Buying growth stocks and holding onto them for many years can result in significant gains. Some people reach their financial goals much sooner by investing in the right stocks. Even if a stock experiences modest gains, your portfolio is still moving in the right direction.
While the stock market doesn’t offer any guarantees, a few patterns emerge. Corporations with rising revenue and profit margins have a higher likelihood of outperforming the stock market. Also, businesses with vast competitive moats are more likely to outperform the average stock.
Cooling inflation should spark more demand for growth stocks. Lower inflation increases the likelihood of lower interest rates in the future which will decrease the cost of borrowing money. These tailwinds can drive the stock market higher and allow the winners to become bigger winners.
Let’ explore some of the best growth stocks to accumulate for the possibility of attractive long-term gains.
Chipotle (CMG)
Chipotle (NYSE:CMG) has completed its 50-for-1 stock split and now trades at $62.56 per share. The stock had a big run-up during the split and is up by 38% year-to-date (YTD). Additionally, Chipotle has gained 318% over the past five years.
Clearly, the Mexican grill chain’s latest results demonstrate that growth is still on the menu. Revenue increased by 14.1% year-over-year (YOY) to reach $2.7 billion in the first quarter. Net income jumped by 23.2% YOY to reach $359.3 million. Further, the company is retaining most of its customers despite price hikes based on a 7.0% YOY increase in comparable restaurant sales.
Therefore, Chipotle’s long-term growth plans should enable more quarters like this one. The company opened 47 new restaurants this quarter and remains on target to open 285-315 restaurants in 2024. Chipotle offers a healthier range of food options than most fast food restaurants. This distinction makes it easier for the company to command higher prices.
Meta Platforms (META)
Meta Platforms (NASDAQ:META) has been outperforming the stock market for several years as businesses continue to pour money into its advertising channels. Shares are up by 46% YTD and have soared by 157% over the past five years. The tech giant trades at a reasonable 29 P/E ratio and is valued at more than $1.3 trillion.
Impressively, the company more than doubled its net income in the first quarter. Revenue increased by 27% YOY in the same period. Meta Platforms is making big investments into artificial intelligence (AI) in an effort to diversify revenue beyond advertising channels. It can take multiple years for the company to meaningfully diversify, but it’s nice to see the company taking some steps to make it happen.
Notably, Meta Platforms’ social networks remain in demand, as 3.24 billion people now use them every day. That’s a 7% YOY increase. META achieved all of this growth while trimming its headcount by 10% YOY. The company is becoming more efficient and closed out the first quarter with a $58.12 billion cash position.
Duolingo (DUOL)
Duolingo (NASDAQ:DUOL) is a top app for people who want to learn new languages. The company has gamified the language learning experience with verbal and written lessons. While the stock has been on a roller coaster for much of its existence, shares are up by 37% over the past year. Duolingo is still vulnerable to sharp corrections but presents an enticing long-term buying opportunity. Recent financial results demonstrate this case.
First quarter revenue increased by 45% YOY to reach $167.6 million. Also, net income came in at $27.0 million compared to a $2.6 million net loss in the same quarter last year. The company’s rising profit margins suggest that the P/E ratio will become more reasonable in the future.
Investors may not want to wait for the valuation to be perfect, as total bookings increased by 41% YOY. Higher bookings suggest that growth will continue. In fact, the company has more users flocking to its platform. Daily active users increased by 54% YOY to reach 31.4 million. And, the app has 97.6 million monthly active users which is a 35% YOY increase.
Cintas (CTAS)
Cintas (NASDAQ:CTAS) has delivered exceptional gains for long-term investors. Shares have gained 17% YTD and have almost tripled over the past five years. The company has more than one million North American businesses as its customers.
Because Cintas provides business supplies and safety equipment, many companies rely on Cintas to enable operations to run seamlessly. The firm has pricing power and can keep up with inflation. Furthermore, investors receive a 0.78% yield at current levels. Cintas has regularly maintained a double-digit dividend growth rate for several years.
In addition, Cintas’ recent quarter indicated that growth is still strong. Revenue increased by 9.9% YOY in the third quarter of fiscal 2024. Net income increased by 22.0% YOY in the same quarter. Cintas wrapped up the quarter with a 16.5% net profit margin.
Wall Street analysts have rated the stock as a moderate buy. The highest price target of $765 per share suggests that shares can rally by an additional 10% from current levels.
American Express (AXP)
American Express (NYSE:AXP) presents growth at a reasonable price for long-term investors. The credit and debit card issuer only trades at a 19 P/E ratio while providing a 1.20% yield for investors. The stock has performed well for long-term investors. Shares are up by 24% YTD and have gained 86% over the past five years.
Notably, the fintech firm stands to generate more revenue as people spend more money. It’s perfectly positioned to keep up with inflation while delivering long-term gains to investors. American Express reported 11% YOY revenue growth in Q1 of 2024. This growth rate, combined with a 34% YOY jump in net income, suggests that American Express should continue to rally. More than 60% of new account openings came from Millennials and Gen Z consumers.
As American Express continues to win younger consumers and cardholders with high credit scores, the company should continue to keep up with the market or outperform it. American Express trades at a lower valuation than other credit card firms despite posting better financial growth.
Microsoft (MSFT)
Microsoft (NASDAQ:MSFT) has been a consistent outperformer. The stock has gained 23% YTD amid AI tailwinds and has more than tripled over the past five years. Microsoft is thriving on multiple fronts.
In fact, Microsoft Cloud is the company’s biggest growth engine, generating over half of the company’s total revenue. Cloud computing grew by 23% YOY while the company’s overall revenue jumped by 17% YOY in Q3 of 2024. Also, Microsoft reported a 20% YOY increase in net income.
The tech conglomerates should enjoy more gains as AI tailwinds continue to fortify the company’s earnings. Microsoft’s Copilot product offers many possibilities as well. It can increase retention for Microsoft’s core products while creating new opportunities, such as Copilot for Security.
Wall Street is optimistic about Microsoft. Analysts have rated the stock as a strong buy and believe it can gain 10% from current levels. The highest price target of $600 per share suggests that the stock can gain an additional 31%.
Nvidia (NVDA)
Nvidia (NASDAQ:NVDA) is still a strong buy despite gaining 158% YTD. The company’s AI chips are second to none, as many tech giants rush to buy more chips. Nvidia has posted excellent financial growth as companies rush to capitalize on the AI boom. Revenue increased by 262% YOY in the first quarter of fiscal 2025. Net income jumped by 628% YOY.
Many companies are creating AI tools to enhance their products. So, it follows that these companies need Nvidia’s chips to ensure that their tools run smoothly. While other companies are also offering AI chips, Nvidia has a big lead and juicy profit margins. The tech giant closed out the first quarter of fiscal 2025 with a 57.1% net profit margin.
Therefore, Wall Street analysts believe that Nvidia can gain an additional 9% from current levels even with the stock split already done. The highest price target of $200 per share implies that shares can rally by 61%.
On this date of publication, Marc Guberti held long positions in MSFT and NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
