Growth stocks are for the good times. They tend to outperform during economic boom times - but during periods of heightened uncertainty, like the one we're in now, they tend to lose some appeal amid declining risk appetites. With interest rates stubbornly high, geopolitical tensions elevated, and bond yields hitting multi-year peaks, many growth stocks have pulled back substantially from their 2023 highs.
For example, the Vanguard Growth ETF (VUG) - the largest growth-focused fund by assets under management - has rallied 23% year-to-date, which surpasses the broader market's performance. However, the ETF is down 7.8% since its mid-July, and has underperformed the market despite positive inflows over this period.
That said, as the legendary investor Warren Buffett once advised, “Be fearful when others are greedy and greedy when others are fearful.” While there may yet be some growth stocks that have yet to find their ultimate lows, there are also some high-quality growth names that are currently trading well off their lows - presenting opportunities for long-term investors to buy shares on the dip.
T-Mobile US
T-Mobile US (TMUS) is a subsidiary of the German telecommunications company Deutsche Telekom AG. Founded in 1994, T-Mobile has emerged as the third-largest wireless carrier in the U.S., with over 117 million subscribers. It provides mobile phone, Internet, and television services to its consumers. T-Mobile is a leader in the 5G space, with its network reaching 98% of all Americans.
The company currently commands a market cap of $162.05 billion, and recently announced its first-ever dividend to shareholders.
Shares of T-Mobile US are just barely in positive territory on a YTD basis, though the stock is outperforming legacy carriers AT&T (T) and Verizon (VZ) by a wide margin.
TMUS is slated to report its Q3 earnings this Wednesday, Oct. 25, with analysts looking for a profit of $1.75 per share. The telecom company has surpassed Wall Street's bottom-line estimates in each of the past three quarters.
Moreover, the company's forward EPS growth is projected at 60.3%, much higher than the sector median of 3.6%.
Analysts have an average “Strong Buy” rating on the stock, with the mean target price of $179.94 with an upside potential of about 30.6% from current levels. Out of 17 analysts covering the stock, 13 have a “Strong Buy” rating, 3 have a “Moderate Buy,” and 1 has a “Hold” rating.
Boston Scientific
Next up is Boston Scientific (BSX), a leading global medical technology company that develops, manufactures, and sells medical devices used in a variety of interventional medical specialties. Founded in 1979, the company has operations in more than 100 countries, and currently commands a market cap of $73.3 billion.
Boston Scientific stock is up about 10% on a YTD basis, roughly in line with the broader S&P 500 Index ($SPX).
Boston Scientific is due to report quarterly earnings this Thursday, Oct. 26, with analysts looking for EPS growth of 11% to $0.48. The company has managed to surpass Wall Street's bottom-line expectations in each of its past two earnings reports.
Longer term, BSX's forward EPS growth is pegged at 28.7%, which easily exceeds the sector median of 5.23%.
Notably, the company's novel cardiac ablation procedure, Farapulse, could provide a tailwind. Farapulse just delivered positive results in a clinical safety trial, and FDA approval appears on track for mid-2024.
Along with Farapulse, the company's Watchman FLX has a market share in excess of 90% in the rapidly growing left atrial appendage closure (LAAC) treatment market.
Analysts have assigned a “Strong Buy” rating on BSX, with a mean target price of $61.09. This denotes an upside potential of roughly 20% from current levels. Out of 22 analysts covering the stock, 15 have a “Strong Buy” rating, 4 have a “Moderate Buy” rating, and 3 have a “Hold” rating.
Novo Nordisk
We round out our list with another company from the pharmaceutical sector, Novo Nordisk (NVO). The almost century-old company Danish multinational pharmaceutical company is the world's largest producer of insulin and other diabetes medications. The company also produces a range of other products for the treatment of obesity, haemophilia, and other serious chronic diseases.
Most recently, NVO has exploded in value thanks to its blockbuster diabetes drugs Ozempic and Wegovy, both of which have gained popularity for weight loss - though only Wegovy has received FDA approval for this usage.
Currently commanding a market cap of about $435.8 billion, NVO offers a dividend yield of 0.76%. Novo Nordisk stock has rallied nearly 46% on a YTD basis.
In Q2 2023, Novo Nordisk reported revenue of $7.93 billion, while earnings arrived at $1.26 per share. When NVO reports Q3 results in early November, Wall Street is looking for EPS of $0.58, on average.
Forward EPS growth for NVO is pegged at 21.1%, compared to the sector median of 5.2%, while forward revenue growth of 21.5% also far exceeds the sector median.
Analysts have a “Strong Buy” rating on the stock, with a mean target price of $110.50. This indicates upside potential of about 13% from current levels. Out of eight analysts covering the stock, 7 have a “Strong Buy” rating, and 1 has a “Moderate Sell” rating.
On the date of publication, Pathikrit Bose 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.
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