Market momentum continues to carry equities higher. On June 6, the S&P 500 and Nasdaq closed at another record high, led by technology stocks. With rates backing off, growth stock picks will continue to rally.
There is a strong case for growth over value. Notably, growth outperformed value since the 2007-2008 financial crisis. Due to low rates near zero, investors were willing to pay for growth. Although rates have risen sharply, we are still in the sweet spot for growth.
Economic data is robust, with the U.S. economy adding 272,000 jobs in May, exceeding expectations. Another highlight was the June 7 Atalanta GDPNow model projecting 3.1% real GDP growth in the second quarter. As long as there is economic growth, corporate earnings will be healthy and in support of growth stocks.
The following growth stock picks have material upside due to their industry-leading earnings-per-share growth. At first glance, they look overvalued on a price-to-earnings basis. However, when assessed on the best metric for growth stocks – price/earnings-to-growth (PEG) – they are cheap.
PDD Holdings (PDD)
This Chinese e-commerce giant is one of the top growth stock picks. Despite the naysayers, PDD Holdings (NYSE:PDD) is advancing its reach beyond China with tremendous success. A successful entry into Europe and the U.S. will turbocharge the stock higher.
The e-commerce retailer launched Temu in the U.S. in 2022, to much fanfare. After an aggressive marketing blitz on sites like TikTok and Instagram, it’s winning over American shoppers. Analysts at Goldman Sachs point to the $1.2 billion it splashed on ads on Meta Platforms (NASDAQ:META) sites in 2023. It also ramped up ads on other channels, with its Super Bowl ads drawing keen interest.
Data suggests the aggressive campaign is working and Temu is taking share from some competitors. Indeed, analysts noted that it has emerged as a threat to discounters like Dollar General (NYSE:DG) and Dollar Tree (NASDAQ:DLTR).
To be sure, PDD Holdings is reaping the rewards of its low-priced products and viral marketing approach. Revenues soared, with Q1 revenues increasing by 124% year-over-year. Adjusted earnings per American depositary share growth was also off the charts at 199%. At a forward PEG non-GAAP ratio of 0.33, PDD stock is one of the best bargain growth stock picks to buy.
Amazon (AMZN)
In this bull market, one of the best growth stocks to buy is economic bellwether Amazon (NASDAQ:AMZN). This retail and tech giant extends its reach to key sectors of the economy. It’s the largest e-commerce retailer and its cloud computing division, Amazon Web Services, leads the industry by market share. Furthermore, its digital advertising business is the third-largest by market share, bringing in $49 billion in revenues on a trailing twelve-month basis.
With this firepower, Amazon will continue to compound for decades. After all, it has two massive tailwinds pushing the stock higher: e-commerce penetration and adoption of cloud computing. These multi-year tailwinds make it one of my favorite growth stock picks.
Another catalyst for the stock is a downshift in capital expenditures and management efforts in cost efficiencies. Its retail division is coming off a peak investment cycle and moved to a regional fulfillment network that has lowered costs to serve. Besides, management plans to increase cost efficiencies by integrating automation and artificial intelligence.
Riding on the back of these initiatives, Amazon will see substantial earnings growth. Wall Street analysts expect 56% and 26% earnings growth in 2024 and 2025, respectively. In parallel with this view, analysts are very bullish, with a median price target of $221.
Shift4 Payments (FOUR)
One of the most bullish signals for a stock is massive insider buying. That’s exactly what Shift4 Payments (NYSE:FOUR) CEO Jared Isaacman has been doing. Over the past year, he has executed several purchases with no sales.
Currently, this is one of the top growth stock picks based on management’s guidance for 39% EBITDA growth in 2024. Over the years, Shift4 Payments adopted a roll-up strategy acquiring point-of-sales systems and payment processors. With these attractively priced acquisitions, it has expanded geographically.
Shift4 Payments has shown impressive growth across all verticals. In Q1 2024, its SkyTab point-of-sale system saw remarkable growth due to increased awareness and its value proposition. Installs grew 38% quarter-over-quarter, with 9,400 installs in the quarter. As a result, end-to-end payment volume rose by 50%.
Due to the value proposition offered by the SkyTab product suit, it continues to add restaurant customers. Another significant boost has been entering new verticals, particularly sports and entertainment. It recently announced deals with sports franchises like the Kansas City Chiefs and the Chicago White Sox.
Lastly, Shift4 is implementing the same playbook in Europe, where it’s massively underpenetrated. Notable wins in Q1 included Leonardo hotels with hundreds of locations in the U.K. and Europe and the FC Barcelona stadium.
On the date of publication, Charles Munyi had a long position in FOUR but did not hold (either directly or indirectly) any positions in other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
