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All Contents © 2019The Kiplinger Washington Editors
By Harriet Lefton, Contributing Writer
| April 1, 2019
If you are stuck for investing inspiration after a breakneck first quarter, Goldman Sachs has some valuable tips. The firm has just released a report advising investors to focus on growth stocks with rapidly growing revenues. These are the kinds of companies that should outperform as costs rise over the coming year, Goldman analysts say.
“Mounting pressures from wage inflation and other input costs will pressure margins, making further expansion from currently all-time high margins unlikely,” writes David Kostin, Goldman Sachs’ head U.S. equity strategist. “As a result, growth in (earnings per share) will be driven entirely by top-line sales.”
That’s already playing out so far this year. Goldman Sachs recently calculated that stocks it considers “high revenue” have outperformed the Standard & Poor’s 500-stock index by 400 basis points already since the start of 2019.
Here are seven growth stocks to buy, according to Goldman’s expectations for high revenue expansion across the rest of 2019.
Data is as of March 31.
Market value: $21.9 billion
TipRanks consensus price target: $85.78 (62% upside potential)
TipRanks consensus rating: Strong Buy
Managed-care giant Centene (CNC, $53.10) is gearing up for significant sales growth of 18% in 2019, according to Goldman Sachs’ estimates. Wall Street seems to agree, with a consensus estimate of 17.9%. And broadly speaking, the Street is bullish on the stock, which over the past three months alone has garnered 11 “Buy” ratings and one “Hold.”
One of these bullish ratings comes from Oppenheimer’s Michael Wiederhorn. The five-star analyst recently attended Centene’s health-care conference, where management discussed the company’s rapidly growing Ambetter unit — an Affordable Care Act exchange plan business set to account for more than 60% of EPS in the first half of 2019.
“The company has remained the best performer among the insurers on the exchanges, given its lower-income and tighter networks,” Wiederhorn writes. Centene also reaffirmed its plans to enter four new states with Ambetter, as well as expanding its presence in six other states.
“Overall, Centene remains confident in its outlook for 2019, highlighted by stable Exchange performance and strong growth prospects,” Wiederhorn writes. “As a result, we maintain our Outperform rating.”
That “Buy”-equivalent rating includes an $83 price target on this health-insurance stock, suggesting stellar upside potential of over 45%. For more information on Centene’s shares, get a free CNC Research Report from TipRanks.
Market value: $22.7 billion
TipRanks consensus price target: $275.50 (3% downside potential)
Align Technology (ALGN, $284.33) is the company behind the popular transparent teeth-straightening aligners known as Invisalign. For 2019, Goldman Sachs sees Align capable of recording 23% sales growth — again, close to the broader consensus, which sees a scooch more at 23.4% this year.
While ALGN’s target price doesn’t reflect it, the analyst community — which has slapped six “Buys” and two “Holds” on the stock over the past three months — thinks Align is primed for a successful year.
Piper Jaffray’s Matthew O’Brien is ranked in the top 50 of more than 5,200 analysts tracked by TipRanks. And this top-performing analyst has just reiterated his “Overweight” (equivalent of “Buy”) rating on ALGN while ramping up his price target from $250 to $300, or 6% higher from current prices. According to O’Brien, Align Technology represents one of the med-tech world’s most compelling growth stories right now.
O’Brien supports his bullish thesis by citing a recent call with an industry expert who heads a dental consultancy. This expert told O’Brien that there is not a single case where Invisalign can’t be used. And it is the rare ability to treat both complex cases and “the low-hanging fruit on the simple cases” that sets Align apart from its rivals, the analyst explains.
Also worthy of note is Robert W. Baird’s Jeff Johnson, who recently decided to bump up his own price target on ALGN. Johnson now sees the stock reaching $286 (roughly in line with current prices), up from his previous $255 price target, thanks to growth in the second half of 2019. You can check out more analysis in TipRanks’ ALGN Research Report.
Market value: $475.7 billion
TipRanks consensus price target: $193.94 (16% upside potential)
Social media giant Facebook (FB, $166.69) is on track for 23% expected sales growth in 2019, according to the Goldman Sachs report, while the consensus is for 23.5% top-line expansion. Goldman analyst Heather Bellini has a “Buy” rating on the stock with a $195 price target (17% upside potential).
Oppenheimer’s Jason Helfstein has the same price target and an “Outperform” rating on FB that he reiterated despite a recent string of executive departures. Longstanding product chief Chris Cox announced his resignation in March, and WhatsApp head Chris Daniels made a surprise exit at the same time.
“CPO Cox’s departure confirms Zuckerberg is likely to purse a more aggressive product refresh,” Helfstein writes.
This refresh is likely to introduce a single encrypted messaging service that incorporates both Instagram and WhatsApp into Facebook. If you consult the rumor mill, this is a potential reason behind the departure of Instagram’s founders from Facebook back in 2018. “Just as (Amazon) has been emulating (Alibaba) in the push to offline retail, FB appears to want to emulate WeChat’s ecosystem, allowing information sharing, communications and commerce in a single application,” Helfstein writes.
Just understand the risks. Needham’s Laura Martin, for instance, isn’t taking the news so lightly. She recently downgraded FB from “Buy” to “Hold,” writing, “Since we believe that people are a key competitive advantage of FAANG companies, this implies accelerating value destruction until senior executive turnover ends. We prefer to move to the sidelines until we see senior employee turnover stabilize.”
Still, FB is rated “Buy” or equivalent by 33 of 39 analysts evaluating the stock, making it a consensus “Strong Buy.” Discover more about Facebook’s investing potential in the TipRanks’ FB Research Report.
Market value: $11.7 billion
TipRanks consensus price target: $288.22 (30% upside potential)
SVB Financial Group (SIVB, $222.36) is the holding company for Silicon Valley Bank, a high-tech commercial bank based in California. The bank has helped fund more than 30,000 startups, and its projected sales growth is reminiscent of the nascent companies it serves — GS predicts revenues could surge by 24% in 2019.
SIVB — one of the top analyst picks for 2019 — has received eight back-to-back “Buy” ratings over the past three months, including from Stephens analyst Tyler Stafford.
“We continue to recommend SIVB given the valuation of just 11.6x our 2020 EPS for what we think is one of the best franchises in the country,” he writes.
Despite short-term deposit pressures, Stafford still sees the company’s guidance as achievable. “We believe SIVB’s existing guidance of high-single-digit average deposit growth is still very much on the table and could ultimately be conservative if the yield curve steepens,” he writes.
Stafford cites “potential balance sheet leverage and a sustainable and long-term earnings/profitability profile” that’s well ahead of the bank’s peers as reasons to love the stock. He backs that up with a $290 price target on the stock, implying 30% upside from current prices. Find out what other analysts think of this financial stock in TipRanks’ SIVB Research Report.
Market value: $130.0 billion
TipRanks consensus price target: $291.05 (9% upside potential)
TipRanks consensus rating: Moderate Buy
Software giant Adobe (ADBE, $266.49) is set to enjoy explosive sales growth of 25% this year, Goldman Sachs believes. That’s with strong new-feature momentum, expanding marketing-tech budgets and selling higher in the organization (which means larger deals).
As Canaccord Genuity’s Richard Davis writes, “Adobe has the strongest franchise in Marketing Tech — and yes, that means better than Salesforce in terms of total reported growth and importantly in our view, margins, by a lot.” The two things he believes are really important for Adobe are 1) reduced churn and 2) the pace of large deals, because that reveals whether Adobe is becoming more strategic to its customers.
Davis, the No. 1 analyst ranked by TipRanks, continues with more high praise: “The fact that the company has reached this pinnacle of execution from humble beginnings in 1990 as just a laser printer font company, through 50 acquisitions, is a case study in management talent.”
Citing the company’s best-in-class growth profile, Davis reiterates his “Buy” rating on Adobe with a $300 price target (13% upside). For more information on Adobe’s latest market activity, get a free ADBE Research Report from TipRanks.
Market value: $34.2 billion
TipRanks consensus price target: $176.71 (13% upside potential)
Autodesk (ADSK, $155.82) makes software for people who make things. By visualizing and simulating real-world performance through digital prototypes, designs can be optimized before the building process even begins. This can save time and money for professionals across a wide range of industries, including architecture and engineering.
For 2019, Goldman Sachs expects that Autodesk will deliver sales growth of 26%. A sizable chunk of these sales should come from the construction industry, following Autodesk’s moves in late 2018 to snap up a pair of construction firms. ADSK spent $875 million in November for PlanGrid, then $275 million in December for BuildingConnected.
“BuildingConnected should round out the moves in the construction vertical, which the company sizes as a $10B market opportunity as it looks to digitalize the construction process from design to build,” writes five-star RBC Capital analyst Matthew Hedberg, who recently reiterated his “Outperform” rating on ADSK.
He adds, “We believe Autodesk now likely has the needed assets in place for its strategy and would not anticipate another near-term acquisition in the vertical.”
Hedberg currently has a Street-high price target of $200 on ADSK, which implies 28% upside from current prices. For further insights on this tech stock, turn to TipRanks’ ADSK Research Report.
Market value: $155.7 billion
TipRanks consensus price target: $402.93 (13% upside potential)
The No. 1 growth stock for sales potential right now is Netflix (NFLX, $356.56). The online streaming giant is poised to deliver a whopping 28% sales growth in 2019, says Goldman Sachs — an estimate that’s on par with Wall Street’s consensus.
And that projected expansion comes on the back of a decade’s worth of growth that made NFLX one of the best stocks of the 10-year bull market.
Despite a 5,900% run over the past decade, five-star RBC Capital analyst Mark Mahaney still believes shares are undervalued. He writes, “We believe that Netflix has achieved a level of sustainable scale, growth, and profitability that isn’t currently reflected in its stock price.”
This conclusion is based on Mahaney’s assessment of Netflix’s 61 million U.S. subscribers and 88 million international subscribers, which makes Netflix one of the largest global entertainment subscription businesses.
Mahaney believes Netflix can survive in an increasingly crowded marketplace. Potential new rivals include Apple (AAPL), Disney (DIS) and AT&T (T), all of which are launching new streaming services this year. However, the Internet TV opportunity is so massive that Mahaney believes it can support two or three providers, and that Netflix — based on scale, brand and value proposition — will be one of them.
The RBC Capital analyst reiterated his “Buy” rating on NFLX with a relatively high $480 price target, indicating he sees 35% upside from current levels. Find out more from TipRanks in its NFLX Research Report.
Harriet Lefton is head of content at TipRanks, a comprehensive investing tool that tracks more than 5,000 Wall Street analysts as well as hedge funds and insiders. You can find more of their stock insights here.