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Just a couple of weeks ago, stocks were selling hard, and investors were talking about impending doom. But now a few weeks later equities are nearing all-time highs. Quite a turn! The Nasdaq 100 has rallied over 12% in just the last two weeks, while the S&P 500 has increased by nearly 10%.
With the economy remaining robust, and inflation continuing to ease, it seems the markets are discounting more clarity regarding Federal Reserve interest rate policy. We still have a way to go before we can confirm the ‘soft-landing,’ but the economic environment is looking favorable.
With uncertainty falling, and a path to falling interest rates in sight, stocks are taking a hint and moving higher. Lower interest rates will add liquidity to the economy, eventually contributing to stronger economic growth, and allowing investors to move out on the risk curve.
I think this development should be favorable to growth stocks and something I have noticed is that the number of growth stocks on the Zacks Rank has been growing. Here I am going to share three such stocks, that have top Zacks Ranks and share prices being carried higher by momentum.
Image Source: Zacks Investment Research
Palantir Technologies
Palantir Technologies (PLTR - Free Report) is an American software and data analytics company founded in 2003 by a group of former employees from PayPal, including Peter Thiel. Palantir Technologies is known for its data integration and analytics platforms, which are used by government agencies, financial institutions, and large corporations to analyze and make sense of vast and complex datasets.
Palantir initially focused on providing its services to government agencies, especially in the fields of defense and intelligence. Its software is designed to assist in data analysis, intelligence gathering, and decision-making by creating visual representations of data patterns.
Over the years, Palantir has expanded its client base to include commercial enterprises, particularly in industries where data analysis and cybersecurity are critical.
Because the company went public in late 2020, it has only been tradeable during a rather challenging period in the stock market, especially for mid cap technology companies, which were hammered in the 2022 bear market. However, this means that Palantir’s stock price has languished for some time, providing an opportunity for discerning investors.
Even though PLTR is up 200% YTD, over the last three years it has actually underperformed the broad market index.
Image Source: Zacks Investment Research
Palantir jumped onto the Zacks Rank last week, thanks to earnings estimates upgrades from analysts. The stock now enjoys a Zacks Rank #1 (Strong Buy) rating. Current quarter earnings have increased by 14.3% over the last week and FY23 by 8.7% over the same period.
EPS are forecast to grow at an incredible 60% annually over the next 3-5 years, while sales are expected to grow by 20% next year.
Image Source: Zacks Investment Research
It is worth noting that these astounding growth forecasts bring with it an uber-premium valuation. Today, PLTR is trading at a one year forward sales multiple of 19.5x, which is well above the industry average of 5.4x, and above its three-year median of 15x.
Image Source: Zacks Investment Research
Wingstop
Wingstop (WING - Free Report) , an operator and franchisor of retail chicken wing shops has been an awesome performing stock over the last five years. The company continues to open new restaurants at an impressive rate, and at its recent quarterly earnings meeting reported that same store sales had grown 20.1% YoY.
Over the last five years, Wingstop stock has compounded at an annual rate of 31.6%, considerably outperforming the broad market.
Image Source: Zacks Investment Research
Sales and earnings growth are expected to persist and analysts have been upgrading the stock. WING now has a Zacks Rank #1 (Strong Buy) rating, reflecting upward trending earnings revisions.
Over the next 3-5 years EPS are projected to climb 21% annually, while sales are expected to grow 26% this year and 15.6% next year.
Image Source: Zacks Investment Research
Wingstop too, has a very high relative valuation. It is trading at a one year forward earnings multiple of 14.3x, which is way above the industry average of 3.1x, and just above its five-year median of 13.2x. Often it is uncomfortable to pay such a high multiple for a stock, you can see if you pick right, you are rewarded with high returns.
Image Source: Zacks Investment Research
e.l.f. Beauty
e.l.f Beauty (ELF - Free Report) is an American cosmetics company headquartered in Oakland, California. The acronym "e.l.f." stands for "eyes, lips, face," reflecting the company's focus on makeup products for these key areas of the face. e.l.f. Beauty is known for its affordable and cruelty-free cosmetics, skincare, and beauty tools.
The company has gained popularity for offering a wide range of beauty products at budget-friendly prices, making it accessible to a broad consumer base. e.l.f. Beauty has a strong online presence and is available in various retail stores, making its products easily accessible to consumers seeking quality makeup and skincare options at an affordable price point.
ELF has quietly been one of the best performing stocks in the market over the last few years. Over the past three years its share price has compounded at an annual rate of 54% and over 100% YTD. Additionally, it looks as if ELF is taking share from industry incumbents as the industry has cratered over that time.
Image Source: Zacks Investment Research
Earnings estimates have been trending higher all year as well, giving e.l.f Beauty a Zacks Rank #1 (Strong Buy) rating. The trend of ELF’s earnings estimates is one of the steepest I have seen, and those 2025 estimates are going almost strait up.
EPS over the next 3-5 years are expected to grow 26.4% annually, and sales are forecast to 57.8% this year and 22% next year.
Image Source: Zacks Investment Research
The valuation on ELF is quite a bit more palatable than the other two stocks, as it is trading at a one year forward earnings multiple of 49x, which is above the industry average of 38.8x, but below its three-year median of 69x.
Image Source: Zacks Investment Research
Bottom Line
While the potential of huge stock gains investing in growth stocks brings with it considerable excitement, investors should know that it comes with increased risk and volatility as well. As we see here, these companies carry high relative valuations, increasing downside risk.
However, if you can own these stocks during the right market regimes it can feel like riding a rocket ship. Because of the manic nature of these kinds of stocks, investors would be wise to carefully adjust how much of their portfolio is invested here.
A well-diversified portfolio should hold a mix of steady, low-risk stocks along with shares in stocks like those shared here. Always prioritize risk management!
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3 Top Ranked Growth Stocks Investors Can Buy Now
Just a couple of weeks ago, stocks were selling hard, and investors were talking about impending doom. But now a few weeks later equities are nearing all-time highs. Quite a turn! The Nasdaq 100 has rallied over 12% in just the last two weeks, while the S&P 500 has increased by nearly 10%.
With the economy remaining robust, and inflation continuing to ease, it seems the markets are discounting more clarity regarding Federal Reserve interest rate policy. We still have a way to go before we can confirm the ‘soft-landing,’ but the economic environment is looking favorable.
With uncertainty falling, and a path to falling interest rates in sight, stocks are taking a hint and moving higher. Lower interest rates will add liquidity to the economy, eventually contributing to stronger economic growth, and allowing investors to move out on the risk curve.
I think this development should be favorable to growth stocks and something I have noticed is that the number of growth stocks on the Zacks Rank has been growing. Here I am going to share three such stocks, that have top Zacks Ranks and share prices being carried higher by momentum.
Image Source: Zacks Investment Research
Palantir Technologies
Palantir Technologies (PLTR - Free Report) is an American software and data analytics company founded in 2003 by a group of former employees from PayPal, including Peter Thiel. Palantir Technologies is known for its data integration and analytics platforms, which are used by government agencies, financial institutions, and large corporations to analyze and make sense of vast and complex datasets.
Palantir initially focused on providing its services to government agencies, especially in the fields of defense and intelligence. Its software is designed to assist in data analysis, intelligence gathering, and decision-making by creating visual representations of data patterns.
Over the years, Palantir has expanded its client base to include commercial enterprises, particularly in industries where data analysis and cybersecurity are critical.
Because the company went public in late 2020, it has only been tradeable during a rather challenging period in the stock market, especially for mid cap technology companies, which were hammered in the 2022 bear market. However, this means that Palantir’s stock price has languished for some time, providing an opportunity for discerning investors.
Even though PLTR is up 200% YTD, over the last three years it has actually underperformed the broad market index.
Image Source: Zacks Investment Research
Palantir jumped onto the Zacks Rank last week, thanks to earnings estimates upgrades from analysts. The stock now enjoys a Zacks Rank #1 (Strong Buy) rating. Current quarter earnings have increased by 14.3% over the last week and FY23 by 8.7% over the same period.
EPS are forecast to grow at an incredible 60% annually over the next 3-5 years, while sales are expected to grow by 20% next year.
Image Source: Zacks Investment Research
It is worth noting that these astounding growth forecasts bring with it an uber-premium valuation. Today, PLTR is trading at a one year forward sales multiple of 19.5x, which is well above the industry average of 5.4x, and above its three-year median of 15x.
Image Source: Zacks Investment Research
Wingstop
Wingstop (WING - Free Report) , an operator and franchisor of retail chicken wing shops has been an awesome performing stock over the last five years. The company continues to open new restaurants at an impressive rate, and at its recent quarterly earnings meeting reported that same store sales had grown 20.1% YoY.
Over the last five years, Wingstop stock has compounded at an annual rate of 31.6%, considerably outperforming the broad market.
Image Source: Zacks Investment Research
Sales and earnings growth are expected to persist and analysts have been upgrading the stock. WING now has a Zacks Rank #1 (Strong Buy) rating, reflecting upward trending earnings revisions.
Over the next 3-5 years EPS are projected to climb 21% annually, while sales are expected to grow 26% this year and 15.6% next year.
Image Source: Zacks Investment Research
Wingstop too, has a very high relative valuation. It is trading at a one year forward earnings multiple of 14.3x, which is way above the industry average of 3.1x, and just above its five-year median of 13.2x. Often it is uncomfortable to pay such a high multiple for a stock, you can see if you pick right, you are rewarded with high returns.
Image Source: Zacks Investment Research
e.l.f. Beauty
e.l.f Beauty (ELF - Free Report) is an American cosmetics company headquartered in Oakland, California. The acronym "e.l.f." stands for "eyes, lips, face," reflecting the company's focus on makeup products for these key areas of the face. e.l.f. Beauty is known for its affordable and cruelty-free cosmetics, skincare, and beauty tools.
The company has gained popularity for offering a wide range of beauty products at budget-friendly prices, making it accessible to a broad consumer base. e.l.f. Beauty has a strong online presence and is available in various retail stores, making its products easily accessible to consumers seeking quality makeup and skincare options at an affordable price point.
ELF has quietly been one of the best performing stocks in the market over the last few years. Over the past three years its share price has compounded at an annual rate of 54% and over 100% YTD. Additionally, it looks as if ELF is taking share from industry incumbents as the industry has cratered over that time.
Image Source: Zacks Investment Research
Earnings estimates have been trending higher all year as well, giving e.l.f Beauty a Zacks Rank #1 (Strong Buy) rating. The trend of ELF’s earnings estimates is one of the steepest I have seen, and those 2025 estimates are going almost strait up.
EPS over the next 3-5 years are expected to grow 26.4% annually, and sales are forecast to 57.8% this year and 22% next year.
Image Source: Zacks Investment Research
The valuation on ELF is quite a bit more palatable than the other two stocks, as it is trading at a one year forward earnings multiple of 49x, which is above the industry average of 38.8x, but below its three-year median of 69x.
Image Source: Zacks Investment Research
Bottom Line
While the potential of huge stock gains investing in growth stocks brings with it considerable excitement, investors should know that it comes with increased risk and volatility as well. As we see here, these companies carry high relative valuations, increasing downside risk.
However, if you can own these stocks during the right market regimes it can feel like riding a rocket ship. Because of the manic nature of these kinds of stocks, investors would be wise to carefully adjust how much of their portfolio is invested here.
A well-diversified portfolio should hold a mix of steady, low-risk stocks along with shares in stocks like those shared here. Always prioritize risk management!