Markets continue to trend higher, with the Dow Jones Industrial Average now on the longest win streak in history. The Nasdaq index is up 35% on the year, with the S&P 500 up nearly 20% since Jan. The upsurge is being driven by a number of growth stocks, many of which just reported strong second-quarter earnings. Yes, technology stocks have led the way thanks to artificial intelligence.
Moving through the second half of this year, equities look to continue trending higher, lifted by a surge in growth stocks. Knowing which stocks to take a position in as the rally gathers steam will be important for investors. If you can only buy one growth stock, it better be one of these seven top growth stocks.
Top Growth Stocks: Alphabet (GOOG, GOOGL)
Alphabet (NASDAQ:GOOGL/NASDAQ:GOOG) just reported exceptionally strong second-quarter earnings. Driven largely by growth in its cloud-computing unit, Alphabet posted an EPS of $1.44, as compared to expectations for $1.34. Revenue came in at $74.6 billion, as compared to $72.82 billion. Better, its YouTube advertising revenue totaled $7.67 billion, as compared to expectations for $7.43 billion. Google Cloud’s revenue came in at $8.03 billion, as compared to a forecast for $7.87 billion. Other Bets, which include the Waymo self-driving car, reported a 48% increase in revenue to $285 million. These strong results show that Alphabet is back on track after last year’s downturn.
With the Q2 earnings bump, GOOGL stock has gained 46% this year, making it a top growth stock.
Top Growth Stocks: American Airlines (AAL)
Travel is back and airlines are flying high as a result. Chief among the carriers that are benefitting from rising travel demand is American Airlines (NASDAQ:AAL). The world’s largest international carrier just reported Q2 earnings that crushed Wall Street forecasts across the board. The company announced an EPS of $1.92 versus the $1.59 that was expected. Revenue came in at $14.06 billion compared to $13.74 billion which had been the consensus forecast on Wall Street.
The airline also raised its forward guidance for all of this year, saying it now expects the current travel boom to continue throughout this year’s second half and into 2024. American Airlines’ strong Q2 print came after rival carrier United Airlines (NASDAQ:UAL) announced record earnings for the April through June period. With us now in the midst of the busy summer travel season, American Airlines can be expected to post even stronger Q3 results. AAL stock has rallied 31% this year, but analysts see more gains ahead for the carrier’s stock.
Top Growth Stocks: Netflix (NFLX)
Shares of streaming giant Netflix (NASDAQ:NFLX) are down 6% after the company recently reported its Q2 earnings. However, the stock is not likely to be down long and investors should buy the dip. For one, Netflix’s latest print wasn’t really bad at all. Two, the stock is being weighed down by concerns about the actors and writers’ strike in Hollywood, which has shut down the production of TV shows and movies. However, the strike is likely to be temporary and Netflix is more immune than most studios to the strike’s impact.
The main problem with Netflix’s Q2 print was the forward guidance. The company’s revenue in Q2 rose 2.7% from a year earlier to $8.19 billion, matching analysts’ expectations. EPS of $3.29 beat consensus forecasts for earnings of $2.86 a share. Most impressive, Netflix added 5.9 million net new subscribers during the quarter, which handily beat the 1.9 million that was expected. Netflix ended the quarter with 238.4 million paying subscribers worldwide.
Unfortunately, Netflix called for revenue of $8.52 billion in the current third quarter, which was lower than the $8.67 billion that had been anticipated, sending the stock lower. If it weren’t for that guidance, NFLX stock would likely be rising. Despite the current pullback, the company’s share price is still up 96% over the last 12 months, proving that this is an essential growth stock.
American Express (AXP)
Another company that is benefitting from a resurgence in travel is American Express (NYSE:AXP). The credit card company said in its Q2 earnings statement that it saw record levels of spending on its credit cards between April and June of this year, notably from purchases related to travel and entertainment. This led American Express to report Q2 EPS of $2.89, which was better than the consensus forecast of $2.81 among Wall Street analysts.
While revenue for the quarter ended June 30 came in a little light at $15.05 billion, which was below the consensus estimate of $15.41 billion, American Express reaffirmed its full-year 2023 guidance. The company continues to expect earnings of $11.00 to $11.40 a share, which is strong and reflects the continued resilience of consumer spending. While AXP stock has pulled back 5% since the Q2 print, the stock is still up 13% on the year. Make no mistake, American Express remains a high-potential growth stock.
Morgan Stanley (MS)
Among U.S. banks, Morgan Stanley (NYSE:MS) stood out with its second-quarter results. The leading investment bank announced earnings that beat consensus expectations on both the top and bottom lines, with EPS of $1.24, which was better than expectations for $1.15, and revenue of $13.46 billion versus $13.08 billion that was forecast. Morgan Stanley continues to focus on wealth management, which has helped distinguish the investment bank from its peers and carry it through the current drought in Wall Street deals.
While rival investment banks such as Goldman Sachs (NYSE:GS) have suffered due to a continued lack of mergers and acquisitions (M&A) and initial public offerings (IPOs), Morgan Stanley’s diversified approach and growth in wealth management has made it more resilient. News that Morgan Stanley’s CEO James Gorman plans to retire in early 2024 has raised some concerns at the bank. But long term, the investment house should be fine. MS stock has gained 16% in the last 12 months, including a 10% increase this year.
Tesla (TSLA)
While the stock continues to be volatile, it just doesn’t make sense to bet against Tesla (NASDAQ:TSLA). The electric vehicle maker has proven just about every bear on Wall Street wrong, forcing many to cover their short bets against its stock. This year alone, TSLA stock is up 144% following a steep decline last fall after CEO Elon Musk acquired the company formerly known as Twitter, and concerns were raised about his focus on electric cars.
More recently, TSLA stock has slumped 5% since the company issued its latest earnings on July 19. Judging by past performance, TSLA stock won’t be down for long. The company beat Wall Street forecasts on the top and bottom lines with revenue of $24.93 billion and EPS of 91 cents. The issue was the margins, with Tesla reporting that its operating margins came in at 9.6%, the lowest level in five quarters. That was due to price discounts and other incentives offered on its EVs. But don’t fret. TSLA stock has gained more than 1,200% in the last five years.
PepsiCo (PEP)
While it’s often not thought of as a growth stock, beverage, and snack giant PepsiCo (NASDAQ:PEP) continues to post impressive earnings and growth in its core business. The company, which makes consumer products such as the Pepsi soft drink and Lay’s potato chips, reported better-than-expected Q2 earnings and raised its full-year guidance. Specifically, Pepsi said it earned $2.09 a share for the quarter ended June 30. That was much better than the consensus Wall Street forecasts for EPS of $1.96.
Revenue in Q2 totaled $22.32 billion compared to $21.73 billion which was expected by analysts. Revenue was up 10% year-over-year during the April through June period. In terms of forward guidance, PepsiCo said it now expects its full-year revenues to grow a further 10%, up from a previous forecast of 8% growth. EPS is forecast to come in at $7.47 for the entire year, up from an earlier forecast of $7.27. PEP stock has gained 12% over the last year and would be great to own in a recession.
On the date of publication, Joel Baglole held a long position in GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
