Investing in growth stocks gives investors the opportunity to outperform major benchmarks like the S&P 500 and the Nasdaq Composite. Growth-oriented firms regularly exhibit rising revenue. Some of these companies are narrowing their losses and look like they will become profitable soon. Other growth stocks are already profitable and continue to expand their profit margins on top of superb revenue growth.
It’s possible to find these companies if you know where to look. Ironically, you can start with any benchmark or ETF. Each index or ETF features assets that outperform the stock market. Roughly 150 companies in the S&P 500 have negative year-to-date (YTD) returns, indicating that the index is getting carried by successful stocks. Fewer than 300 stocks in the S&P 500 are up by more than 5% YTD.
However, the hot growth stocks on this list are notable exceptions. Some of them have crushed the S&P 500 while others look ready to shine.
Alphabet (GOOG, GOOGL)
Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) continues to deliver solid growth rates due to its lead in the online advertising industry. The tech behemoth reported 14% year-over-year (YOY) revenue growth in the second quarter as total sales came to $84.7 billion.
While ad revenue makes up the majority of total sales, investors should monitor Google Cloud as it makes up a larger percentage of total revenue. Cloud revenue totaled $10.3 billion and was up by 28.8% YOY, comprising 12.2% of Q2 of fiscal year 2024 revenue. Google Cloud is growing at a faster pace than ad revenue, and artificial intelligence tailwinds should strengthen that trend. The end result should be higher revenue growth for a company that has also strengthened its profit margins.
Alphabet grew its net income by 28.6% YOY, resulting in a 27.9% net profit margin. The company continues to support a dividend and currently yields 0.47%. Shares are up by 21% YTD and have gained 183% over the past five years.
Garmin (GRMN)
Garmin (NYSE:GRMN) is a leading fitness brand that operates in several industries. The stock has outperformed the S&P 500 with a 40% YTD gain. Shares are also up by 134% over the past five years and trade at a 25 P/E ratio. Garmin currently offers a 1.69% yield and a low single-digit dividend growth rate.
Recent financial results make the low P/E ratio look like a bargain. Revenue increased by 20% YOY to reach $1.38 billion. Net income jumped by 36% YOY to reach $276 million, resulting in a 20.0% net profit margin.
Fitness is the company’s most important segment. It grew at 40% YOY in the second quarter and made up roughly a quarter of the company’s total sales. The Outdoor segment makes up slightly more revenue than Fitness but only grew by 11% YOY. Garmin’s fastest growing segment, Auto OEM, logged a 58% YOY growth rate.
Walmart (WMT)
Walmart (NYSE:WMT) has offered affordable products for more than 60 years. The iconic retailer has also delivered robust returns for long-term investors. Shares are up by 31% YTD and have soared by 91% over the past five years. The stock trades at a 30 P/E ratio and offers a 1.19% yield. Walmart’s dividend growth rate has normally been slow, but this year’s 9% dividend hike suggests optimism for future hikes. It’s also Walmart’s 51st consecutive year of raising the dividend.
The company’s first quarter FY2025 results indicate that growth is still strong. Revenue increased by 6.0% YOY to reach $161.5 billion. A 21% YOY growth rate for global e-commerce sales and 24% YOY growth for the global advertising business contributed to mid single-digit revenue growth. Adjusted EPS increased by 22.4% YOY to reach 60 cents per share. Walmart is now sitting on $9.4 billion in cash. That’s after the company poured $1.1 billion into stock buybacks.
Broadcom (AVGO)
Broadcom (NASDAQ:AVGO) is gaining momentum in the AI chip industry. The tech giant generated a record $3.1 billion in sales for its AI products in the second quarter FY2024. Talks about a potential partnership with OpenAI only strengthen the case that Broadcom can become a leading AI chipmaker.
The AI industry is still in growth mode, so Broadcom’s efforts to gain market share can result in sizable returns for investors. However, that wasn’t the only good news from the earnings report. Revenue increased by 43% YOY to reach $12.5 billion, prompting the company to raise its full-year guidance.
Broadcom’s 10-for-1 stock split brought more attention to the asset. However, it’s been outperforming the market for many years. Broadcom stock is up by 40% YTD and has gained 446% over the past five years. Also, AVGO offers a 1.38% yield and has maintained a double-digit dividend growth rate for several years.
Meta Platforms (META)
Meta Platforms (NASDAQ:META) is a leading social media giant that has 3.24 billion daily active users. Facebook, Instagram and WhatsApp make it a juggernaut in the industry, and that trio has resulted in plenty of ad revenue.
Revenue increased by 27% YOY while net income jumped by 117% YOY in the first quarter. The company continues to refine its bottom line and distribute additional profits as dividends and stock buybacks. Meta Platforms has what it takes to become a compelling stock for dividend growth investors, and its returns should make more investors intrigued. Shares have gained 36% YTD and are up by 149% over the past five years.
Profit margins have been soaring in recent quarters. Meta Platforms logged a 33.9% net profit margin this quarter and looks poised to enhance its profit margins in the future. Wall Street analysts like what the stock has to offer. Meta Platforms is rated as a strong buy and has a projected 17% upside from current levels.
Chipotle (CMG)
Chipotle (NYSE:CMG) continues to attract customers even as other restaurants face challenges. Inflation doesn’t have as much of an impact on Chipotle customers since they are looking for healthier food options. Healthy food comes at a premium, and few fast food restaurants offer the health and convenience of Chipotle chains.
Investors saw this dynamic on full display when the company reported Q2 earnings. Revenue increased by 18.2% YOY to reach $3.0 billion while diluted earnings per share jumped by 32.0% YOY. Chipotle opened 52 new restaurants this quarter and remains on track to open 285-315 restaurants this year. The restaurant chain also opened an international licensed restaurant.
The stock has cooled off a bit after its 50-for-1 stock split. Shares are down by more than 25% from their all-time high but are up by 13% YTD. CMG stock has more than tripled over the past five years. Wall Street analysts have rated the stock as a moderate buy with a projected 26% upside.
Iron Mountain (IRM)
Iron Mountain (NYSE:IRM) stores physical and digital data for more than 240,000 customers worldwide. The firm’s customer base includes 90% of Fortune 1,000 companies. The stock has delivered a 45% YTD gain and is up by 216% over the past five years. Iron Mountain has a 2.62% yield and a respectable dividend growth rate. However, it is a REIT which means your dividends are treated as ordinary income.
The firm benefits from high retention rates. It’s difficult for companies to switch to another company that protects and stores their digital data. It’s even more challenging for companies to use another competitor to store their physical assets. This formula for success resulted in 12% YOY revenue growth in the first quarter. Net income soared by 18% YOY to reach $77 million.
Iron Mountain affirmed its full-year guidance. Forecasts include 11% YOY revenue growth and an 8% YOY increase in AFFO per share. Iron Mountain is currently rated as a strong buy among five Wall Street analysts.
On this date of publication, Marc Guberti held long positions in GOOG and AVGO. 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.
