As 2024 kicks off, growth stocks are on the upswing. As inflation calms down, investors are excited about the potential easing of monetary policy. With lower interest rates on the way, many speculative stocks are soaring right now.
As we saw in 2022, however, not all growth stocks are created equal. Fundamentals and profits really do matter over the longer-term. Fortunately, with these seven growth stocks to buy now, there are both strong fundamentals and reasonable valuations on offer today.
Unity Software (U)
Unity Software (NYSE:U) operates a leading graphics engine. The primary customer is video game developers. They use Unity as the underlying framework for designing and operating games.
A huge selling point of Unity is its easy cross-platform support; developers can build a game for, say, PC, and then port it to mobile, consoles, and even virtual and augmented reality.
U stock was a star back in 2021 as gaming revenues soared when people were stuck at home and looking for entertainment options. However, the gaming industry has faced a bust in 2023, with more than 9,000 layoffs across the industry, a figure far in excess of prior years.
Unity has been cutting expenses as it strives to improve profitability. The firm also attempted to put through a price increase to developers in 2023, but Unity had to roll it back after strong pushback. Taking these factors into account, Unity announced a huge round of layoffs to start 2024.
This might all sound like bad news. However, Unity is positioning itself for the future. The company is already solidly profitable and will be much more so as it reduces overhead.
With Unity having approximately 70% market share in mobile gaming, it has a strong moat around its business despite the current industry downturn. Analysts expect 54% earnings growth in 2024, suggesting that Unity’s future is much brighter than the stock price would currently suggest.
Dutch Bros (BROS)
Starbucks has been the dominant name in the American coffee scene for decades now. It has massive brand power, particularly with older adults.
However, younger generations seem to be looking for a different experience. Especially since the pandemic, many people are less interested in hanging out at the coffee shop. Rather, delivery and drive-through are gaining steam.
Dutch Bros has tapped into this with small format stores that prioritize quick service for busy patrons. In addition, Dutch Bros has focused on sweeter and more colorful beverages that appeal to younger consumers and make for a good photo opportunity on social media.
Dutch Bros has strong customer service. It invests heavily in its staff and has so far avoided the labor squabbles which have tripped up Starbucks in recent years. BROS stock has had an uneven run since its IPO. However, as Gen Z start to make a bigger impact in the economy, Dutch Bros could be set for a major expansion phase throughout the United States.
Avnet (NASDAQ:AVT) is a specialized distribution company focused on technology. It distributes semiconductors and related items, such as interconnect and electro-mechanical devices. Avnet has an array of both suppliers and end clients.
The company also offers some consulting services, helping IT professionals plan and implement supply chain, product design, and technical education solutions.
Distribution is not the most glamorous part of the technology industry. However, it can be a lucrative one, and there is plenty of growth as the total market expands. Specifically, Avnet has grown revenues from $17.6 billion in the fiscal year ending June 2020 to $26.5 billion in the 2023 fiscal year. Despite the topline growth, investors are cautious about Avnet today given high inventory levels in the semiconductor industry. As a result, AVT stock is going for just eight times forward earnings.
Another positive is that the company won a $268 million legal settlement in a suit that alleged price-fixing by some of Avnet’s suppliers. This cash influx should help Avnet repurchase its shares going forward, making it one of the best growth stocks to buy now.
The credit card companies are tremendous businesses. Visa (NYSE:V) along with Mastercard (NYSE:MA) have a tremendous business model which reliably earns some of the highest EBITDA profit margins of any S&P 500 constituent companies.
Visa is appealing because it doesn’t take credit risk. It simply serves as the branding on the card and the payment rail that facilitates transactions with a merchant. But the bank that issues the card actually takes the underlying risk if a customer fails to pay their bills. This sets Visa up well ahead of a potential recession.
Visa underperformed in recent years because of the pandemic. It enjoys much higher profits on international transactions which involve foreign currency exchange. Now that the global economy has reopened and international travel has returned, Visa’s profits have rebounded as well.
Now the company should return to its steady long-term growth. Not only does it benefit from global economic growth in general, Visa is one of the best ways to benefit as emerging markets gradually switch from cash to plastic.
Charles River Laboratories (CRL)
Charles River Laboratories (NYSE:CRL) is a leading healthcare company focused on providing lab tools and services related to pharmaceutical drug development.
Historically, it’s been the dominant player in animal models. Specifically, Charles River procures, breeds, and distributes lab rats, mice, rabbits, and non-human primates.
The last one got Charles River in trouble, as the company was implicated in an investigation into alleged macaque smuggling in Cambodia. However, Charles River has been able to resolve its sourcing issues around non-human primates and is now planning to build facilities in Texas to avoid future problems with imports.
Putting that aside, more broadly, Charles River is an integral part of the biotech supply chain. To put a number on that, the company was involved in developing more than 80% of all drugs that have received FDA approval since 2020. In effect, Charles River can earn a revenue stream off of almost the entire biotech industry.
Shares are still depressed thanks to the scandal and biotech’s struggles over the past two years. But with biotech stocks soaring to start 2024, CRL stock should skyrocket as well.
Grupo Aeroportuario del Pacifico (PAC)
Grupo Aeroportuario del Pacifico (NYSE:PAC) is a Mexican airport operator. It runs 12 airports, primarily in the Pacific region of Mexico along with two Jamaican airports.
Key holdings include the airports for Guadalajara, Tijuana and the tourist destinations of Cabos and Puerto Vallarta, respectively.
The company’s U.S. IPO occurred in 2006. Shares have produced a total return, including dividends, of over 600% since that point.
Mexico is a particular hotbed for airline traffic growth; it has been one of the world’s hottest tourist destinations in recent years due to relatively relaxed COVID-19 restrictions. More recently, the Mexican manufacturing sector has taken flight as firms push to move facilities closer to their end customers.
Pacifico is a growth and income name rolled into one. It has a variable dividend policy, as management aims to pay out nearly 100% of annual free cash flow to shareholders.
In 2023, Pacifico paid out $6.35 per share in dividends, amounting to a starting 3.7% dividend yield today. And as-Pacifico’s free cash flow has historically grown at a double-digit rate, the dividend should grow at a rapid clip as well.
Roper Technologies (ROP)
Roper Technologies (NYSE:ROP) is a diversified conglomerate company. It started off as an industrial company and was in fact named Roper Industries.
In recent years, management pivoted from primarily making industrial goods to operating software for industrial and other end business users.
Today, Roper provides software for managing power plants, K-12 schools, graphic design, insurance underwriting and a whole host of other verticals. The firm’s specialty is M&A, it has made dozens of acquisitions over the year, rolling up a vast number of niche software operations across a dizzying array of categories.
Thanks to Roper’s tremendous capital allocation skills, shares are up from around $5 in 1994 to more than $500 today. And with its constantly growing array of software holdings, Roper is well-positioned to thrive regardless of what tech innovations come up throughout the 2020s.
On the date of publication, Ian Bezek held a long position in ROP, PAC, CRL, V, and U stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.