The market is back on the upswing. While growth stocks, particularly tech companies, delivered a terrible performance in 2022, 2023 has gotten off to a much more auspicious start. Now that problems have emerged in other sectors, such as retail and banking, many investors are rotating capital back into the best growth stocks to buy.
That said, investors should still exercise caution. Many of the top 2021 growth firms simply aren’t going to make a comeback. There was a lot of speculative excess during that time period. The market now cares a lot more now about profitability and sustainable, durable business models.
The seven best growth stocks to buy below have what it takes to prosper in these changing market conditions.
Best Growth Stocks: Danaher (DHR)
Danaher (NYSE:DHR) has been one of the best-performing conglomerates of all time. Shares rose from a split-adjusted 10 cents per share in 1983 to nearly $240 today.
Along the way, the company popularized the Danaher Business System, which emphasizes efficiency and optimized business processes. Danaher has operated in a great number of industries and sectors over the years as management has engaged in a whirlwind of mergers, acquisitions and divestments.
However, Danaher is now slimming down. It has spun off many businesses in recent years and will be unloading its water quality division later this year. Once that is done, Danaher will be a pure-play healthcare company focused on laboratory tools and equipment.
This is a great business as companies will spend far more on new drug discovery to address the world’s rapidly aging population. Firms such as Danaher have high regulatory moats as there is significant product lock-in; a drug that gets FDA approval using Danaher tools, for example, must keep using those tools to ensure regulatory compliance.
Danaher and other players in its industry have sold off as windfall revenues related to Covid-19 testing and vaccine development have ended. With the decline, shares are at an attractive valuation with the stock back to late-2020 prices. As Danaher returns to growth in 2024, shares should move back toward their all-time highs.
Qualcomm (QCOM)
Qualcomm (NASDAQ:QCOM) is a one of the best growth stocks to buy that also currently falls into the value stock category. Shares of the telecom-focused semiconductor company are in the red over the past year, even after their recent rally.
Behind the stock’s slide is slumping demand for consumer electronics devices and the fact that the 5G rollout hasn’t materialized in the way the bulls had hoped.
The company reported its fiscal second-quarter results on May 3. Overall revenue fell 17% year over year amid continued weakness in handset chip sales, which were also down 17% from a year ago. However, Qualcomm has other irons in the fire, including its fast-growing automotive market chip business, with sales up 20% year over year in fiscal Q2.
However, the most intriguing angle to the Qualcomm story is its involvement in artificial intelligence. Qualcomm has laid out a detailed vision for making AI “ubiquitous.” Its competitive advantage is in making power-efficient devices, and tests on its AI-enabled chips have been promising. Qualcomm sees a large market opportunity to build AI capabilities in chips within cars, smartphones and the internet of things.
Unlike many AI stocks, investors don’t have to pay up for QCOM shares. Qualcomm goes for just 12.4 times forward earnings and offers a reasonable 2.6% yield.
Best Growth Stocks: Ubiquiti (UI)
Ubiquiti (NYSE:UI) is a communications equipment company. It offers routers, switching equipment, security gateways, video surveillance products, and so on, giving both consumers and enterprises the tools they need for reliable networking.
In recent quarters, Ubiquiti has struggled as it has not been able to produce goods fast enough to keep up with demand. Now that the surge in demand related to the study- and work-from-home trend has ended, however, Ubiquiti finds itself with inventory building up. This has pushed UI stock down almost 40% in 2023.
However, things aren’t that bad. Last quarter, for example, revenues grew 27.8% year over year and EPS nearly doubled versus the same period of 2022. The business is set to decelerate in the back half of 2023, but the longer-term outlook for networking gear should be fine.
Meanwhile, Ubiquiti is buying back gobs of stock. UI’s outstanding share count is down from 90 million in 2014 to 60 million now, with the possibility of more repurchases into this recent share price decline. Meanwhile, Ubiquiti shares now go for less than 18 times forward earnings.
Endava (DAVA)
Endava (NYSE:DAVA) is in a subsector of companies in the information technology outsourcing space. Essentially, these firms have huge teams of engineers, often based in emerging markets, and they provide contract and specialty tech solutions to large enterprises.
If you’re a Fortune 500 company in a field such as insurance or media, let’s say, it probably doesn’t make sense to try to reinvent the wheel with your own coding teams. Instead, you can hire a firm like Endava that provides tailored tech solutions at reasonable prices.
Endava has grown like a weed, with revenue rising from 217.6 million pounds in fiscal 2018 to an estimated 814.5 million pounds for the current year. Shares trade at less than 18 times forward earnings, and analysts expect strong growth going forward.
As a group, IT outsourcers have gotten crushed since 2021 amid fears of a general slowdown, and they fell to fresh lows earlier in June following a revenue warning from rival EPAM Systems (NYSE:EPAM).
Endava has a large portion of its revenue base in the financial services and payments solutions industries. Right now, the market wants nothing to do with either of these groups. Yet, with DAVA stock down from a peak of more than $170 a share in 2021 to just $50 now, the risks are more than baked into today’s share price.
Best Growth Stocks: Charles River Laboratories (CRL)
Like Danaher, Charles River Laboratories (NYSE:CRL) is integral to the drug discovery process. Specifically, Charles River is known for breeding and selling the specimens that go into clinical animal trials.
That includes lab rats and mice, of course. However, the firm also is involved in non-human primates. That’s the cause of the recent plunge in CRL’s stock price. Specifically, the Department of Justice is investigating a monkey-smuggling ring in Cambodia, and Charles River has gotten caught up in the case.
Ending up in a DOJ investigation is never a good thing. But the company has been in business since 1947. When dealing with esoteric markets such as non-human primates, it’s not shocking that a supply issue would come up sooner or later.
In the bigger picture, there’s few alternatives to Charles River. The company was involved in the development of more than 80% of all drugs that received FDA approval between 2020 and 2022. In addition, Charles River has begun developing software, consulting services, and more to help biotech companies. Moving away from a reliance on animal models should improve Charles River’s perception and reduce risk.
CRL stock has been a tremendous long-term growth machine. Shares are up more than 350% over the past decade. However, the slowdown in biotech spending due to the bear market, in addition to this primate scandal, has sent CRL shares reeling with the stock down more than 50% from its peak. At today’s price, they go for 20 times forward earnings.
Trimble (TRMB)
Trimble (NASDAQ:TRMB) is a company focused on providing digital transformation services for a number of different industries. It provides tools to help companies survey land, plan optimal routes for things such as shipping and trucking, and optimize agricultural work and processes.
Trimble became well-known with investors when fund manager Cathie Wood made it a top holding in her Space Exploration & Innovation ETF (BATS:ARKX). And, today, it remains the No. 2 holding in that fund. As Wood’s ETFs have lost popularity, however, top picks like TRMB stock have slumped.
The interesting part of the Trimble story now is that it is moving from selling hardware and one-time licenses to recurring revenue streams. Wall Street loves subscription revenues, and Trimble will increasingly deliver on that in coming years.
TRMB stock has slumped more than 12% over the past year. Meanwhile shares trade at just 19 times forward earnings, and analysts expect the firm to return to solid growth in 2024. All this could add up to a great buying opportunity for this fallen star of the smart data and processes space.
Best Growth Stocks: Fidelity National Information Services (FIS)
Fidelity National Information Services (NYSE:FIS) is a diversified information technology company.
The firm originally built its business around providing core processing functions to banks and financial institutions. In recent years, it has branched out.
Fidelity National Information is now a leader in payment processing thanks to its 2019 purchase of Worldpay. It also entered the market for record-keeping for custodians, asset managers and traders with its SunGard acquisition.
However, the payments industry is in a tailspin. Momentum from rising e-commerce transactions has dissipated, and investors fear rising competition and falling profit margins. Industry leaders such as PayPal (NASDAQ:PYPL) have gotten eviscerated over the past 18 months, and it has dragged down FIS stock too.
As a result, FIS stock is down by nearly 50% over the past year. That puts the company at just over 9 times forward earnings, even as analysts project that the firm will return to nearly 10% annualized earnings growth in 2024. Morningstar’s Brett Horn believes FIS stock is worth $83, whereas it trades around $55 today.
On the date of publication, Ian Bezek held a long position in CRL, DAVA, QCOM, and DHR stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
