Growth stocks give long-term investors the opportunity to outperform benchmarks like the S&P 500 and the Nasdaq Composite. While some investors believe you have to search for obscure companies to outperform the indices, you can look within any index to find outperforming stocks.
That’s because indices like the S&P 500 have numerous companies that are generating steady losses. You can find hundreds of S&P 500 holdings in a given year that have lost value for investors. By definition, the top-performing holdings within an index outperform the index.
However, past results isn’t enough to gauge if a stock will continue to outperform the broader market. It’s important to look at a company’s financials to determine if revenue and profit margins are expanding. Also, investors should consider each company’s catalysts and risks.
Therefore, patient investors should consider monitoring some of these growth stocks that look ready to beat the market.
Amazon (AMZN)
Amazon (NASDAQ:AMZN) thrives in multiple industries and continues to deliver long-term gains for investors. Shares are up by 23% year-to-date (YTD) and have gained 90% over the past five years. Another solid round of earnings suggests that the gains will continue. Amazon reported 13% year-over-year (YOY) revenue growth in the first quarter while more than tripling its net income.
Revenue acceleration for Amazon Web Services (AWS) has excited investors as the rising demand for artificial intelligence (AI) impacts Amazon’s financials. That segment delivered $25.0 billion in Q1 of fiscal year 2024 revenue, which is a 17% YOY improvement. Amazon’s advertising business is another notable area that can drive further gains. The tech giant notched $11.8 billion in ad revenue, which was a 24% YOY increase.
Amazon is a regular favorite among Wall Street analysts. It’s rated as a strong buy and has a projected 22% upside from current levels. The highest price target of $250 per share suggests that the stock can gain an additional 36%.
Texas Roadhouse (TXRH)
People enjoy tasty food at an affordable price. Texas Roadhouse (NASDAQ:TXRH) is one of the top steakhouse chains that serves food at reasonable price points. Even the stock’s valuation is reasonable. Texas Roadhouse shares trade at a 34 P/E ratio while other restaurant stocks have been booming to frothy valuations. Also, the steakhouse chain offers a 1.45% yield for investors.
Moreover, shares are up by 42% YTD and have more than tripled over the past five years. The company’s rising revenue and profit margins make it a worthy candidate for outperforming the stock market. Texas Roadhouse demonstrated its strong financials by reporting 12.5% YOY revenue growth and 31.9% YOY net income growth in the first quarter.
Importantly, the company opened 12 restaurants. It owns nine of them while the other three are franchises. Those new restaurants raised Texas Roadhouse’s total locations to 753. An 8.4% YOY increase in comparable restaurant sales suggest that Texas Roadhouse is gaining market share within its communities.
Cintas (CTAS)
Cintas (NASDAQ:CTAS) is a well-diversified provider of business supplies and safety equipment. The company has a history of outperforming the stock market, including a 29% YTD gain and a 193% increase over the past five years.
The company delivered solid results in the fourth quarter of fiscal year 2024. Revenue increased by 8.2% YOY while diluted EPS was up by 19.8% YOY. Operating income had a higher growth rate in Q4 FY24 than it did throughout fiscal 2024. Cintas invests in new technology to enhance their long-term position. Also, the company has been “investing in strategic acquisitions and returning capital to shareholders.”
Cintas anticipates generating $10.16 billion to $10.31 billion in fiscal 2025. The midpoint of $10.235 billion represents a 7% YOY growth rate from the $9.60 billion generated in fiscal 2024. Notably, fiscal 2025 will have two fewer working days than fiscal 2024. Currently, the stock rates as a moderate buy among 14 analysts.
Iron Mountain (IRM)
Iron Mountain (NYSE:IRM) combines a vast customer base with high retention. More than 240,000 customers work with Iron Mountain to store and secure physical and digital assets.
That customer base includes approximately 90% of Fortune 1,000 companies. It’s hard to switch from Iron Mountain once a customer starts working with them since the firm covers both types of assets, and most customers are happy anyway. That’s based on Iron Mountains captivating 98% retention rate.
Shares are up by 46% YTD and have more than tripled over the past five years. It’s crushing most of the Magnificent Seven stocks while offering a 2.6% yield. And, Iron Mountain has hiked its dividend for nine consecutive years.
The data storage firm recently delivered 12% YOY revenue growth in the first quarter. Net income increased by 18% YOY to reach $77 million in the quarter. Iron Mountain’s 2024 guidance suggests that revenue will increase by 11% YOY at the midpoint. AFFO per share is projected to rally by 8% YOY at the midpoint.
Garmin (GRMN)
Garmin (NYSE:GRMN) trades at a 24.5 P/E ratio and offers a 1.73% yield. Shares are up by 37% YTD and have gained 121% over the past five years. Garmin’s devices cater to people who want to track their fitness. It’s Fitness segment grew by 40% YOY to generate $342.9 million in revenue. Total sales across the entire company grew by 20% YOY in the first quarter to reach $1.38 billion.
Fitness is the second largest component of Garmin’s total revenue, so it’s nice to see that one has a high growth rate. Auto OEM delivered a higher growth rate. Revenue increased by 58% YOY in the quarter. The slowest growing segment, Aviation, still registered a 2% YOY improvement. Garmin also saw its GAAP diluted EPS soar by 36% YOY.
Presently, Garmin rates as a hold among five Wall Street analysts. The highest price target of $210 per share suggests that the stock can gain an additional 21% from current levels.
Meta Platforms (META)
Meta Platforms (NASDAQ:META) looks primed to outperform the stock market for several years. It’s already done just that with a 36% year-to-date gain and a 5-year gain of 136%. The company has 3.24 billion daily active users across its social networks, and that’s a 7% YOY increase. Meta Platforms continues to find ways to grow. While user growth was solid, the company’s revenue and net income growth were even better. Revenue increased by 27% YOY while net income was up by 117% YOY.
Facebook’s parent company has been focused on efficiency, and that’s a contributing factor to the company’s rising profits and recently issued dividend. The company had enough cash to pour $14.64 billion into stock buybacks and dividends. Furthermore, Meta Platforms has a $58.12 billion cash position.
Many Wall Street analysts believe that the stock can march higher. It’s currently rated as a strong buy with a projected 15% upside from current levels.
Microsoft (MSFT)
Microsoft (NASDAQ:MSFT) is a top holding in the S&P 500 that regularly outperforms the index. Shares of the tech giant are up by 16% YTD and have tripled over the past five years. Investors receive a 0.70% yield just for holding onto their shares, and the company has maintained a double-digit dividend growth rate for several years.
Microsoft is riding several business segments to new highs. Artificial intelligence (AI) is a key tailwind that should continue to propel cloud revenue. Microsoft Cloud made up more than half of the company’s revenue and grew by 23% YOY to reach $$35.1 billion. Overall revenue was up by 17% YOY while net income jumped by 20% YOY.
Therefore, Microsoft’s dominance in multiple industries has attracted plenty of attention from Wall Street analysts. The stock is rated as a strong buy with an average price target that implies a 13% upside from current levels.
On this date of publication, Marc Guberti held long positions in AMZN, TXRH, and MSFT. 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.
