Wall Street loves growth stocks that can increase their revenue and earnings at a faster rate than their industry or the broader market. Such shares thrive during economic expansions driven by low-interest rates, leaving investors looking for growth stocks to buy on the dip.
Generally, growth stocks tend to outperform the broad market over the long term. For example, the iShares S&P 500 Growth ETF (NYSEARCA:IVW), which tracks the S&P 500 Growth Index, has outperformed the iShares Core S&P 500 ETF (NYSEARCA:IVV) with a 10-year average annual return of 14% versus IVV’s 13%.
However, amid growing concerns over rising interest rates and a potential recession, most growth stocks have taken a severe beating in 2022. For example, IVW has fallen 21% year-to-date. By comparison, benchmark indices, the S&P 500 and Dow Jones Industrial Average, have declined by 16% and 11.8%.
Put another way, current challenges have pushed down the sky-high valuations of most growth shares, offering enticing buying opportunities. With that information, here are seven growth stocks to buy on the dip.
|A||Agilent Technologies, Inc.||$127.19|
|CDNS||Cadence Design Systems, Inc.||$168.75|
|GXTG||Global X Thematic Growth ETF||$31.06|
|IVSG||Invesco Select Growth ETF||$10.68|
|IQV||Iqvia Holdings Inc.||$225.63|
Growth Stocks to Buy on the Dip: Agilent Technologies (A)
Agilent Technologies (NYSE:A) is a leading name in life sciences, diagnostics, and applied chemical markets. It provides instruments, services, and expertise to laboratories worldwide.
Agilent reported Q2 FY22 results on May 24. Revenue was $1.61 billion, up 5% year-over-year. Net earnings per share (EPS) of $1.13 implied a 16% growth from the second quarter of 2021. Cash and equivalents ended the quarter at $1.19 billion.
In early July, management announced that the Food and Drug Administration approved a content uniformity method using the Agilent TRS100 Raman quantitative pharmaceutical analysis system. Teva Pharmaceutical Industries (NYSE:TEVA), an Agilent customer, was the company that had applied for the approval process.
Understandably, it is a substantial investment to change manufacturing and quality control processes. Therefore, this FDA approval minimizes the perceived risk of adopting this new technology. As a result, Wall Street was interested in this news from Agilent.
So far, in 2022, A stock has dropped 20%. Shares are changing hands at 22.2x forward earnings and 5.5x sales. Meanwhile, analysts’ 12-month median price forecast stands at $145.
Cadence Design Systems (CDNS)
Cadence Design Systems (NASDAQ:CDNS) is a leading electronic design automation (EDA) and intelligent system design provider. Its tools are used to design custom integrated circuits as well as in digital design and signoff and system analysis.
CDNS released Q1 results on April 25. Revenue grew 22.6% to $902 million, compared to $736 million in the prior-year period. Net income came in at $324 million, or $1.17 per share, up 41% from 83 cents per share in the year-ago quarter. Cash and equivalents were $1.13 billion.
In early July, Cadence introduced the new Cadence Voltus-XFi Custom Power Integrity Solution. The custom electromigration and IR drop (EM-IR) solution is important in the development of efficient, low-power integrated circuits (ICs). Investors will be paying attention to how it can help to Cadence’s top line growth.
CDNS stock has declined more than 9% so far this year, yet still has gained 16% over the past 12 months. Forward price-earnings (P/E) and price-sales (P/S) ratios stand at 41x and 13.8x, respectively. Wall Street’s 12-month median price forecast is at $180.
Global X Thematic Growth ETF (GXTG)
The Global X Thematic Growth ETF (NASDAQ:GXTG) is a fund of funds (FoF) that provides exposure to disruptive growth trends through a portfolio of thematic ETFs. The fund started trading in October 2019.
GXTG, which tracks the Solactive Thematic Growth Index, has eight holdings. With regards to sectoral allocations, we see information technology (30.3%), communication services (15.3%), materials (14.7%), and healthcare (12.5%).
U.S.-based companies have the largest portion (45.1%) in the country allocations. Next are those that come from China (20%), Japan (6.4%), Canada (5.2%), and South Korea (4.9%).
The top four ETFs in the portfolio represent over two-thirds of net assets of $63.2 million. The Global X Lithium & Battery Tech ETF (NYSEARCA:LIT), Global X Cloud Computing ETF (NASDAQ:CLOU), Global X Social Media ETF (NASDAQ:SOCL), and Global X FinTech ETF (NASDAQ:FINX) lead the roster.
GXTG has tumbled 31% YTD and trades at multi-year lows. The fund’s P/B ratio stands at 2.62x. The fund provides a long-term opportunity to bet on the growth of emerging disruptive technologies.
Growth Stocks to Buy on the Dip: Invesco Select Growth ETF (IVSG)
The Invesco Select Growth ETF (BATS:IVSG) is an actively managed, non-transparent fund. It invests in U.S. names with potentially attractive growth outlooks at compelling valuation levels. The fund primarily holds securities of mid- and large-capitalization (cap) businesses.
IVSG, which tracks the Russell 1000 Growth Index, has 27 holdings. The fund was launched in December 2020, and net assets stand at $1 million. Put another way, it is still a young and small fund.
In terms of sub-sectors, we see IT leading at 38.2%, followed by communication services (14.3%), consumer discretionary (13.3%), industrials (8.5%), and health care (8.3%).
The top 10 stocks account for around 56% of the portfolio. Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and diversified healthcare giant UnitedHealth (NYSE:UNH) are among the leading holdings.
IVSG has lost over a quarter of its value since the beginning of the year to trade near its lowest levels since its inception. However, it offers a convenient way to invest in the leading big names along with other growth stocks. Interested readers should keep an eye on the performance of IVSG.
IQVIA (NYSE:IQV) provides technology solutions, advanced analytics, and clinical research services to the life sciences industry. Clients typically leverage these technologies during the clinical development and commercialization of medical treatments.
In late April, IQV released Q1 metrics. Revenue increased 6.8% from a year ago on a constant currency basis to $3.57 billion. Adjusted diluted EPS of $2.47 grew 13.3%. Free cash flow was $331 million.
Recent metrics highlight global research and development (R&D) in oncology continue to surge. In 2021, trial starts hit a record high. In addition, a record 30 novel active substances were launched globally last year. As a result, global oncology spending is expected to exceed $300 billion by 2026.
IQV stock has lost 20% in 2022. Shares are trading at 21.7x forward earnings and 3x sales. Meanwhile, analysts’ 12-month median price forecast stands at $255.50.
Paychex (NASDAQ:PAYX) is a leading provider of integrated human capital management solutions. Its software-as-a-service (SaaS) platform, Paychex Flex, is an all-in-one solution for all things human resources, i.e., payroll, time and attendance, and benefits.
Management announced Q4 FY22 earnings on June 29. Total revenue grew 11% from a year ago to $1.14 billion. Adjusted diluted EPS came in at 81 cents, an increase of 13% compared to the previous-year quarter. Cash, restricted cash, and total corporate investments totaled $1.3 billion.
Paychex’s latest monthly data reveals that small businesses continued to add jobs in June, and worker wages continued to grow at a strong rate, but the pace of growth moderated slightly from May.
PAYX stock has fallen more than 14% since the beginning of the year. Yet, it has returned 5% over the past 52 weeks and currently supports a dividend yield of 2.75%. Shares are trading at 27.8x forward earnings and 9x sales. Wall Street’s 12-month median price forecast is at $126.
Growth Stocks to Buy on the Dip: Synopsys (SNPS)
Synopsys (NASDAQ:SNPS) is the “silicon to software” partner for innovative companies developing electronic products and software applications. As a global leader in electronic design automation (EDA) and semiconductor intellectual property, it offers a wide range of application security testing tools and services.
In mid-May, SNPS posted Q2 FY22 financials. Revenue surged 24.9% from a year ago to $1.3 billion. Diluted EPS came in at $2.50, compared to $1.70 in the year-ago period. Cash and equivalents stood at $1.57 billion at the end of the quarter.
On June 22, Synopsys completed the acquisition of WhiteHat Security, an application security SaaS provider. This acquisition provides Synopsys with significant Software-as-a-Service (SaaS) capabilities and dynamic application security testing (DAST) technology. Investors will pay close attention how this recent transactions adds to top line.
So far in 2022, SNPS stock has declined 8% yet still appreciated more than 18% over the past 12 months. Forward P/E and P/S ratios are 32.1x and 10.4x, respectively. Finally, analysts’ 12-month median price forecast stands at $382.50.
On the date of publication, Tezcan Gecgil, Ph.D., 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.