Where can investors look for growth?
With economists around the world dialing back economic growth forecasts for 2019 and beyond, it may become increasingly difficult for investors to find reliable growth stocks to buy. Even amid rising fears of a trade war escalation and a global economic slowdown, growth stocks have continued to outperform value stocks over the past month. Investors have seen the same trend throughout the entirety of the decade-long bull market. Bank of America recently updated its Growth 10 list of top growth stocks for long term investors to buy. Here are the firm's top growth stock picks.
Amazon.com (ticker: AMZN)
Year after year, Amazon reports impressive growth numbers and more often than not its stock generates market beating returns. It turns out 2019 is no exception. Amazon shares are up 24% year to date and analyst Justin Post says the e-commerce and cloud services giant keeps pulling all the right levers. Post says Amazon recently made the right move by eating the higher costs of free one day Prime shipping in order to significantly boost shipping volume. He is projecting 27% earnings per share growth over the next five years. Bank of America has a "buy" rating and $2,350 price target for AMZN stock.
D.R. Horton (DHI)
D.R. Horton is the largest public homebuilder in the U.S. Analyst John Lovallo II says the company's focus on the entry level housing market and its exceptional management team make it one of the best ways to play a strong U.S. housing market. Lovallo says the acquisition of Forestar gives D.R. Horton flexibility, diversification and an opportunity to improve overall cash flow and return on equity. Bank of America is projecting 13% five year EPS growth. The firm has a "buy" rating and $55 price target for DHI stock.
Facebook has dealt with a seemingly never ending stream of controversy and criticism, from the Cambridge Analytica data scandal and its role in election meddling to the platform's chilling utility as a tool to incite violence and genocide in Myanmar. However, through all of the drama, Facebook's business and its stock has remained on track. Post says the Facebook growth engine is poised to deliver even more upside in the years ahead. Bank of America has a "buy" rating and $240 price target for FB stock.
Flowserve supplies pumps, valves, seals and other products and services primarily to the U.S. oil and gas, power and chemical industries. Analyst Andrew Obin says the company's flow pump division has been performing particularly well and Flowserve reported better-than-expected core growth and margins in the second quarter. Obin says Flowserve's products and pricing make it the gold standard in flow control. He says the company is positioned to ride the next cyclical upswing in the global oil and chemical market cycles. Bank of America has a "buy" rating and $58 price target for FLS stock.
Fears over potential antitrust action and data use crackdowns haven't held Alphabet shares back in 2019. Post says Google has plenty of opportunities to continue to optimize its online advertising business using machine learning. In addition, Google Cloud and autonomous vehicle technology leader Waymo are both high growth businesses with long runways ahead. At the same time, Post says the valuation of Google's relatively stable core business is reasonable. Bank of America is projecting five year EPS growth of 13%. The firm has a "buy" rating and $1,450 price target for GOOGL stock.
Noble Energy (NBL)
There hasn't been much growth in the oil and gas industry for years, but analyst Doug Leggate has high hopes for Noble Energy in the years to come. Leggate says Noble is rapidly approaching a cash flow inflection point thanks to its flagship Leviathan project, which is finally expected to come online before the end of 2019. Bank of America is projecting 45% EPS growth from Noble over the next five years, a higher earnings growth rate than any other stock on this list. The firm has a "buy" rating and $41 price target for NBL stock.
Netflix is the fourth and final FANG stock to be included in the Growth 10 list. A combination of slowing user growth and new competition coming to the market has weighed on Netflix shares in 2019. However, analyst Nat Schindler says a subscriber miss in the second quarter hasn't derailed Netflix's long term trajectory. Netflix has a history of bouncing back with impressive numbers following disappointing quarters, and Schindler says the stock's 18% pullback in the past six months is a buying opportunity. Bank of America has a "buy" rating and $450 price target for NFLX stock.
United Rentals (URI)
Shares of equipment rental giant United Rentals have also been under pressure in the past six months, but analyst Ross Gilardi says long term growth investors should be snatching up shares on the dip. Gilardi says United's minor second quarter earnings miss was a rarity for the company, and it doesn't change the fact that United is one of the best plays on a secular growth opportunity in equipment rental. At an earnings multiple of just 8.5, additional downside risk is likely limited. The firm has a "buy" rating and $150 price target for URI stock.
NRG Energy (NRG)
NRG Energy is an independent power producer that operates 27 gigawatts of generating capacity in Texas and the Northeast. Analyst Julien Dumoulin-Smith says NRG is making a more aggressive push into solar power than anticipated, recently announcing that it has executed on 1.3 GW of solar power purchase agreements in Texas with a 10-year average agreement length. Dumoulin-Smith values the solar business at 60 cents per share and says NRG's transformation plan and associated cost cuts should help the stock outperform. Bank of America has a "buy" rating and $48 price target for NRG stock.
Valero Energy Corp. (VLO)
Oil refiner Valero is the only stock that is currently included on both Bank of America's Growth 10 list and its Value 10 list. With a forward earnings multiple of just 7.4, Valero's valuation should protect it from downside risk. At the same time, Leggate projects 20% EPS growth over the next five years. Leggate says Valero's 4.8% dividend is appealing and management's commitment to maintaining a payout ratio between 40% and 50% should support that yield. Bank of America has a "buy" rating and $110 price target for VLO stock.
Best growth stocks to buy in a slowing economy:
-- Amazon.com (AMZN)
-- D.R. Horton (DHI)
-- Facebook (FB)
-- Flowserve Corp. (FLS)
-- Noble Energy (NBL)
-- Netflix (NFLX)
-- United Rentals (URI)
-- NRG Energy (NRG)
-- Valero Energy Corp. (VLO)
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