aircraft with 130 seats and up; the companies act as a funnel through which practically all such commercial aircraft demand must flow, and we expect this duopoly to continue, says Morningstar analyst Nic Owens. Airbus is well-positioned to take advantage of increasing commercial air travel. Airbus does not have much competition in the high end of the narrow-body market, and we anticipate that its offerings will enable fleet growth and may replace many aging midsize aircraft. We think Airbus stock is worth $44 per share.

Amazon

Price/Fair Value: 0.83
Morningstar Uncertainty Rating: Medium
Morningstar Style Box: Large Growth
Morningstar Capital Allocation Rating: Exemplary
Industry: Internet Retail

Internet retail giant Amazon joins our list of best growth stocks to buy. It benefits from numerous competitive advantages and has emerged as the clear e-commerce leader given its size and scale, which yield an unmatched selection of low-priced goods for consumers, says Morningstar’s Romanoff. Through Amazon Web Services, or AWS, Amazon is also a clear leader in public cloud services. Additionally, the firm’s advertising business is already large and continues to scale as ads have made their way into Amazon’s streaming outlets. AWS and advertising growth should continue to outpace e-commerce growth and should be the main growth drivers over the next five years. Overall, we see strong revenue and free cash flow growth for years to come. Amazon is trading 17% below our fair value estimate of $195 per share.

Autodesk

Price/Fair Value: 0.85
Morningstar Uncertainty Rating: Medium
Morningstar Style Box: Mid-Growth
Morningstar Capital Allocation Rating: Exemplary
Industry: Software—Application

We view Autodesk as the global industry standard computer-aided design software, says Morningstar analyst Julie Bhusal Sharma, and we think the firm will stay at the forefront of industry trends. Over 95% of Autodesk’s revenue is now recurring after the company gradually transitioned from licenses over the past eight years. The change enables Autodesk to extract greater revenue per user as it upsells its loyal and increasingly maturing base, adds Bhusal Sharma. The company has nurtured a long-standing network effect via relationships with higher-education programs that expose industry professionals to the software before they enter the workforce. Autodesk’s stock is 15% undervalued relative to our $275 fair value estimate.

BAE Systems

Price/Fair Value: 0.88
Morningstar Uncertainty Rating: Medium
Morningstar Style Box: Large Growth
Morningstar Capital Allocation Rating: Standard
Industry: Aerospace and Defense

BAE Systems is a British global defense, security, and aerospace company and the largest defense contractor in Europe; it is one of six prime contractors to the US Department of Defense. Escalating global security concerns, intensified by the Ukraine conflict, are driving structurally higher growth in the defense market. We anticipate this growth will be uninterrupted for at least several years, considering that many countries, particularly in Europe, have underspent since the end of the Cold War. BAE is strategically positioned to benefit, given its significant stakes in a broad array of major international defense projects, says Morningstar analyst Loredana Muharremi. BAE Systems stock trades 12% below our $74 fair value estimate.

Experian

Price/Fair Value: 0.88
Morningstar Uncertainty Rating: Medium
Morningstar Style Box: Large Growth
Morningstar Capital Allocation Rating: Standard
Industry: Consulting Services

Experian is one of the Big Three credit bureaus in the United States. Experian’s US core credit bureau business is relatively mature, so the company has been expanding through adjacent products and in emerging markets. Experian has developed a dominant position in Brazil, and Morningstar analyst Rajiv Bhatia argues that the growth of middle-class populations in emerging markets and favorable regulatory changes (such as the use of more data types) will drive long-term growth. Bhatia also sees some long-term opportunities in Asia, but the payoff is a bit more uncertain and execution has been lackluster. The story in the emerging markets is not seamless, and the firm has faced currency and macroeconomic headwinds. Experian stock is 12% undervalued relative to our $49 fair value estimate.

Dassault Systèmes

Price/Fair Value: 0.90
Morningstar Uncertainty Rating: Medium
Morningstar Style Box: Large Growth
Morningstar Capital Allocation Rating: Standard
Industry: Software—Application

Software application company Dassault Systèmes rounds out our list of best growth companies to buy. The firm has a hold on the computer-assisted design software market for autos, aerospace and defense, and manufacturing. With 90% of all aircraft and 80% of all autos globally made via Dassault software, Morningstar’s Bhusal Sharma believes the company will stay well entrenched with engineering teams with help from the significant switching costs and network effect found in its midmarket CAD software, SolidWorks. Dassault has adapted well to new trends in its market exposures, such as electric vehicle design software, which has made us more confident in the longevity of its moat and its ability to achieve excess returns on invested capital. Dassault Systèmes stock is trading 10% below our fair value estimate of $40 per share.

What Are the Morningstar Style Box and Fair Value Estimate?

The Morningstar Style Box is a nine-square grid that provides a graphical representation of the investment style of stocks, bonds, or funds. Based on a series of inputs—including a company’s historical and long-term projected growth and its historical and forward-looking price multiples—a stock is classified as either a value stock, a growth stock, or a core stock. A stock is also classified as either small-cap, mid-cap, or large-cap based on its market capitalization.

The fair value estimate, meanwhile, represents what Morningstar analysts think a particular stock is worth. Fair value estimates are rooted in fundamentals and based on how much cash we think a company can generate in the future, not on fleeting metrics such as recent earnings or current stock price momentum.

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