Investing

3 Growth Stocks to Buy And Forget About For the Rest of This Decade

Chris MacDonald

Published: August 16, 2024 10:03 am

Investors have a wide range of growth stocks to choose from that have performed quite well in recent years. Indeed, the bull market we’ve seen in many high-growth areas of the economy has been impressive.

However, many investors believe that recessionary forces that have been building for some time could spill over into a significant decline. If we do see some wort of major correction, it’s likely many highly-valued companies will see their multiples compress. In such an environment, owning the riskiest stocks can prove to be the wrong move (to say the least).

The good news is that there are a number of growth stocks that look to be favorably priced with strong long-term growth prospects, and the potential to grow their way out of a recession, if needed. Here are three such stocks I’d put in that bucket right now.

Key Points About This Article:

• Recessionary forces are building, leading some investors to rotate part of their portfolio out of high-valuation growth stocks and into more defensive, value-oriented names.
• That said, there happen to be a number of high-quality growth stocks that could grow their way out of a recession, if need be, and are trading at reasonable valuations right now.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

Amazon (AMZN)

Amazon (NASDAQ:AMZN) outperformed the S&P 500 over the past decade, delivering a 993% return, but lagged over the last five years with a return of “only” 84%. This underperformance stems from its focus on long-term growth over shareholder returns, and increased competition from China-based Temu and Shein in online retail, as well as Microsoft and Google in cloud services.

The company’s e-commerce business remains stable, but growth now hinges on new segments. Since ChatGPT’s launch, demand for generative AI has bolstered the company’s AWS division, which offers pre-trained AI services like Amazon Rekognition and Macie for data protection. AWS also provides Bedrock, a large language model for customized AI solutions, enhancing its role in the AI sector.

Amazon remains strong despite recent volatility and a 15% stock drop. Analysts still see growth potential, with Morgan Stanley and JPMorgan maintaining overweight ratings. Despite competition, Amazon’s e-commerce dominance is unchallenged. Amazon’s operating profit, now at a record $55 billion annually, should continue to grow over the long-term at a consistent rate. Although Amazon’s stock may see some volatility over time, I think it’s going to be largely up and to the right for the company. That’s largely due to the impressive long-term prospects for cloud computing in general, and the dominant market position of AWS which should drive impressive cash flow growth over time.

Shopify (SHOP)

Shopify (NYSE:SHOP) exceeded second-quarter estimates, benefiting from strong demand despite a challenging consumer environment. In contrast, Etsy missed estimates, withdrew its Q4 guidance due to macroeconomic uncertainty, and cited the upcoming election as a concern. Amazon also reported slower online sales growth at 5% and issued cautious guidance, reflecting a more careful consumer outlook.

In Q2, Shopify’s revenue grew 20.7% to $2 billion, driven by increased spending on Shopify-powered sites, with gross merchandise volume up 22% year-over-year. Shopify’s payment systems processed 61% of payment volume, and subscription revenue rose 26.8% year-over-year to $563 million. Impressively, Shopify improved profitability, turning last year’s losses into gains with a positive operating margin and doubled free cash flow margin at 16%. 

Mizuho Securities raised Shopify’s price target from $65 to $68, maintaining a neutral stance after Shopify’s strong Q2 earnings. The report exceeded expectations in revenue, free cash flow margin, and gross merchandise volume. Mizuho’s updated model shows optimism for Shopify’s revenue and profitability in 2024, driven by the company’s solid financial performance in Q2.

Super Micro Computer (SMCI)

During Q4 2024, AI chip company Super Micro Computer (NASDAQ:SMCI) saw its revenue surge 44%, surpassing a bit higher than estimates. Adjusted EPS grew 78%, falling short of the 130% forecast due to lower gross margins. For fiscal Q1 2025, Supermicro expects to see a 230% surge in revenue, and 141% EPS growth. For FY 2024, revenue is expected to surge 74% to 100%, with investors clearly anticipating even greater gains.

Supermicro investors love SMCI stock in large part due to the company’s valuation and its sky-high growth rate. Trading around $550 per share, this is a stock that now has a forward price-earnings multiple under 15-times, which is dirt-cheap considering its 143% revenue growth rate. This multiple is more reflective of a traditional server company than a high-growth AI stock. For those who have small SMCI holdings, the company now controls 10% of the AI server sector. Analysts are expecting the market to growth 17% over the next three years, but assuming Super Micro continues to grow its market share in the direct liquid cooling market, this is a stock that could far exceed the average industry growth rate for a long time to come.

Analysts appear to agree with this assessment, forecasting the company will grow its revenue at a 44% compounded annual growth rate (CAGR) in the years to come, with earning per share growing at a 41% CAGR from 2024 to 2026.

Super Micro’s valuation volatility reflects varied investor opinions. While some view its recent earnings miss and lower margins as signs of slowing growth, others see its rising market share in direct liquid cooling servers—up from 1% to 15%—as indicative of strong long-term potential. As a leading player in this expanding market, Super Micro is poised for significant growth, at least in my view. I’d be a buyer at these lower levels here, and really start loading up if we see more significant dips.