The Federal Reserve recently lifted interest rates to their highest level in 22 years. The fed funds target rate now sits at 5.25% to 5.5%. This was the fourth rate hike this year and 11th since the central bank began raising rates in March 2020 in an effort to tamp down inflation. And while a rising rate environment is typically bad news for growth stocks, 2023 has been a banner year thus far for high-return growth stocks.
In addition to the rally in technology stocks this year, largely fueled by excitement over the promise of artificial intelligence (AI), growth stocks are benefitting from a brighter-than-expected economic picture and the belief that the Fed is either done or very close to finished hiking rates.
If this is true, the rally in high-potential growth investments is likely just getting started. Here are seven stable growth stock picks in anticipation of a rate peak.
Entegris (ENTG)
Massachusetts-based Entegris (NASDAQ:ENTG) supplies advanced materials and systems used in the semiconductor device fabrication process, as well as other high-tech industries like life sciences. Shares are up 67% so far in 2023 as money flowed back into the tech sector.
ENTG’s advance has accelerated in the past three months, following the release of the company’s first-quarter results. Revenue surged 42% year over year to $922.4 million. That was better than expected, as were adjusted earnings of 65 cents per share.
In May, Entegris announced the opening of a state-of-the-art manufacturing facility in Taiwan that is designed to boost the company’s production capabilities of critical semiconductor materials while reducing waste.
Roughly half of the world’s semiconductor chips are made in Taiwan, and Entegris has a longstanding relationship with Taiwan Semiconductor Manufacturing (NYSE:TSM), one of the world’s top chipmakers. Further, Taiwan is only increasing in importance as a chip hub as tensions between the U.S. and China rise.
“Our investment is just a sign of the conviction we have in the future of the semiconductor industry in Taiwan,” Entegris Chief Executive Officer (CEO) Bertrand Loy told Nikkei Asia.
Adobe (ADBE)
Adobe (NASDAQ:ADBE), one of the best-known software makers, is up 62% year to date. That performance puts it on par with some of the “Magnificent Seven.”
The company is clearly riding the AI wave higher, having invested heavily in the technology. Its AI-powered tools include Adobe Firefly, which allows users to create images and transform text, and Adobe Sensei, which has been integrated with programs such as Photoshop and Lightroom to improve functionality and efficiency.
Adobe posted better-than-expected quarterly results in mid-June. Revenue was up 10% year over year to $4.82 billion, exceeding the $4.77 billion analysts expected. And adjusted earnings per share of $3.91 easily topped the consensus estimate of $3.79 a share.
Chief Financial Officer (CFO) Dan Durn told Barron’s that generative AI should drive revenue and profit growth for decades to come. And Morgan Stanley analyst Keith Weiss cited the company’s AI push as the reason for raising his price target on the stock to $660, which is more than 20% above the current price.
The combination of AI and the potential end to the latest interest-rate-hike cycle could prove very powerful for ADBE.
Apple (AAPL)
Apple (NASDAQ:AAPL) stock has powered higher this year, rising 53%. This is despite the tech giant reporting fiscal Q2 results in May that showed the company’s second consecutive quarter of declining year-over-year sales. Still, earnings beat estimates in the most recent quarter on stronger-than-expected iPhones sales, and investors continued to pile into shares.
Apple is set to report fiscal third-quarter results this week. Investors will be watching the report closely. According to Barron’s, analysts at Piper Sandler and Wedbush are telling investors to buy shares even if management’s forecast comes with a warning of a tough smartphone market. Both firms now have a $220 price target on the stock, implying upside of 12%.
Apple has plenty going for it. While Mac sales are slumping, services revenue is growing at an impressive clip. The company is looking to India as an opportunity for expanding its consumer and manufacturing base. Additionally, Apple is expected to release its AR/VR headset in 2024, which could create a new product revenue stream for the company. Finally, Apple recently announced it has entered the AI chatbot race.
All told, AAPL stock is probably one of the most stable growth stock picks you could have in your portfolio
Snowflake (SNOW)
Cloud-based data warehouse company Snowflake (NASDAQ:SNOW) is up 24% year to date, beating the S&P 500’s 19% return but not by as much as most of the other high-potential growth investments on today’s list.
The company reported better-than-expected revenue and earnings for its fiscal first quarter on May 24. Revenue jumped an impressive 48% year over year, albeit much slower than the 85% growth of the comparable year-ago quarter. Adjusted earnings of 15 cents per share beat the 5-cent estimate, and adjusted free cash flow rose 58% year over year to $287 million. But investors got spooked when management’s forecast for the current quarter and full year came in light.
Yet, the company maintains its long-term forecast of hitting $10 billion in product revenue by fiscal 2029, as a Scotiabank analyst notes. Moreover, the analyst “is confident Snowflake will benefit from a new product cycle in 2024 and 2025, including new offerings targeting artificial intelligence and data science applications,” Barron’s reports.
This prompted Scotiabank to upgrade SNOW stock to “outperform” and raise its target price to $212 from $137. The new target is 19% above where shares currently trade.
ACM Research (ACMR)
ACM Research (NASDAQ:ACMR) predominantly provides cleaning equipment for semiconductor wafers, but it is expanding into other areas of high-end semiconductor equipment. Shares of the small-cap growth stock are up 70% on a year-to-date basis.
ACM Research reported first-quarter results on May 5. Shipments of $89 million were up 33% from a year ago, while revenue increased 76% to $74.3 million. Net income of $7.15 million compared very favorably to a loss of $5.79 million a year ago.
According to Gurufocus, the company’s three-year revenue growth rate stands at 47%, better than 94% of its peers. And analysts are forecasting revenue will increase more than 40% this year.
Analysts are bullish on the stock, with seven rating it a “buy” and just one “hold.” Their average price target of $21.59 is 65% above the current price.
Advanced Micro Devices (AMD)
Semiconductor stocks have performed very well in 2023, and Advanced Micro Devices (NASDAQ:AMD) is no exception, rising 77%. That’s more than double the return of competitor Intel (NASDAQ:INTC) but far less than Nvidia’s (NASDAQ:NVDA) 200%-plus surge. This puts AMD in a sort of sweet spot that could mean big returns for growth investors.
While Nvidia makes the most-powerful chips that are used to power AI-related technologies, AMD isn’t too far behind. In fact, according to MosaicML, AMD’s AI chips are about 80% as fast as the ones Nvidia makes.
“Hanlin Tang, chief technology officer of MosaicML, said that the company believes that further software updates from AMD that are in the works should help its MI250 chip match the performance of Nvidia’s A100,” Reuters reports.
For those who feel they’ve missed the run-up in NVDA stock, AMD shares could offer a second chance.
Yum China (YUMC)
Yum China (NYSE:YUMC) operates many of the Yum Brands (NYSE:YUM) chains that U.S. diners are familiar with but in China, including KFC, Pizza Hut and Taco Bell. It also includes local restaurants like Huang Ji Huang and Littel Sheep that specialize in Chinese cuisine. Collectively, Yum China is the largest restaurant firm in China with more than 13,000 locations.
While shares are only up 12% year to date, underperforming the broader market, the growth stock remains attractive due to its size and massive customer base.
Yum China just reported second-quarter results that beat estimates on the top and bottom lines. Revenue increased 24% to $2.65 billion, while adjusted earnings per share of 47 cents beat by 8 cents. The company opened 422 net new stores during the quarter, and operating profit more than tripled on a year-over-year basis to $257 million.
Wall Street analysts currently have an average price target of $73.23 on shares, implying upside of around 20%. Yet, upgrades could start rolling in after the latest earnings report, as the company’s growth metrics and market penetration are difficult to ignore.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
