Economists around the world expect U.S. economic growth to slow in the coming quarters, with some still predicting a mild U.S. recession. If interest rates remain at 23-year highs for an extended period of time, it may be difficult for investors to find reliable growth stocks to buy. Buying stocks is easy, but buying the right ones without a proven strategy is extremely difficult. So what are the best growth stocks to buy now or add to your watchlist?
Inflation and the Federal Reserve's aggressive rate hikes spooked investors last year, but the market defied expectations of hardship and delivered a strong performance in 2023. A more modest upturn was expected in 2024, but the benchmark S&P 500 saw a very strong rally in the first half of the year amid growing confidence that the Fed would achieve its goal of a soft landing.
What are growth stocks?
Growth stocks are companies whose earnings are growing at a faster rate than the average company in their industry or the market as a whole. However, investing in growth stocks involves more than just picking stocks that are rising.
Growth companies typically develop innovative products or services that expand market share in existing markets, enter new markets, or create entirely new industries. And the faster the growth, the greater the potential profits.
How can you invest in stocks with high growth potential?
There are thousands of stocks trading on the NYSE and Nasdaq, but your goal is to find the best stocks to invest in that will generate big profits.
The fastest growing stocks are those that have seen revenue growth of at least 25% over the most recent quarter and year. Always look for companies that offer new and innovative products or services. Consider fast-growing companies (often those that have recently IPO'd). Keep an eye on supply and demand for the stock itself, focus on leading stocks in top industry groups, and target stocks with strong institutional backing.
Monitor the stock market closely before investing
To invest in the best growth stocks, you need to follow the market. Most stocks, even the best ones, follow the market. Invest when the stock market is in a solid uptrend and cash out when it enters a correction.
Investors should look to buy high-quality stocks with strong growth prospects, and below are some of the best stocks to buy or watch now.
Best stocks to buy or watch
So let's take a closer look at ServiceNow stock, Tenet Healthcare, Spotify, American Express, and Texas Roadhouse stock: An important consideration is that these best stocks to buy and watch all boast impressive relative strength.
Salesforce Japan
Salesforce is the world's largest provider of cloud-based customer relationship management (CRM) software. In addition to organic growth, Salesforce has grown through a series of acquisitions in recent years, including the acquisition of Slack in 2020. Salesforce reported 11% revenue growth and 670% net income growth in the first quarter. Gino said Salesforce has the potential to further expand market share. Although revenue growth has slowed, Gino predicts Salesforce can continue to grow annual revenue in the 7% to 9% range through at least fiscal 2027. CFRA rates CRM shares a “strong buy” and sets a target price of $300. CRM shares closed at $247.63 on July 19.
Service Now
ServiceNow could break through the 806.52 handle entry and rise to 846.85.
According to MarketSurge analysis, this is just below the 815.32 entry point from the top of the consolidation, which is a third-stage pattern and counts as an intermediate stage.
Shares soared on July 25 after ServiceNow beat EPS and revenue expectations and also beat expectations on key growth metrics.
ServiceNow describes itself as a digital workflow company, and the enterprise software company recently announced a partnership with Nvidia and Accenture called AI Lighthouse, which aims to accelerate the adoption of business AI software.
This will power ServiceNow's Now Platform, a workflow automation system used by pharmaceutical, financial services, manufacturing and healthcare companies.
Analysts have been impressed with the company's efforts, with TD Cowen analyst Derrick Wood saying the company is “proving to be one of the most effective companies in the software space to accelerate GenAI adoption.”
Tenet Healthcare
Healthcare stocks have surged, rising from a flat base to just above the 5% action zone for a corrected buy point of 147. Tenet Healthcare shares have soared 98% so far this year.
Hospital stocks have a very strong earnings track record, earning them an EPS Rating of 97 out of a possible 99. But Wall Street expects further improvement in 2024, with full-year EPS expected to rise 44%.
Business is already going strong: Revenues have grown an average of 75% over the past three quarters, well above the 25% growth target set by Investor's Business Daily.
Tenet Healthcare is demonstrating leadership, with its stock currently ranking near the top of the competitive Healthcare – Hospitals industry group.
Spotify
According to MarketSurge analysis, the stock is forming a sideways level at 331.08, which is an ideal buy point. The stock could rise to 347.63. The stock is rising following the upbeat earnings report.
The stock has been on a bullish trend recently, bouncing off the consolidation lows and reclaiming its 50-day moving average, while also trading above its shorter-term moving averages.
SPOT shares are up 83% so far in 2024, meaning they've significantly outperformed the benchmark S&P 500. In the past four weeks alone, they're up nearly 19%.
Streaming service Spotify also ranks in the top 4% for price performance over the past 12 months.
Earnings performance has been strong across the board, with SPOT stock earning an EPS Rating of 81 out of a possible 99.
Spotify expects to add 5 million subscribers this quarter, bringing the total to 251 million, and expects to reach 639 million monthly active users in the third quarter.
American Express
Payments stock American Express is in a buy zone after breaking out of a flat base entry at 244.41, which means it's an early stage base and the potential for big gains.
American Express is trading about 7% above its 50-day line after finding bullish support at the 21-day exponential moving average.
American Express shares are up 35% so far this year, outpacing the gains in the benchmark S&P 500 index.
Last Friday, American Express reported better-than-expected second-quarter profits, with EPS up 44% to $4.15, marking the second consecutive quarter of accelerating growth, but revenue was weak at $18.4 billion, even as card fee income topped $2 billion for the first time.
Texas Roadhouse
Restaurant stock Texas Roadhouse has been performing strongly over the past two months and has found support near its 50-day line for several weeks. It is currently approaching an ideal buy point at 175.51. This is a second-stage pattern and is still considered to be in the early stages.
The stock's relative strength line has turned higher after the recent decline, but remains below its 12-month high.
The company's earnings have grown an average of 33% over the past three quarters, above the 25% level required by IBD Investment Principles. EPS has accelerated over the past three quarters. Three-year EPS growth is a solid 17%.
Wall Street expects revenue to grow 39% in 2024 before slowing to 9% growth in 2025.
The concern is that while Texas Roadhouse appears to be doing well, most other restaurant stocks have struggled recently.
