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At the beginning of a bull market, you can almost close your eyes and point at a random company to find yourself a winner. But as we enter the ninth year of this aging bull, the best growth stocks are becoming far more difficult to find.
Growth stocks still are outperforming their value counterparts in the U.S. and the rest of the world thanks to improving corporate earnings and increasing economic growth across various parts of the globe.
Consider this: At the end of April, growth stocks — using the Russell 1000 Growth Index as our proxy — were up 10.9% to top the S&P 500 by 430 basis points and the Russell 1000 Value Index by 810 basis points! That’s not beating the market — that’s clobbering it.
But the bull market has become long in the tooth, and stocks have gotten expensive. That has value investors sitting on the sidelines, and growth investors scrambling and scratching their heads to figure out where the remaining growth opportunities are hiding.
“The entire U.S. market is very expensive,” Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut, told Reuters recently. “Value investors definitely don’t like to chase expensive valuations. I wouldn’t expect to see a rotation until you saw a correction where both stock types are lower.”
If you’re looking for opportunities in an increasingly slimming field, I want to point you toward the 10 best growth stocks to buy right now. We’ll start with a couple of familiar companies, then delve into some lesser-ballyhooed plays.
The Best Growth Stocks to Buy Now: Electronic Arts (EA)
Thanks to virtual reality devices, the video-game industry is on fire — but it already has been for some time.
“This is not a niche business, it is a mass entertainment business, and it’s growing — not shrinking — despite what older people might think,” Jim Cramer said on CNBC in October.
Leading the charge is Electronic Arts Inc. (NASDAQ:EA).
Electronic Arts, up more than 20% year-to-date, grew its revenues and net income for the trailing 12 months by 8.3% and 99.4%, respectively. EA expects to generate fiscal 2017 operating cash flow of $1.4 billion — its highest level in the past decade.
“For the first time ever, we generated over $1 billion in operating cash flow in a quarter,” Chief Financial Officer Blake Jorgensen said in the company’s Q3 2017 press release. “This is a true testament to the innovation we built into Battlefield 1 and FIFA 17 and the continued strength of our digital live services.”
You can buy EA stock for about 23 times earnings, which is less than both Electronic Arts’ five-year average and the industry average.
The Best Growth Stocks to Buy Now: Alibaba (BABA)
It seems that Alibaba Group Holding Ltd (NYSE:BABA) can do no wrong.
The Chinese e-commerce giant recently sold the remaining shares of its 20.7% stake in Momo Inc (ADR) (NASDAQ:MOMO) — a Chinese social networking platform in which Alibaba invested $25 million in 2012. Estimates put Alibaba’s profit at $1 billion.
I recently said investors should own BABA stock because betting against Jack Ma is akin to betting against Amazon.com, Inc. (NASDAQ:AMZN) CEO Jeff Bezos. I’m hard-pressed to find two smarter corporate leaders. They have some interesting similarities including owning prominent newspapers.
“In 2015, Alibaba bought the English-language South China Morning Post newspaper, about two years after Bezos bought the Washington Post,” Fortune’s Adam Lashinsky wrote in March. “Whereas Bezos framed his purchase as aiding an institution integral to democracy, Ma explained his investment as ensuring that non-Chinese-speakers have access to high-quality information about China.”
Ma’s energy and drive to make Alibaba a global force to be reckoned with is as clear as night and day.
Alibaba is one of the best large-cap growth stocks in the world right now. So far in 2017, BABA shares are up 32%, and they’ve gained 47% over the past 52 weeks. Alibaba trades at a forward price-to-earnings ratio of 27, so it’s not cheap by any means, but like Amazon, you’ll pinch yourself in five years if you take a pass now.
The Best Growth Stocks to Buy Now: Shopify (SHOP)
Living in Canada, I couldn’t leave Shopify Inc (US) (NYSE:SHOP) off the list. The cloud-based e-commerce platform for small- and medium-sized businesses (SMBs) is Canada’s greatest growth-stock story at the moment, and deservedly so.
Shopify has become so ingrained in the mind of SMBs that it’s the go-to platform for anyone looking to set up an e-commerce site.
Just the other day, I was looking at the website of Tio Gazpacho — one of the investments of General Mills, Inc. (NYSE:GIS) venture capital arm 301 Inc — and noticed you could buy its products using Shopify’s e-commerce platform.
Shopify doesn’t make money, but that’s OK, because it’s too busy scaling the business to worry about profitability. Normally, that’s a deal-breaker for me, but when you’re growing revenue at 75% a quarter while capturing market share, it’s OK to toss aside your investing rules.
“As the company continues to focus on removing the complexity of the on-line experience, lowering the barriers to commerce and making merchants successful, we believe it will continue to enjoy outstanding success,” Macquarie Capital Markets analyst Gus Papageorgiou said in a research note.
Analysts love SHOP stock, and you should too.
The Best Growth Stocks to Buy Now: National Beverage (FIZZ)
You have to love National Beverage Corp.’s (NASDAQ:FIZZ) stock symbol. If you didn’t know the company’s name and only its stock symbol, you’d still know that it sells beverages. That’s an underrated attribute, in my opinion.
FIZZ has become a cult stock with retail investors thanks to LaCroix, its flavored water product. The company has grown revenues by 60% on a monthly basis, and in the process has taken market share from the big boys.
All that growth is translating into muchas profits.
In the third quarter ended Jan. 28, 2017, National Beverage delivered a 15% year-over-year increase in revenue, but it was a 71% increase in net income that got investors frothing at the mouth. Operating margins over the past three fiscal years rose by 670 basis points to 18.2%, largely on the performance of LaCroix.
LaCroix is the fastest-growing natural sparkling water brand, and as a result, National Beverage is kicking butt and taking no prisoners.
The Best Growth Stocks to Buy Now: New Oriental Education & Technology (EDU)
These days, an education is your best weapon to stay relevant in an ever-changing work world … and nowhere is that truer than in China, where the massive population makes it difficult to stand out.
As the Chinese leader in private educational services, EDU is growing rapidly. Estimates suggest that its growth could be speeding up, not slowing down as often happens with growth stocks. New Oriental’s earnings per share are projected to grow 24.8% annually over the next five years — 750 basis points greater than the past five years.
Global education stocks are hot commodities at the moment. At the end of April, Nord Anglia Education Inc (NYSE:NORD) — a Hong Kong-based operator of international schools — announced that it was being taken private by private equity interests that include the Canada Pension Plan Investment Board. Nord Anglia is getting $32.50 per share, which values its business at $4.3 billion including debt, or 65.7 times earnings.
If New Oriental were to get a similar offer, you’d be looking at $146 per share based on its fiscal 2017 EPS estimate of $2.22. That’s more than double its current price, easily putting EDU among the best growth stocks to buy at the moment.
The Best Growth Stocks to Buy Now: Grupo Financiero Galicia (GGAL)
People who read my articles will know that I’m a big fan of Latin American stocks despite the obvious problems of investing in a region that has major currency and economic issues.
However, I look beyond the problems and see a group of countries with so much potential.
Grupo Financiero Galicia S.A. (ADR) (NYSE:GGAL) is an Argentinian financial services holding company whose most valuable asset is Banco Galicia, a bank that’s more than 100 years old and boasts more than 9 million customers. It’s the country’s third-largest bank by assets and deposits and second in terms of its loan portfolio.
In the past five years, Grupo Financiero Galicia has grown revenues and net income by 305.5% and 443.6%, respectively. Morningstar gives GGAL an “A” for profitability and a “C” for growth; don’t sneeze at that latter rating, though, without considering that Argentina’s inflation is expected to hit 21% in 2017.
GGAL shares are up 54% year-to-date, and over the past five years, the company has achieved an annualized total return of 51.3% — almost four times the S&P 500.
If you can stand a little uncertainty, Grupo Financiero Galicia is an excellent growth stock and should continue to perform admirably.
The Best Growth Stocks to Buy Now: Mercadolibre (MELI)
I’ll tap Argentina for a second recommendation, Mercadolibre Inc (NASDAQ:MELI) — Latin America’s version of Amazon.
Mercadolibre announced its first-quarter earnings May 4, and they were excellent. Gross merchandise volume was $2.3 billion — 61.4% higher than a year earlier on a currency-neutral basis, and 31% higher in U.S. dollars. Items sold in Brazil and Mexico increased 52.7% and 70.7%, respectively, over Q1 2016, indicating that the Latin American economy is getting stronger.
The e-commerce company generated operating income of $63.3 million, a 107.7% increase year-over-year, on revenues of $273.9 million, 73.8% better than a year earlier.
“We’ve kicked off the year with a strong first quarter, sustaining the momentum from 2016, which was one of the best years in history for us,” Mercadolibre CFO Pedro Arnt says. “We remain focused on transforming commerce and financial services through product innovation, fostering entrepreneurship and delivering best in class user experiences, and thus cementing our leadership position in technology, online payments, and ecommerce throughout Latin America.”
Mercadolibre is confident about its future, and why not, given how it’s performing on the top and bottom lines. MELI is up 52% year-to-date, and investors should expect even more upside before the year is out.
The Best Growth Stocks to Buy Now: iRobot (IRBT)
It’s funny, but I’d never thought about this before. iRobot Corporation (NASDAQ:IRBT) would be the perfect acquisition for Apple Inc. (NASDAQ:AAPL) because it already has the uncapitalized “i” at the beginning of its corporate name: iPhone, iPad … iRobot.
Oh wait. Its primary product is the Roomba, the world’s greatest vacuuming robot. They’d have to change the name to iRoomba. Maybe not.
Anyway, iRobot stock gained 21% in April on strong first-quarter earnings. Revenues for its Roomba vacuums grew 32% year-over-year thanks to its deluxe Roomba 900 version. Overall, revenues increased 28.8% to $168.5 million, with net income up more than fourfold to $16.4 million.
In fiscal 2017, iRobot expects revenue of at least $780 million and earnings per share of $1.45. IRBT just set new all-time highs on Friday, May 5, rebounding nicely over the past five years after facing some troubles with its defense-related business.
Once the company decided to focus solely on its consumer business and ditched the defense biz in April 2016, iRobot became one of the best growth stocks in the growthy tech space.
The Best Growth Stocks to Buy Now: Ollie’s Bargain Outlet (OLLI)
In the world of retail, you have to go high or go low, but you can’t go in the middle. Rich people who shop on Rodeo Drive in Los Angeles or Fifth Avenue in New York are just as likely to buy from time to time at a place like Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI), where bargains are a part of its DNA.
In fiscal 2016, Ollie’s grew revenues 16.8% to $890.3 million and grew operating income 28.4% to $102.2 million. Gross margins and operating margins increased 80 and 110 basis points, respectively, and same-store sales — an important retail indicator — grew 3.2% over last year.
In fiscal 2017, Ollie’s expects to go over $1 billion in sales opening at least 33 new stores across the country. Same-store sales won’t grow but much — by just 1% to 2% — but margins will continue to increase, adding to the bottom line.
According to its ICR Conference 2017 presentation, Ollie’s currently has 234 stores, but expects a final store count of 950 by the time it’s done expanding. There’s lots of potential growth ahead.
Ollie’s also has a strong management team, which is necessary for the competitive discount business. I believe this retailer is positioned well for many years of growth.
The Best Growth Stocks to Buy Now: National Healthcare (NHC)
For the first time ever, Canada has more people over the age of 65 than under the age of 14, according to Statistics Canada’s 2016 census. That might be a Canadian statistic, but aging populations are a global phenomenon.
“We know for a fact that all other G7 and all industrialized countries in the next 15 years will see more seniors in their population than children,” Statistics Canada demographer Andre Lebel says.
People are aging, and when you age, you have additional healthcare requirements. That’s where National Healthcare Corporation (NYSEMKT:NHC) comes in.
NHC operates 74 skilled nursing care facilities in the U.S. that deliver nursing care 24/7 to more than 9,000 beds. It’s not your traditional growth stock, but given the aging population, its stock is bound to keep rising.
“At December 31, 2016, NHC’s skilled nursing facilities had an average CMS 5-Star Quality Rating of 4.06,” according to National Healthcare’s 2016 annual report. “By contrast, the industry average was 3.18. Seventy-six percent (76%) of all NHC skilled nursing facilities had a 4 or 5 star rating, while only 46% of all U.S. skilled nursing facilities had a 4 or 5 star rating.”
My mother lives in a retirement home, so I understand the kind of care required to run one of these facilities. The fact that NHC is so highly rated should be comforting to its shareholders.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.