The U.S. equities can brace for a volatile 2017 primarily due to rising global and domestic uncertainties. Crude oil price movement, state of the Chinese economy and after-effects of Brexit (Britain's formal proceeding to leave European Union is set to begin by the end of March) are some of the major events that will keep investors on tenterhooks.

Back home, uncertainties over President-elect Donald Trump’s policies regarding immigration, economic protectionism, overhauling of corporate tax structure, deregulation and infrastructure investments is anticipated to keep investors at bay.

Moreover, Federal Reserve’s policy over the pace of interest rate hike will be keenly watched by the market.

Transition from Interest to Earnings Based Growth

The U.S. GDP growth rate is expected to grow 2.1% in 2017, a slightly faster rate as compared with an anticipated 1.9% this year. The positive growth trend will surely provide a boost to the stock market as major companies start reporting earnings growth.

Per Raymond James & Associates analyst Jeffrey Saut “Equity markets are transitioning from an interest rate-driven to an earnings-driven bull market.” However, too fast growth within a short-span of time can be a headwind.

This is because the improving economy will help Federal Reserve to be aggressive with its rate hike policy. But a faster pace will widen gap in interest rates between the U.S. and other developed countries (like Germany and Japan), which will lead to a strong U.S. dollar. This will eventually hurt earnings growth of the U.S. companies who generate bulk of their revenues from international markets.

Growth Investing Most Suitable

In a highly volatile market scenario it is always wiser to play safe and invest in growth stocks rather than in momentum or value ones. The increasing market volatility makes the momentum strategy highly risky, while value investing does not find many takers in the current market scenario.

We note that growth stocks are more or less immune to market uncertainty due to their strong fundamentals. These stocks normally enjoy competitive advantage due to their manufacturing scale, technologically advanced product lineup and loyal customer base. They are also often overvalued as investors see them as money-makers.

Facebook : Ideal Growth Stock

A prime example of growth stock is Facebook. The social media company has a Zacks Rank #2 (Buy) with Growth Style Score of ‘A.’  Back-tested results show that stocks with Growth Style Scores of ‘A’ or ‘B,’ when combined with a Zacks Rank #1 (Strong Buy) or 2 handily outperform other stocks. You can see the complete list of today’s Zacks #1 Rank stocks here.

Facebook boasts a strong consumer base, with more than 1.79 billion users, as of Sep 2016. Its two services – WhatsApp and Messenger has more than 1 billion users, while 600 million are on Instagram.
 

Facebook’s continuous innovation has driven its results in recent times. We note that the company has outperformed the Zacks Consensus Estimates in all the trailing four quarters with an average surprise of 21.11%. Further, the stock price has increased 13.79% as compared with the Zacks Internet Services industry’s gain of 3.52% on a year-to-date basis.

Moreover, the company has also witnessed significant earnings estimate revision in the last 30 days. The earnings estimate for the current year increased 2.7% (9 cents) to $3.39 per share in the same time frame. Moreover, the company’s long-term (next three to five years) earnings growth rate is currently pegged at 28.06%.
 

Alternative Picks

Although Facebook is a strong growth investment story, there are a few stocks that have performed in line or better-than the company in recent times. These stocks also have a Zacks Rank #2 and a Growth Style Score of ‘A’ but a better year-to-date price appreciation and a healthy long-term growth rate than Facebook.

Goleta, CA-based AppFolio Inc. (APPF Quick QuoteAPPF - Free Report) offers cloud-based software solutions for property management and legal industries. The company has beaten earnings estimates thrice in the trailing four quarters, the average positive surprise being 29.77%.

• Long-term growth rate pegged at 30%
• Year-to-date return of 57.19%

Headquartered in Ness Ziona, Israel, Kamada Ltd. is a biopharmaceutical company. The company has beaten earnings estimates thrice in the trailing four quarters, the average positive surprise being 31.25%.

• Long-term growth rate pegged at 30%
• Year-to-date return of 32.66%

Dallas, TX-based Matador Resources Company (MTDR Quick QuoteMTDR - Free Report) is engaged in the exploration and development of oil and natural gas resources. Matador has outperformed the Zacks Consensus Estimate in all of the trailing four quarters, with an average positive surprise of 250.51%.

• Long-term growth rate pegged at 30%
• Year-to-date return of 31.72%

Santa Monica, CA-based TrueCar Inc (TRUE Quick QuoteTRUE - Free Report) engages in developing and publishing an online automotive information and communications platform. It operates a company-branded platform on the TrueCar.com website. The company has beaten earnings estimates thrice in the trailing four quarters, the average positive surprise being 1.70%.

• Long-term growth rate pegged at 100%
• Year-to-date return of 35.64%

Conclusion

Although market instability is expected to keep investors on their toes in the New Year, we believe that Facebook and the other four growth stocks are great picks for a winning portfolio and impressive returns.
 

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