Looking for the best growth stocks to buy will take much more scrutiny in the current market environment. I wrote a column on Dec. 31, 2022 about 25 tech stocks to “buy before they take off in 2023.” Almost all of them have rallied and are up substantially since they changed hands for peanuts back then. However, the situation now is very different after the rally this year, and most growth stocks do not provide compelling entry points.
This does not mean that investors should shun all growth names. There are still high-quality growth stocks with excellent long-term potential, and jumping on board is a good idea no matter the market conditions. Of course, one may say there are risks of a recession, a debt default, etc. But there will always be some hubbub, and it’s not the best idea to always put too much thought into the worst-case scenarios.
For example, investors who feared the worst in the summer of 2022 and closed their positions on a loss likely regret that decision now. No one has a crystal ball, and trying to avoid near-term losses will likely lead to losing out on future gains. That’s why most well-respected investors have made their fortunes through time in the market, not timing. Naturally, blindly buying does not apply to all growth stocks, and I will not include stocks with price targets too low from the current price point.
That said, let’s look at the 25 best growth stocks to buy for the next five years in no particular order:
Alphabet (GOOG, GOOGL)
Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) has repeatedly proven that it can continue competing in all sectors and catch up with new trends. The ad market slowdown since mid-2022 and then OpenAI’s ChatGPT integration with Bing caused panic about Google’s future, and the company did make a blunder by rushing Bard.
However, it has since improved on Bard, and the chatbot is now a serious contender to ChatGPT. It is trained on a larger dataset and can theoretically perform more tasks.
In addition, the initial hype surrounding Bing seems to be nothing more than a fad. Google’s search engine market share has only grown while Bing’s has declined.
Alphabet’s ad revenue still lags behind but that will eventually recover in the long run. Thus, I see GOOG as a strong buy at this level.
Things are only looking up for Microsoft (NASDAQ:MSFT) as the company fires on all cylinders. Microsoft is chipping away at the businesses of other tech giants and is looking to expand and threaten others. For example, Azure has grown to become a major AWS competitor, while Bing has kept Google tense. It is also spearheading development in AI with its investments in OpenAI.
Microsoft is also investing massively in quantum computing, gaming and mixed reality, all of which are high-growth segments that could propel MSFT stock.
Another reason why I like Microsoft is its strength in its core business. The company’s flagship products, such as Windows, Office and Azure, are still generating solid revenue and profit growth. These products are essential for millions of businesses and consumers worldwide, and they create a loyal ecosystem that drives recurring revenue and cross-selling opportunities.
Apple (NASDAQ:AAPL) is nearing its all-time high with the current rally, as the company has done exceptionally well compared to other tech giants in recent years and has not enacted mass layoffs. The performance of Apple is a testament to its pricing power, specifically regarding iPhones, which represented 52% of its Q2 sales.
Sure, revenues may have declined in the near term, and earnings per share growth has been flat. But personally, AAPL is a long-term bet from any entry point.
Warren Buffett hits the nail on the head, saying, “If you’re an Apple user and somebody offers you $10,000, but the only proviso is they’ll take away your iPhone and you’ll never be able to buy another, you’re not going to take it. If they tell you if you buy another Ford car, they’ll give you $10,000 not to do that, you’ll take the $10,000 and you’ll buy a Chevy instead.”
Adobe (NASDAQ:ADBE) is a leading software company that is mostly known for its products, such as Photoshop, Premiere, and After Effects. The flagship product Photoshop is a must for graphics designers worldwide, and it recently introduced AI into the mix. The AI buzzword can catalyize massive growth in the future.
ADBE stock currently trades around the same price as it did during the pre-pandemic period. It is a cash-generating company, which is a rarity regarding tech companies that are still growing near a double-digit clip as the business model relies very little on ads.
Adobe’s Q1 revenue stood at $4.66 billion, of which digital media represented $3.40 billion, while the digital experiences segment bought in $1.18 billion. These are subscriptions that are recurring and sticky sources of revenue for the company, and I believe the underlying strength makes it one of the best growth stocks to buy. According to GuruFocus, a fair value here would be $800 by 2025.
Luminar (LAZR), Ouster (OUST)
Luminar Technologies (NASDAQ:LAZR) is a stock I’ve been heavily bullish on for the past few weeks, and my recent articles have reflected my faith in this company. It makes little sense why LAZR should be changing hands at this price range.
As I’ve noted before:
“… [T]here may be losses, but these losses are tolerable and normal for a startup that is growing at this pace. The company’s management also sees more than $300 million in liquidity by the end of this year, along with a positive gross margin. By the end of 2025, Luminar Technologies expects to break even, and Luminar’s growth performance should be enough to take on additional debt if needed.
… [T]here is a strong possibility of the stock delivering multibagger gains once Wall Street is more comfortable with growth-at-any-cost companies like Luminar, especially when triple-digit growth is expected for at least the next five years. The environment is unlikely to remain tough forever. In cases like this, sacrificing short-term profitability to capture more of the market for the long-run is a good move for startups that can pull off strong sales growth.”
The growth here is simply astounding. Luminar expects to expand sales by 32x in the next five years. I’m confident that this goal is within reach since LiDAR technology is superior to what self-driving cars currently use. With profits and a triple-digit revenue growth rate, once it breaks even in 2025, this company will be valued much higher. The electric vehicle trend will also only accelerate by then.
Then there is Ouster (NYSE:OUST). The LiDAR company was bleeding in the stock market, but investors seem to be realizing the potential here. OUST is up nearly 90% from its trough in the past month alone. I believe a correction is going to happen, but the long-term potential is similar to LAZR. Investors should load up on LAZR for now, but I recommend snapping up OUST near the $5 range.
The Q1 revenue growth for Ouster is also in the triple digits. It expects similar growth in Q2 as well.
Netflix (NASDAQ:NFLX) has nearly doubled since its trough back in mid-2021, and buying the stock before NFLX appreciates more is a good decision. NFLX is a surefire growth stock for the next five years and it is yet to reach its fair price.
I called the stock one of the best buying opportunities back in October 2022. So far, the rally has been extraordinary, and catalysts like its password-sharing ban and rolling in ads on the platform will continue to boost its bottom line. It had 232.5 million subscribers in Q1 2023, and I expect that to balloon going forward.
As for the valuation, I agree that you should not go overweight on NFLX right now. Many other growth stocks are offering better value with higher growth.
Unity (U), Tencent (TCEHY)
Unity (NYSE:U) and Tencent (OTCMKTS:TCEHY) don’t usually go together as they’re different companies in different countries with very different business models. However, I believe both share the same catalyst for growth, which will be the growing impact of Gen Z and Gen Alpha in the coming years.
Unity and Tencent both benefit from the expansion of the video game industry, which has slumped recently. Unity’s business model works by selling subscriptions to its video game development engine, which is the leading choice for developers. Unlike many other tech companies, Unity’s subscription model keeps it well-insulated from sales declining. Sales growth has accelerated to 56.25% YOY in Q1, and analysts believe it will finish 2023 with 54.8% revenue growth YOY.
On the other hand, Tencent is the largest video game publisher and has stakes in major gaming companies. Still, online games pulled in only around 31% of its revenue, with segments like e-commerce driving more sales growth. Tencent’s ad revenue and revenue from the gaming segment had a rebound this year.
Thus, gaming isn’t the only thing that makes me optimistic about TCEHY stock. The company has diversified into many promising businesses, and I am confident it will continue to be successful in the next five years. GuruFocus believes $90 would be a fair price by 2026. Leo Sun from The Motley Fool believes Tencent’s revenue will surpass $1 trillion in the next five years. If that happens, the stock price would double, given the current price-to-sales ratio.
Upstart (UPST), PayPal (PYPL), Block (SQ)
The big payment platforms like PayPal (NASDAQ:PYPL) and Block (NYSE:SQ), along with AI-based lending platform Upstart (NASDAQ:UPST), also have very compelling entry points right now. Both PayPal and Block are substantially down from their pre-pandemic prices despite increasing their global foothold. I believe a strong rally ahead is certain.
I do not see either PYPL or SQ down at this range, and I strongly recommend that investors snap up the stocks and remain patient. The one-year average analyst price target for PYPL will provide 63% upside and 46% for SQ.
In five years, I share my view with GuruFocus that a fair price would be $300 or more for both PYPL and SQ if the growth trajectory here remains consistent.
As for Upstart, I see that as very undervalued too. The platform and the business model are solid and have outperformed traditional methods for calculating credit risk. However, banks are not in a position right now to experiment with AI and new technology while the sector risks a slump. But once the economy improves and banks feel comfortable lending through Upstart again, I expect UPST to surge.
Roku (NASDAQ:ROKU) is a leading platform for streaming entertainment in the U.S. and abroad. The company offers a range of devices and software that allow users to access thousands of streaming channels — The Roku Channel features live and on-demand content from hundreds of partners.
Roku has a strong competitive advantage in the streaming industry, as it benefits from both the growth of streaming services and the cord-cutting trend. Roku’s platform is also agnostic to the content providers, meaning it can offer users the most comprehensive and diverse selection of streaming options.
However, Roku’s financial performance has been stagnant so far. In Q1 2023, Roku reported revenue of $741 million, almost unchanged YOY. The company also reported $193.6 million in losses.
With the bad outlook, Roku’s stock has been under pressure lately, and the market seems to be concerned about the increasing competition in the streaming space and the potential slowdown in growth.
Regardless, the near-term headwinds here shouldn’t deter you from dipping your toes into ROKU stock. The advertising industry has been struggling, and that makes up a large chunk of Roku’s sales. Once the ad market returns to its normal growth trajectory, I see ROKU stock going for at least $160 or more by 2025. Thus, ROKU is a top pick among growth stocks to buy.
Nike (NKE) and Crocs (CROX)
Nike (NYSE:NKE) hasn’t fared as well as Crocs (NASDAQ:CROX) in the stock market. Near-term headwinds here have been stronger. Its earnings for the company’s third quarter, which ended in February, surpassed revenue and profit estimates. However, high inventory levels are causing concerns, and Nike is reducing its margins to eliminate the excess inventory.
Still, the bigger picture looks excellent. Q1 revenue is up almost 20% on a constant-currency basis.
Going forward, Nike has to maintain consistency. I believe it can easily surpass the current price of $107 when it rebounds from the trough. But we are talking about the next five years, and NKE is a buy hand over fist at this range if you hold for that long.
Meanwhile, it would be difficult to pinpoint anything bad about Crocs. The business has seen tremendous growth in the past few years, and the stock has rallied over 211% from trough to peak before its current cool-off. I recommended this stock as a buy exactly one year ago. It no longer offers the deep value it did back then, but I strongly believe that CROX investors will not be disappointed in the next five years.
Amazon (AMZN), Shopify (SHOP), Sea (SE)
Amazon (NASDAQ:AMZN), Shopify (NYSE:SHOP) and Sea (NYSE:SE) are e-commerce companies that have seen strong growth during the pandemic but have subsequently plunged back to pre-pandemic levels. Both AMZN and SHOP have been steadily recovering, but SE is yet to deliver a sustained rally.
I strongly believe that e-commerce is the future, no matter the recent slowdown. The sector had unnaturally strong growth during the pandemic. It is only natural that e-commerce sales readjust.
I see substantial rallies here once these e-commerce companies start delivering strong growth again. Out of the three, SE has higher upside potential from the current price point as it focuses on developing markets in Southeast Asia and is still in its growth phase. The average analyst’s one-year price target for SE implies 75% upside potential. I would hold off on buying Shopify until there is some sort of a cooldown. But I still think it will perform great for the next five years.
As for Amazon, its cloud sector is already catalyzing growth despite the e-commerce slump and its heavy investments in AI could also catalyze growth in a few years. Simply put, all three are great growth stocks to buy. Especially for the next five years.
Spotify (NYSE:SPOT) has rallied considerably since my last round up of tech stocks, up by more than 87%. Indeed, it is at levels where I would start taking profits if I bought it back at the trough last year, as there’s more downside risk here for the short term. Nevertheless, we’re talking about the best growth stocks to buy for the next five years. That list would be incomplete without Spotify, which has considerable upside potential within that timeframe, even from the current price point.
The correction of the U.S. dollar in recent months has helped Spotify get its financials back on track. As of its Q1 report, revenue grew by 14% YOY, and the platform expanded its monthly active user count by 22% to 515 million users, while premium subscribers grew by 15% YOY to 210 million.
That’s great, but Spotify must consistently increase its ARPU. Its premium ARPU is still near the Q1 2022 range, which isn’t too different from the ARPU back in 2020. In fact, Spotify makes much less per user now than it did back in 2015. Its ARPU was 6.82 euros then, and it is now just 4.52. In five years’ time, it is possible to increase its ARPU back to that level and fully exploit the rapidly growing user base. Thus, it is one of the best growth stocks to buy in my book.
HubSpot (HUBS), The Trade Desk (TTD)
HubSpot (NYSE:HUBS) and Trade Desk (NASDAQ:TTD) are software companies that provide customer relationship management ( ) and digital advertising solutions, respectively. They are similar in that they both operate in the fast-growing cloud-based software industry and target mid-market enterprises as their main customers. They also have similar growth trajectories, as they both have been increasing their revenue at a high rate (26.8% and 21.4% YOY, respectively).
Still, HUBS and TTD have been hot this year and no longer offer the value they used to. The average analyst price targets for both stocks do not go over 10%, and holding off until a small correction is a good idea. If you are looking to buy for a five-year timeframe, though, these two are surefire growth stocks to buy that won’t disappoint.
Teladoc (NYSE:TDOC) continues languishing at levels where it is a no-brainer buy. If value is your thing, it is one of the top growth stocks, trading at just 1.8 times sales, much lower than its historical 9.37 times.
Teladoc’s top line grew by 11% YOY in Q1 and had $888.6 million in cash, enough to comfortably insulate the company until the storm passes. It also needs to work on the BetterHelp segment more to acquire customers and boost the overall business.
But there is still one caveat I would consider before going heavy on the stock. We are talking about a five-year timeframe, and with AI coming into play in the healthcare sector, this could become a serious issue for Teladoc. It was only back in 2018 that OpenAI introduced GPT-1 with 117 million parameters. It released GPT-4 this year with 170 trillion parameters. If AI development stays consistent, it could threaten Teladoc’s business model.
But that’s also one reason I think the company’s BetterHelp segment is promising. It would be almost impossible for AI to hurt face-to-face counseling and therapy services, and the addressable market here is huge. That’s why I consider it one of the top growth stocks to buy.
Enphase Energy (ENPH), ChargePoint (CHPT), EVgo (EVGO)
Enphase Energy (NASDAQ:ENPH), ChargePoint (NYSE:CHPT) and EVgo (NASDAQ:EVGO) are three companies that I believe are among the top growth stocks to buy that will benefit from the ongoing electrification of vehicles. I believe electric vehicles are yet to fully take off, and with added subsidies and investments, the next five years could see tremendous growth for EV-related businesses.
One big problem with this shift to electric vehicles is that there is not nearly enough infrastructure in place to support the boom in EVs. Less than 1% of U.S. vehicles are electric, already causing problems regarding chips, lithium, and charging infrastructure.
Even by just 2025, there could be 7.8 million electric vehicles on the road, according to S&P Global.
“To support that vehicle population, we expect there will need to be about 700,000 Level 2 and 70,000 Level 3 chargers deployed, including both public and restricted-use facilities. By 2027, we expect there will be a need for about 1.2 million Level 2 chargers and 109,000 Level 3 chargers deployed nationally. Looking further to 2030, with the assumption of 28.3 million units EVs on US roads, an estimated total of 2.13 million Level 2 and 172,000 Level 3 public chargers will be required – all in addition to the units that consumers put in their own garages.”
The U.S. currently has 20,431 Level 3 chargers. Thus, both EVgo and ChargePoint have a lot more room for growth in the next five years. And despite their elevated valuation, I expect them to appreciate substantially in the long run. As for Enphase Energy, it is not a charging pure-play company, but I believe it will return similar, if not higher, gains from its current trough.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.