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Picking beaten-up growth stocks might not feel like a good idea these days, amid rising interest rates, inflation, and geopolitical chaos, But there is a price for everything and the recent selloff has left several large-capitalization growth stocks at levels Wall Street appears to love.
Arguing for growth isn’t easy these days. There is a bear market in growth stocks. The
Nasdaq Composite Index
is down 21% from November’s 52-week high. A drop of 20% from highs is typically considered bear-market territory.
The
Russell 1000 Growth Index
is just hanging on, down 19.4% from its November 52-week high. That 19% figure belies the pain investors have felt recently. More than 330 of the roughly 500 stocks in the index are down more than 20%. The outperformance of a few big names is all that’s keeping the Russell out of bear market territory.
Inflation, rising interest rates, and heightened risk tend to hurt growth stocks more than others. There are mathematical reasons growth struggles as rates rise, but it’s simpler to say that growth stocks are all about hope and the future. People are felling less hopefully these days.
But it’s a good idea to zig when others are zagging, so investors should, at least, look for growth stocks that will look attractive when the selling ends. Here are 10 attractive Russell 1000 Growth Index stocks in no particular order:
Amazon.com
(ticker: AMZN), Google parent
Alphabet
(GOOGL), cloud-computing platform
Twilio
(TWLO), health-care-service providers
IQVIA
(IQV) and
Avantor
(AVTR), commercial-real-estate-data provider
CoStar
(CSGP), biopharma player
Horizon Therapeutics
(HZNP), drug-delivery-technology provider
Catalent
(CTLT), health-care-research-service provider
Charles River Laboratories
(CRL), and semiconductor-materials supplier
Entegris
(ENTG).
All 10 are down year to date, have strong analyst support, and have more than 30% implied upside according to average analyst price targets. In other words, recent selling has left them at attractive levels.
Take Amazon. Shares are down about 15% year to date. All 57 analyst that cover the stock rate shares Buy. That’s Buy-rating ratio of 100%. The average Buy-rating ratio for stocks in the Russell 1000 Growth Index is about 64%.
The average analyst price target for Amazon shares is about $4,130 a share, up more than 40% from recent levels. The median gain for stocks in the Russell 1000 Growth Index, based on analyst average target prices, is about 28%.
Overall, the average Buy-rating ratio for the 10 attractive growth stocks is about 97%, and the average implied upside is more than 50%. The least attractive of the 10 is IQVIA. Only 95% of analysts rate its shares at Buy, and the implied upside is 30%. That still isn’t bad, relative to the rest of the market.
| Company / Ticker | Market Cap (bil) | Year to date | Price | Target Price | Forward Twelve Month PE Ratio |
|---|---|---|---|---|---|
| Alphabet, GOOGL | 1,694.80 | -11.0 | $2,554.03 | $3,481.80 | 19.4 |
| Amazon.com, AMZN | 1,483.90 | -11.9 | $2,919.67 | $4,130.02 | 38.9 |
| IQVIA, IQV | 41.2 | -23.9 | $216.21 | $281.37 | 20.2 |
| Horizon Therapeutics, HZNP | 23.4 | -5.7 | $102.20 | $144.08 | 16.4 |
| Twilio, TWLO | 22.9 | -51.8 | $126.86 | $335.70 | N/A |
| CoStar, CSGP | 22.8 | -27.1 | $57.82 | $76.85 | 53 |
| Avantor, AVTR | 20.9 | -19.2 | $34.20 | $46.06 | 22 |
| Catalent, CTLT | 17.4 | -24.8 | $97.09 | $147.77 | 23 |
| Entegris, ENTG | 16.5 | -12.8 | $122.10 | $164.75 | 27.8 |
| Charles River, CRL | 13.1 | -31.5 | $259.11 | $377.77 | 21.3 |
Source: Bloomberg
The stocks look like buys, but whether investors should jump in now or later is an open question. The Russell 1000 Growth Index is about 11% below its 200-day moving average. The Index traded about 20% below its 200-day moving average in the depths of the pandemic crisis back in March 2020.
Down 20% from the 200-day moving average could signal true capitulation, when all the selling is done, but that is just one data point to help investors decide when they might want to buy. But if the 10 companies’ business fundamentals are a strong as analyst ratings suggest, they will all be good buys, eventually.
Write to Al Root at allen.root@dowjones.com
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