In a year that value stocks were supposed to finally pull one over on growth stocks, it was the latter that yet again pulled ahead. The S&P 500 Growth Capped Index delivered a total return of just more than 32%, while the S&P 500 Value Capped Index returned roughly 25%.
Strategists, for the most part, are yet again betting on value stocks. However, Brian Price, senior vice president of Investment Management and Research, lays out a cautiously optimistic case for growth:
“The bull case for growth’s outperformance stems from a world emerging from a pandemic, with decent economic growth, moderate inflation, and gradually rising interest rates,” he says. “In this type of market environment, growth is likely to continue outperforming value.”
Though he cautions that “it’s unlikely that growth will outperform at the magnitude seen between 2015 and 2020.”
That sets up perhaps a more difficult scenario for growth investors in 2022. While investors might do very well investing in growth exchange-traded funds (ETFs) over longer time horizons, individual stock picking could be the way to go in a 2022 environment that doesn’t necessarily benefit the style as a whole.
If you’re looking for a place to start your search, here are the 15 best growth stocks to buy for 2022.
Data is as of Jan. 24. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Analyst ratings courtesy of S&P Global Market Intelligence, unless otherwise noted. Stocks are listed by analysts’ consensus recommendation, from lowest to highest.
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PinterestGetty Images
Market value: $20.3 billionDividend yield: N/AAnalysts’ ratings: 10 Strong Buy, 3 Buy, 18 Hold, 1 Sell, 0 Strong SellAnalysts’ consensus recommendation: 2.31 (Buy)Despite Pinterest (PINS, $31.11) losing almost 60% of its value in the last 12 months, only one analyst has a Sell rating for the social media platform. In addition, the average price target for PINS is $50.57, providing plenty of upside for risk-tolerant investors.
CFRA Research analyst Angelo Zino is one analyst who has a Buy rating on PINS, saying the stock’s selloff has created an opportunity for investors to pick up one of the best growth stocks for 2022 at a discount.
Zino acknowledges that weaker consumer engagement and changes to Apple’s (AAPL) privacy policies could create headwinds for PINS in the first half of the year. However, “a more attractive valuation, easier comparisons by the second half, and potential new strategic options (M&A) are all notable positives,” he writes.
The analyst adds that shopping engagement remains a “massive opportunity” for Pinterest, and that revenue growth will come from international users and greater monetization of its current base.
Pinterest reported its third-quarter results in early November. The firm posted impressive year-over-year (YoY) revenue growth of 43%, while monthly active users (MAUs) rose a more modest 1% from the year prior to 444 million.
The company’s international MAUs grew 4% YoY in the third quarter to 356 million. Further, international revenue grew 96% from the year prior to $135 million. International users currently account for more than 80% of total MAUs.
In terms of average revenue per user (ARPU), the U.S. figure came in at $5.55 (+44% higher YoY) and 38 cents internationally (+81% YoY).
Pinterest had adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) in the third quarter of $201 million, 117% higher than a year earlier.
At this rate, PINS appears on its way to delivering the company’s first annual profit. That’s something positive to take into 2022.
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TrexGetty Images
Market value: $11.0 billionDividend yield: N/AAnalysts’ ratings: 6 Strong Buy, 0 Buy, 9 Hold, 1 Sell, 0 Strong SellAnalysts’ consensus recommendation: 2.31 (Buy)Following its 61% gain in 2021, Trex (TREX, $95.23) entered large-cap – or at least solidly mid-cap – territory. While unlikely to repeat the prior year’s strong performance, it does have an impressive 15-year annualized total return of 25.4%. In other words, anything is possible for the Virginia-based maker of wood-alternative decking products and fences.
The move from wood to composite decking is expected to continue in 2022. Trex grew its annual sales and earnings per share (EPS) by 17% and 20%, respectively, over the past three fiscal years. The estimate for EPS in 2021 is $2.11 (+36.1% YoY). That’s expected to increase to $2.57 per share in 2022.
Trex only got started as a business in 1996. Composite decking accounts for 25% of all decks in the U.S., and is projected to rise by 2% annually for the foreseeable future, said CEO Bryan Fairbanks in the company’s third-quarter earnings call.
To accommodate its continued growth, TREX said late last year that it is building a new production facility in Little Rock, Arkansas. It will see the company invest $400 million to ensure production begins at the plant in 2024. It will be Trex’s third U.S. plant.
Not only is TREX one of the best growth stocks for 2022, but it’s a solid pick for environmental, social and corporate governance (ESG) investors.
“Trex Company is a leader not only in the manufacture of environmentally friendly products, but also in its commitment to sustainability in its operations,” William Blair analysts (Outperform) say.
“Trex is our favorite secular growth story and a play on outdoor living demand and wood conversion,” they add. “The onset of COVID-19 accelerated the already strong outdoor living trend, and the launch of the Enhance product line is expanding the company’s total addressable Market.”
Merkel expects Trex to grow its EPS by 15%-20% per year over the long haul. As a result, investors can expect this to increase its share price in 2022 and beyond.
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Ceridian HCM HoldingGetty Images
Market value: $11.8 billionDividend yield: N/AAnalysts’ ratings: 7 Strong Buy, 1 Buy, 6 Hold, 1 Sell, 0 Strong SellAnalysts’ consensus recommendation: 2.07 (Buy)Analysts are mixed when it comes to Ceridian HCM Holding (CDAY, $77.65). However, the overall view does skew bullish toward the provider of cloud-based payroll and human capital management solutions, with a consensus Buy rating. Plus, the average target price of $111.31 provides a decent amount of potential upside in 2022.
That’s a good thing because 2021 was a terrible year for CDAY shareholders relative to the broader equities market. The stock lost 2.0% compared to a 28.7% total return for S&P 500 Index.
What lies ahead in 2022?
A September survey commissioned by the company about employee attitudes toward their paycheck could ultimately lead to changes in how people are paid at work. Ceridian found that 80% of the 1,004 adults (18 and older) participating in the survey would like to be paid daily in what’s become known as “streaming pay.”
“With streaming pay, employers give workers more control over their financial well-being,” said Seth Ross, general manager of Dayforce Wallet and Consumer Services at Ceridian. “That means offering people the peace of mind to cover an unexpected expense or the ability to take advantage of investment opportunities they might not otherwise have.”
And Ceridian would likely benefit from such a move by employers.
In November, Baird analyst Mark Marcon (Outperform) wrote about his time spent at Ceridian’s Las Vegas and New York sessions of its annual World Tour human resources conference.
“Positioned as the ‘Always-On People Platform for the Global Workforce’ with a mission of ‘Making Worklife Better,’ Ceridian isn’t content to merely gain share in the North American payroll market,” Marcon wrote. “It was emphasized throughout the NY meetings that Ceridian aspires to be a leading human capital management provider to the enterprise market on a global basis.”
The analyst added that CDAY has a “very ambitious product and country expansion roadmap” for the company over the next two years, with streaming pay getting most of the attention among the new solutions and modules that will be rolled out.
With plenty of opportunities on the horizon, the stall in CDAY’s share price in 2021 allows investors to buy one of the best growth stocks for 2022 at a discount.
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SVB Financial GroupGetty Images
Market value: $33.5 billionDividend yield: N/AAnalysts’ ratings: 7 Strong Buy, 8 Buy, 8 Hold, 0 Sell, 0 Strong SellAnalysts’ consensus recommendation: 2.04 (Buy) SVB Financial Group (SIVB, $570.01) delivered a total return of 74.9% in 2021 for shareholders. As a result, it’s now turned in an annualized total return of 26.8% over the past decade, more than three times the regional banking industry and almost double the entire U.S. market.
For nearly 40 years, the California-based bank holding company has been helping innovators and entrepreneurs grow their businesses by providing them with the financial services necessary to grow and preserve their wealth.
SVB Financial calls itself “The Bank of the Innovation Economy,” which focuses on the technology, life sciences and healthcare, private equity, venture capital and premium wine industries.
As of Dec. 31, SVB Financial had $211 billion in total assets, $66 billion in loans and managed or administered $399 billion in total client funds. It might not be as large as Bank of America (BAC), but long-time shareholders likely don’t care. Its returns speak for themselves.
Also in the fourth quarter, the company announced it acquired MoffettNathanson, a New York-based research firm specializing in media, communications and technology companies. By acquiring MoffettNathanson, its investment bank (SVB Leerink) is able to expand its healthcare and technology coverage.
Piper Sandler analysts, who have an Overweight (Buy) rating and a $725 target price on SIVB stock, recently suggested that a 25-basis point increase in the fed funds rate would add between $300 million and $330 million in revenue and $5 a share in earnings.
By 2023, they estimate the bank holding company will have total operating revenues of $8.1 billion in 2023, up from $4.0 billion in 2020. On the bottom line, they project core EPS of $35.55, up from $23.58 in 2020.
In other words, SIVB is one of the best growth stocks for 2022 and beyond.
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Pool Corp.Getty Images
Market value: $19.1 billionDividend yield: 0.7%Analysts’ ratings: 4 Strong Buy, 1 Buy, 4 Hold, 0 Sell, 0 Strong SellAnalysts’ consensus recommendation: 2.00 (Buy) Pool Corp. (POOL, $477.62), one of the largest suppliers of swimming pool supplies in the world, flashed a bullish signal in the third quarter, thanks to some insider buying at the hands of board member David Whalen .
And the shares certainly experienced an upside move early on in the fourth quarter, rallying more than 33% from their Sept. 30 close to their Nov. 18 peak near $580.
Since then, the stock has pulled back – most recently amid broad-market headwinds, but Baird analyst David Manthey (Outperform) says any weakness in POOL creates a buying opportunity.
Manthey expects POOL’s late-2021 acquisition of Porpoise Pool & Patio to provide “another channel and a new platform for growth.” Porpoise Pool & Patio is a franchisor of pool and outdoor-living products retail stores that has over 260 locations across the U.S., with approximately $250 million to $300 million in annual revenue.
In the long term, the analyst believes the company will continue to grow at a relatively brisk pace, and said 2022 could be more positive than he assumes.
“We believe POOL will continue to take market share from regional pool and irrigation distributors given economies of scale, which drives higher rebates, better sourcing, IT resources, and product availability,” Manthey writes. “Additionally, there is opportunity to take share from distributors that are not pool-focused, as well as mass merchants and direct sales.”
As it moves beyond the pool, the company will continue to expand into the outdoor living space. This includes the sale of building products, etc. Pool’s revenue for the trailing 12 months (TTM) is $5.1 billion. That’s up from $3.9 billion in 2020.
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TrimbleGetty Images
Market value: $18.2 billionDividend yield: N/AAnalysts’ ratings: 6 Strong Buy, 3 Buy, 3 Hold, 0 Sell, 1 Strong SellAnalysts’ consensus recommendation: 2.00 (Buy)Trimble’s (TRMB, $72.52) history dates to 1978 when Charles Trimble co-founded the company, manufacturing marine navigation products. Today, it’s a leader in global navigation satellite systems (GNSS) and global positioning systems (GPS) solutions across several industries, including agriculture, construction, infrastructure and transportation.
With more than 1,000 unique patents, the company continues to innovate. It spends more than $475 million per year on research and development. This has enabled it to grow its recurring revenue. In 2017, recurring revenue accounted for 29.5% of TRMB’s overall revenue. By 2020, it represented 41.1% of the top line. As a result, its non-GAAP earnings per share rose 54% over the same period.
On an annualized basis, the company is growing recurring revenue by about 8%. At the end of the third quarter, it had a $1.6 billion backlog. As its customers continue to digitize their businesses using Trimble solutions, shareholders will benefit. TRMB stock delivered a total return of 30.6% in 2021, 480 basis points (a basis point is one-one hundredth of a percentage point) better than the entire U.S. market.
Oppenheimer analysts give Trimble an Outperform rating and a $102.00 target price. They believe TRMB’s end markets will experience significant growth in 2022, setting it up for an excellent year.
“Despite the myriad crosswinds facing Trimble’s diverse end markets, we believe the company has positioned itself to benefit from the secular digitization in the key verticals of construction, agriculture and transportation,” the analysts write.
“We believe Trimble will benefit from both share gains and continued migration to higher margin recurring revenue, and software and services, as it increasingly offers its customers integrated workflow solutions.”
In fiscal 2022, they project non-GAAP earnings of $2.91 per share on $3.9 billion in revenue.
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Lululemon AthleticaGetty Images
Market value: $41.6 billionDividend yield: N/AAnalysts’ ratings: 14 Strong Buy, 5 Buy, 10 Hold, 0 Sell, 1 Strong SellAnalysts’ consensus recommendation: 1.97 (Buy) Argus Research tapped Lululemon Athletica (LULU, $321.62) as one of the best apparel stocks to buy following the release of the company’s third-quarter earnings report in mid-December. Two reasons for analyst John Staszak’s excitement are the athleisure brand’s prospects outside North America and its growing men’s business.
In its third quarter ended Oct. 31, Lululemon’s men’s business increased sales by 44% year-over-year to $343.3 million. This segment accounted for 23.7% of LULU’s $1.45 billion in overall revenue during the quarter, 240 basis points higher than in Q3 2020.
Lululemon’s sales outside of the U.S. and Canada were $224.1 million, 40% higher than a year earlier. These sales outside North America accounted for 15.5% of its revenue, up 110 basis points from a year earlier. As of Oct. 31, LULU had 71 stores in China, up from 55 a year earlier. China now accounts for 13% of its 552 company-operated stores.
Another investment firm that likes what Lululemon is up to is BofA Securities. Analysts Lorraine Hutchinson and Christopher Nardone have a Buy rating on LULU and a $420 price target.
The retailer recently trimmed its fourth-quarter outlook, citing omicron-related headwinds. However, Hutchinson and Nardone said the slight reduction in the fourth-quarter forecast will “prove to be transitory.”
And while the stock is trading at an elevated 35.6 times forward earnings, the analysts believe the premium “is justified given LULU’s relatively stronger growth prospects including a productive U.S. rollout, rapid e-commerce growth and international expansion.”
Hutchinson and Nardone see many positive catalysts in the year ahead, including a return to the office combined with an ongoing casualization of the workplace, more substantial margins in North America, higher sales in Europe and Asia, and a boost from LULU’s spring 2022 footwear launch.
They estimate LULU’s EPS to be $8.96 (+16.7% YoY), rising to $10.35 in 2023.
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Chipotle Mexican GrillGetty Images
Market value: $39.9 billionDividend yield: N/AAnalysts’ ratings: 16 Strong Buy, 6 Buy, 10 Hold, 0 Sell, 0 Strong SellAnalysts’ consensus recommendation: 1.81 (Buy) Chipotle Mexican Grill (CMG, $1,416.57) CEO Brian Niccol recently discussed several subjects in an interview with Reuters. One of them had to do with farmers and the farming crisis in America.
On the surface, one might not think a big restaurant chain like Chipotle has to worry about farmers on the front line of food production, but as Niccol told Reuters, it’s essential if the restaurant chain is to thrive.
“We love the idea of supporting small farmers. We want to stay committed to food with integrity and that means responsibly raised animals and organic produce,” he said in the Dec. 28 report.
“We need small farmers, and we are committed to buying from them. We also invest in them and give them tools to provide food at scale. This is constantly on our minds, and we hold ourselves accountable.”
After all, if you don’t have food to serve your customers, you can’t operate a restaurant. As a result, CMG focuses on entering into long-term contracts with its farmer suppliers. It also provides grants for younger farmers to get their businesses up and running.
This attention to detail from Niccol and Chipotle is a big reason the chain continues to grow.
Wedbush Securities analysts believes that the market share CMG grabbed during the pandemic will remain once COVID-19 is no longer an issue of everyday life. As a result, they have an Outperform rating and a $2,000 target price on the stock.
“Given that as of Q3, only 80% of CMG’s dine-in capacity was back, and the recent positive commentary from peers with significant urban exposure, we are not surprised that continued dine-in improvement remains a near-term tailwind,” the analysts write. They point to steadfast digital orders, brand loyalty and pricing pressures as additional positives for Chipotle.
What makes CMG one of the best growth stocks to buy for 2022? The company expects to increase revenue by 42% from $6.0 billion in 2020 to $8.5 billion in 2022. On the bottom line, Chipotle expects to grow EPS by 167% from $10.73 a share in 2020 to $28.65 in 2022.
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LVMHGetty Images
Market value: $387.9 billionDividend yield: 1.0%Analysts’ ratings: 17 Strong Buy, 8 Buy, 2 Hold, 0 Sell, 2 Strong SellAnalysts’ consensus recommendation: 1.69 (Buy) LVMH (LVMUY, $153.38) owns more than 75 prestigious brands, including Louis Vuitton, Dom Perignon, Hennessey, Benefit Cosmetics, Guerlain, TAG Heuer, Tiffany and Sephora.
CEO Bernard Arnault’s 37-year journey to build a luxury dynamo started in 1984 with his family’s $15 million investment to buy a bankrupt French holding company that just happened to own Christian Dior among its many assets.
The rest, as they say, is history.
In the first nine months of 2021 through Sept. 30, LVMH’s revenues grew 40% to 44.2 billion euros ($50.2 billion). Revenues were up 11% year-over-year. Compared to 2019, revenues increased by 11%. All five of its operating segments had double-digit growth. Its Fashion & Leather Goods segment, which accounts for 48% of its revenue, saw sales increase by 57% over the same period in 2020 and 38% from 2019.
The business was so profitable that it generated free cash flow of 15.6 billion euros ($17.7 billion) in the trailing 12 months ended Sept. 30. That’s a 28% FCF margin – higher than Apple’s over the past 12 months.
UBS (Buy) predicts that LVMH will grow its top line by 33% over the next four years, from an estimated 63.2 billion euros ($71.7 billion) in 2021 to 83.8 billion euros ($95.1 billion). Net profits are expected to rise even more, by 38%, over the same period.
“LVMH continues to be one of our top picks in the sector, we believe offering investors market share gains in the attractive luxury goods market, further upside potential from its balance sheet optionality, and a play on a cyclical recovery among the divisions most impacted by the pandemic,” UBS analysts say.
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The Trade DeskGetty Image
Market value: $33.6 billionDividend yield: N/AAnalysts’ ratings: 12 Strong Buy, 3 Buy, 3 Hold, 0 Sell, 1 Strong SellAnalysts’ consensus recommendation: 1.68 (Buy) The Trade Desk (TTD, $65.33) is in the business of using its programmatic technology to help ad buyers create and manage digital ad campaigns across all formats and channels. Because it doesn’t own any of the content and provides ad buyers with the tools to run successful ad campaigns, it has no conflict of interest.
As a result, it has managed to maintain a 95%-plus retention rate for years, which in turn has led to significant revenue and free cash flow growth.
In the nine months ended Sept. 30, revenues of $800.9 million were up 55% year-over-year. Over the trailing 12 months, revenues of $1.1 billion were 53% higher. FCF of $317 million over the past 12 months were more than double a year ago.
Susquehanna (Positive, equivalent of Buy) has a price target of $115 per share on TTD, implying 76% upside over the next 12 months or so. The research firm believes the company has several significant growth drivers ready to do work in the year ahead.
“We continue to view TTD as a must-own multi-year growth story with several key growth drivers in play, notably [connected TV, particularly in the U.S. and Europe, Middle East and Africa], shopper marketing, international, and [media buying system] Solimar,” Susquehanna analysts say.
These pros predict that all CTV advertising will be will be programmatic in a few years. That’s excellent news for shareholders. As for Solimar, it enables clients to utilize artificial intelligence to make smarter media-buying decisions. Ultimately, the upgrade increases The Trade Desk’s value proposition for clients.
The Trade Desk expects the European CTV market to deliver substantial growth over the next three to four years as this market transitions from linear to streaming.
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AppleGetty Images
Market value: $2.6 trillionDividend yield: 0.5%Analysts’ ratings: 27 Strong Buy, 7 Buy, 7 Hold, 1 Sell, 1 Strong SellAnalysts’ consensus recommendation: 1.65 (Buy)From a consumer standpoint, 2022 is expected to be a busy year for the company, with Apple (AAPL, $161.62) set to launch a refreshed iPhone 14 and some more devices with its internally built semiconductors.
Expect more of the same on the cash-generation front, too. In the trailing 12 months ended Sept. 29, Apple had churned out a whopping $93.0 billion in free cash flow, with a sizable FCF margin of 25.4%.
Apple started the year pushing through the $3 trillion market capitalization mark – it likely will spend the remainder of 2022 trying to recapture that level and start its ascent to $4 trillion. Meanwhile, AAPL has been one of the most impressive mega-cap growth stocks of the past few years, averaging roughly 41% annual returns over the past half-decade.
Many analysts expect this to continue.
Argus Research (Buy) believes that any supply chain issues Apple faces are mitigated by the fact that its sheer size puts it at the front of the line with suppliers.
It also feels that Apple’s ecosystem breeds success.
“The shares are always at risk from the perception that growth could slow as the law of large numbers catches up with Apple,” Argus Research analyst Jim Kelleher says. “The company has mitigated that risk, in our view, with very aggressive shareholder return policies, which will likely remain paramount.
“Despite the company’s growing largesse, we expect institutional investors to continue to demand more aggressive dividend growth and a larger share repurchase plan.”
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RokuGetty Images
Market value: $21.1 billionDividend yield: N/AAnalysts’ ratings: 18 Strong Buy, 3 Buy, 3 Hold, 0 Sell, 2 Strong SellAnalysts’ consensus recommendation: 1.65 (Buy) Roku (ROKU, $157.32) was a big loser in 2021, shedding nearly a third of its value as the broader markets soared. But the video streaming platform is one of our top communication services stocks for 2022, and it’s a popular rebound pick among the analyst crowd.
Cord-cutting isn’t going away. Further, with ad sales expected to grow by 12.9% over the next two years to $755 billion, Roku is ideally positioned to capture a large slice of this growth.
Needham analysts Laura Martin and Dan Medina (Buy) have a $340 price target that implies ROKU shares will rocket 116% higher over the next 12 months. The pair expect Roku’s revenues to jump by 57% across full-year 2021, then 37% in 2022, and 24% in 2023. EPS should more than double from $1.54 per share in 2021 to $3.18 in 2023.
Roku also has a lot of value to advertisers.
“ROKU reported 56 million users in 3Q21 out of 122 million U.S. TV homes, according to Nielsen, or 46%,” Martin and Medina say. “Over the past five years, ROKU has more than tripled its penetration of total U.S. homes, from 16% in 4Q17 (when ROKU came public) to about 50% in 4Q21, by our estimate.
“Since each U.S. home has an average of 2.5 people, Roku devices reach 150 million consumers, which advertisers must access.”
As advertisers become more comfortable advertising through Roku, the average ad spend will increase.
Needham’s team also points out that Roku has very sticky customer engagement, noting that “rapid consumer adoption and very high viewing hours per home each quarter suggest that ROKU’s platform is valuable because it owns the consumer relationship and is a gatekeeper to access to those homes for any company that owns streaming content that collects streaming subscribers or viewers.”
In other words, to get to the end-user, content creators have to go through Roku.
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NvidiaGetty Images
Market value: $582.4 billionDividend yield: 0.1%Analysts’ ratings: 27 Strong Buy, 8 Buy, 6 Hold, 1 Sell, 0 Strong SellAnalysts’ consensus recommendation: 1.55 (Buy)Nvidia (NVDA, $233.72) shareholders enjoyed quite a fine ride in 2021. The stock’s 126% total return (price plus dividends) was more than five times better the Nasdaq Composite’s 22% return.
Now, NVDA is off to a brutal start in 2022, having fallen into correction mode with a 20% drop year-to-date. And yet, the pros believe NVDA is a solid growth stock for 2022 and one of the best long-term buys for growth investors.
Analysts are generally very optimistic about its prospects in 2022 and beyond. For example, a recent Baird research report suggested that investors undervalued its software strategy.
“Omniverse and AI enterprise software are two key initiatives which we think will represent massive incremental revenue layers in future years, while GPU accelerators in servers remain at a very early rate of adoption,” says Baird analyst Tristan Gerra, who rates shares at Outperform.
Over at Oppenheimer (Outperform), Nvidia sales are expected to more than double over the next three fiscal years, to $34.4 billion from an estimated $16.7 billion in 2021. Meanwhile, a 12-month price target of $350 suggests 50% upside for the stock.
“We see several sustained structural tailwinds driving sustained outsized top-line growth: gaming, datacenter/AI accelerators, and autonomous vehicles,” Oppenheimer says. “We believe these factors justify its premium valuation.”
And to tack on another plaudit, Truist Securities calls NVDA one of its two best growth ideas in the semiconductor space for 2022.
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MicrosoftGetty Images
Market value: $2.2 trillionDividend yield: 0.8%Analysts’ ratings: 30 Strong Buy, 14 Buy, 1 Hold, 0 Sell, 0 Strong SellAnalysts’ consensus recommendation: 1.36 (Strong Buy) 2021 was also a bumper year for Microsoft (MSFT, $296.37) – both its business and its stock. Shares delivered a total return of more than 52%, while the company’s cloud division grew like a weed, on pace to generate an annual run rate of $80 billion in 2022.
And if a nearly $20 billion acquisition of Nuance Communications (NUAN) closes sometime in the first quarter of 2022, that should add even more fuel to Microsoft’s fire.
Another recent acquisition could deliver additional growth beyond the cloud. In December, Microsoft announced that it had acquired AT&T’s (T) Xandr ad marketplace for an estimated $1 billion. The company has been busy finding additional revenue sources for its digital advertising business. In Q1 2022, Microsoft’s search and news advertising revenue grew 40% year-over-year, albeit from a low number. A properly managed Xandr should help on this front.
MSFT is mostly firing on all cylinders. Analysts expect this to continue.
“We continue to believe the company is extremely well positioned to generate meaningful upside to all financial metrics and sustain mid to upper-teens FCF growth for several years to come as it gains incremental market share across all aspects of its business,” Stifel analysts say.
Although Azure and Office 365 are its biggest revenue generators, Stifel notes that Bing, Surface and Xbox are building the scale necessary to become more meaningful contributions to its financial picture.
As a shareholder, it’s hard to find fault with its capital allocation model, which includes more than $20 billion annually in dividends and share repurchases.
Given Microsoft’s run in 2021, it’s tempting to consider its shares fully valued. However, UBS suggested that a seemingly high valuation of 35 times its 2022 free cash flow estimate was more than reasonable based on MSFT’s growth potential in the years ahead.
Microsoft might be a multitrillion-dollar juggernaut, but it remains one of the best growth stocks you can find.
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Builders FirstSourceGetty Images
Market value: $13.4 billionDividend yield: N/AAnalysts’ ratings: 9 Strong Buy, 3 Buy, 0 Hold, 0 Sell, 0 Strong SellAnalysts’ consensus recommendation: 1.25 (Strong Buy)Builders FirstSource (BLDR, $69.80) is coming off a transformational year. In January 2021, it merged with BMC Stock Holdings in an all-stock deal that brought together two of the nation’s largest suppliers of building supplies.
Combined, the new Builders FirstSource has more than 550 distribution and manufacturing locations across 40 states, generating revenues of $17.8 billion and free cash flow of $820 million over the trailing 12 months.
The company’s Q3 2021 earnings guided for full-year revenue of at least $19.3 billion and FCF of $1.8 billion.
BLDR made our list of the 12 best industrial stocks to buy in 2022. The company expects to grow revenue by 10% annually over the next four years through 2025 while increasing adjusted EBITDA by 15% per year over the same period.
Analysts love it. Each of the 13 analysts covering the stock who were surveyed by S&P Global Market Intelligence rate BLDR a Buy or Strong Buy, with an average price target of $96.77 – so if their projections hold up, the stock should improve by 39% over the next year or so.
That’s right on target with its 10-year annualized total return of 38.8%, which is 2.5 times better than the S&P 500’s average.
As long as housing construction remains robust, Builders FirstSource should have no problem growing its top and bottom line.