In the volatile U.S. stock market, where the Federal Reserve's interest rate reduction plans remain uncertain, some companies have shown remarkable resilience. These businesses boast robust financial models and continue to deliver impressive performances despite the challenging macroeconomic climate.
To help investors identify such stocks with attractive growth potential, we present three top picks suggested by leading Wall Street analysts. Service Now (NOW) recently reported strong Q4 2023 earnings and raised its subscription revenue and operating margin guidance for the upcoming year. The stock received continued support from Robert Oliver of Baird, who revised his forecast upwards to $870 as his new price objective.
The next twelve months' revenue from cRPO (current remaining performance obligations) registered a 23% increase on a constant currency basis in Q4 2023. Oliver noted that this growth rate, while slightly decelerating compared to the previous quarter's 24%, still surpassed the firm's expectations of more than 21% growth. He attributed the upside in cRPO to net new annual contract value (ACV) and higher early renewals.
It was brought to attention that the company is making headway in the public sector market with its advanced AI technology. The second stock on our list is the streaming giant Netflix (NFLX), which recently impressed investors with stellar Q4 2023 results. This company added 13.1 million subscribers during the last quarter, causing its stock to surge by 16% in 2024.
According to an analysis by DBS expert Sachin Mittal, the rigorous enforcement against password sharing in over a hundred markets and the surge in advertising memberships were primary factors behind the impressive subscriber gains. Nearly one out of every two new advertising contracts for the business is secured in the 12 ad markets, accounting for roughly 40% of all such agreements.
Among the approximately 8,600 analysts under TipRanks' observation, Mittal ranks 334th, and he has a proven track record with a 79% success rate and a mean profit of 22.8%.
The third stock is a leading manufacturer in the electric vehicle market, Rivian (RIVN). In January 2024, this company announced a significant deal with telecom provider AT&T to purchase commercial vans and R1 electric vehicles, reducing its carbon footprint.
Among over 8,600 analysts, Robert Feinseth ranks at number 235. He remains confident in the company's potential for growth due to a TAM worth $9 trillion and a SAM above $1 trillion expected in the next three years. This company has experienced successful outcomes in 62% of instances when evaluated by Feinseth, resulting in a typical return of 11.4%.
Risks of Growth Investing
Since the price of most growth stocks are in anticipations for future growth, usually they try to make a trade at high values compared to their existing businesses.
This could ultimately dissatisfy growth stock shareholders as well as lead to a situation depicting a sell-off. Also, in case a growth stock depicts some signs of decelerating or stagnating growth then the growth stockholders can withdraw a stock completely. Consequently, it would trigger a sharp decline.
Specifically, growth stocks are sensitive to increasing interest prices. Moreover, the reduced cash flow models are usually utilized by those fund managers who prioritize value future cash flows lesser when the cut-rate interest rate is higher. This implies that lesser the discount rate, the more would be the future cash flows’ value today.