As the name suggests, “growth stocks” are expected to yield exponential increases in earnings and revenue, and these companies will often sidestep quarterly dividend payouts in favor of reinvesting in their own growth. The trade-off for outsized share price returns is often higher volatility; these stocks easily outperformed during the first half of the year - but as concerns over a hawkish Fed crept back into markets over the past month, they were the first names punished with heavy selling.
Now that markets are moving higher off last month's lows, it's a good time to survey the landscape of growth stocks for potential buy-the-dip opportunities. For investors looking to join in on the next leg higher as growth stocks resume their uptrend, here are two stocks poised for long-term gains.
Meta
After the stock shed 64% of its value last year, Meta Platforms (META) has roared back in 2023. META stock is up more than 146% year-to-date, comfortably outpacing the S&P 500 Index's ($SPX) 17.5% return.
With its "Family of Apps" now touching a staggering 3.8 billion individuals - up 6% year-over-year, as of the second quarter - the company's reach and user base continues to grow. Moreover, the company's “Year of Efficiency” has delivered results - including a focus on generative artificial intelligence (AI) over the money-burning metaverse, and aggressive cost-cutting measures that include more than 21,000 job layoffs since November.
Meta Platforms recently delivered blowout results in its second-quarter, marked by an earnings surprise of 12.54%. Moreover, the tech behemoth has delivered a double-digit earnings surprise in three out of the past four quarters. Its reported earnings-per-share for the quarter came in at $3.23, outpacing expectations by 36 cents.
Revenues were up 11% year-over-year to $32 billion, surpassing estimates for $31.12 billion, as ad impressions climbed 34% year-over-year across its integrated app family.
Meta also hiked its third-quarter revenue guidance to a range between $32 billion and $34.5 billion - which would mark a second consecutive quarter of double-digit revenue growth. Based on analyst expectations, META's earnings could rise by 115.24% in the current quarter.
Following the earnings report, Barclays analyst Ross Sandler praised the company's trajectory by reiterating his bullish “overweight” rating on META, and hiking his price target on the stock to $410 from $320. In a note to clients, Sandler commended CEO Mark Zuckerberg's leadership, and said that increasing engagement, monetization, and innovative product launches, such as Threads and GenAI features, point to an encouraging second-half showing.
Most analysts are equally upbeat. Thirty-four out of 38 analysts maintain a "Strong Buy" rating, and two more call it a “buy.” Plus, the average 12-month price target of $361.51 indicates expectations for META to extend its rally by at least another 21.7% from current levels.
Salesforce
Salesforce is a cloud computing juggernaut that reigns supreme in the customer relationship management (CRM) realm. The company boasts over 20% growth in both sales and EBITDA over the last five years. Additionally, its secure footing in the market is further cemented by a decade-long run as the top CRM provider.
Furthermore, CRM has been killing it this year. With a year-to-date gain of 66%, it's not only outperforming the S&P 500 - it's the best Dow stock of 2023.
In its second-quarter earnings report, Salesforce posted an 8.49% earnings surprise, continuing a longer-term trend of beating bottom-line estimates. CRM reported earnings per share of $1.15, while revenues of $8.60 billion were up 11.4% and also topped the consensus.
Plus, Salesforce raised its guidance for full-year sales, which it now expects to grow approximately 11% year-over-year to a range between $34.70 billion and $34.80 billion.
Analyst Dan Ives from Wedbush Securities drew parallels between Salesforce's stellar financial results and tennis champion Novak Djokovic, writing, “Salesforce came out of the gates swinging featuring a Djokovic-like performance with a top and bottom-line beat and raise quarter driven by MuleSoft momentum and its overall subscription business.” The note accompanied a price-target hike to $255 for the stock.
Most analysts expect more modest upside for CRM going forward; the average 12-month price target is $231.49, just 4.4% above current levels. However, the consensus rating among 38 analysts is a “Moderate Buy.”
Takeaway
Both Meta Platforms and Salesforce are prime examples of tech giants that have proven their mettle in the past year, despite a challenging environment for growth stocks. Thanks to strategic shifts and astute leadership, both META and CRM represent excellent buy-the-dip opportunities for investors seeking out robust, resilient, and rewarding growth stocks.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
