Top growth stocks this month include biotechnology company Zimmer Biomet Holdings Inc. and oil tanker company Nordic American Tankers Ltd.
Growth stocks are faring better this year than in 2022, as market participants anticipate an end to Fed rate hikes as inflation slows. Risk-on sentiment has pushed the Russell 1000 Growth index up 14% so far this year, compared with the Russell 1000’s gain of 3%.
Below we look further at the top growth stocks across three categories: fastest earnings-per-share
(EPS) growth, fastest sales growth, and combined EPS and sales growth. All data are as of May 7.
Top Growth Stocks by EPS Growth
These are the stocks with the highest year-over-year (YOY) EPS growth for the most recent quarter. Rising earnings show that a company’s business is growing and generating more money that it can reinvest or return to shareholders. Companies with quarterly EPS growth of more than 2,500% were excluded as outliers.
- Zimmer Biomet Holdings Inc.: Zimmer is a global medical technology company that manufactures a suite of products designed to aid mobility and health. Zimmer had a strong first quarter with the launch of new product lines such as the Persona OsseoTi, a cementless knee replacement system, and the acquisition of Embody, a maker of collagen-based biointegrative solutions. With first-quarter revenue up 10% year-over-year, the company raised its revenue and earnings guidance for the year in early May.
- GlobalFoundries Inc.: GlobalFoundries manufactures semiconductors at facilities spread across three continents. For the first quarter of 2023, the company reported a gross margin increase of 3.2% year-over-year, driven by a substantial increase in realized wafer prices. Furthermore, GF formed a partnership with Amkor Technology to establish the first at-scale back-end facility in Europe.
- Aptiv PLC.: Aptiv designs and produces auto parts. It operates 131 manufacturing facilities and has a presence in 48 countries. Aptiv’s revenue increased 15% year-over-year in the first quarter, while net income doubled over the same period.
Top Growth Stocks by Sales Growth
These are the stocks with the highest YOY sales growth for the most recent quarter. Rising sales can help investors identify companies that are able to grow revenue through organic or new methods, as well as find growing companies that have not yet reached profitability. In addition, accounting factors that may not reflect the overall strength of the business can significantly influence EPS.
However, sales growth can also be potentially misleading about the strength of a business because growing sales for money-losing businesses can be harmful if the companies have no plans to reach profitability. Companies with quarterly revenue growth of more than 2,500% were excluded as outliers.
- Nordic American Tankers Ltd.: Nordic American Tankers is a tanker company with a fleet of 19 Suezmax crude oil tankers. For 2022, the company saw strong growth in tanker rates, benefitting from a record low supply of Suezmax tankers and elevated oil demand.
- Lucid Group Inc.: Lucid Group designs and manufactures luxury electric vehicles (EVs). One of the most closely watched newcomers to the EV scene, Lucid produced 7,180 vehicles and
delivered 4,326 in 2022, generating $608 million in revenue for the year. The company produced 2,314 vehicles and delivered 1,406 in the first quarter, putting it on track to produce 10,000 this year.
- Chesapeake Energy Corp.: Chesapeake explores and develops oil and natural gas assets in Louisiana, Pennsylvania, and Texas. In the first quarter of the year, Chesapeake completed the sale of $2.8 billion worth of its Eagle Ford assets in Texas as it works to exit its business there. Thanks to its surplus cash position, Chesapeake’s debt was upgraded to BB+ by Fitch Ratings.
Top Growth Stocks by EPS and Revenue
These are the top growth stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly YOY percentage revenue growth and most recent quarterly YOY EPS growth. Both sales and earnings are critical factors in the success of a company.
- Zimmer Biomet Holdings Inc.: See company description above.
- GlobalFoundries Inc.: See company description above.
- Aptiv PLC: See company description above.
Advantages of Growth Stocks
Exceptional Returns: Over the past decade, growth stocks have provided shareholders with eye-watering returns underpinned by historically low inflation and a healthy global economy. Although growth stocks experienced a correction in 2022, the Vanguard Growth Index Fund (VUG)—which holds stocks including iPhone maker Apple Inc. and Microsoft Corporation (MSFT)—still has an annualized return of 13% over the past 10 years.
These impressive returns highlight the power of growth stocks and the gains they can add to an investor’s portfolio.
Invest in What You Know: Many investors only feel comfortable investing in companies they know. Fortunately, popular growth stocks are often household names, giving would-be shareholders the chance to use their products and services before buying shares in these companies. Investors often only think of big technology names when they think of growth stocks, but the group also comprises well-known names in the consumer goods and services sectors, such as Visa Inc. (V) and T-Mobile US, Inc. (TMUS).
Risks of Growth Stocks
Volatility: Investing in growth stocks exposes investors to more extreme price swings, not only from negative company-specific news but also from broad market sell-offs. For example, the technology and consumer cyclical sectors led the stock market lower in the first half of 2022. Before investing in a growth stock, investors can gauge its volatility by looking at beta—a measure comparing its volatility to the whole market. For instance, gaming chipmaker NVIDIA Corporation (NVDA) has a beta of 1.76, meaning that if the S&P 500 falls by 1%, NVIDIA will likely decline by 1.76%. Similarly, if the S&P 500 gains 1%, NVIDIA stock would be expected to rise by 1.76%.
Bubble Prone: Growth stocks can become overvalued as investors push prices to unsustainable levels based on sentiment rather than fundamentals. For instance, many growth internet stocks doubled and tripled in price in the late 1990s despite not generating any earnings. Rationalization arrived in the early 2000s, with the Nasdaq crashing roughly 80% from peak to trough.