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Bank of America’s Best Growth Stocks of 2023
| Company | Forward Sales Growth Next Year |
|---|---|
| Amazon (AMZN) | +11.6% |
| Constellation Energy (CEG) | -3.2% |
| Chipotle Mexican Grill (CMG) | +13.0% |
| Alphabet (GOOG, GOOGL) | +11.2% |
| Eli Lilly (LLY) | +19.2% |
| Match (MTCH) | +11.6% |
| Progressive (PGR) | +13.0% |
| SolarEdge Technologies (SEDG) | +22.3% |
| T-Mobile (TMUS) | +3.5% |
| United Rentals (URI) | +4.5% |
Amazon (AMZN)
Trailing 5-Year Avg. Annual Sales Growth
+22.1%
Forward Sales Growth Next Year
+11.6%
Return on Equity
+2.8%
Trailing 5-Year Avg. Annual Sales Growth
+22.1%
Forward Sales Growth Next Year
+11.6%
Return on Equity
+2.8%
Why We Picked It
Amazon is the market leader in e-commerce and cloud services. The firm’s revenue growth slowed to just 9% in 2022, but Bank of America analyst Justin Post projects steady 9.2% revenue growth in 2023 and a reacceleration to 13.9% growth in 2024.
Post says Amazon Web Services (AWS) cloud sales are particularly susceptible to a slowdown in tech sector spending, which is a big reason AWS sales growth dropped to just 20% in the fourth quarter. In the long-term, Post says AWS will remain an attractive growth driver.
Bank of America has a “buy” rating and $135 price target for AMZN stock.
Constellation Energy (CEG)
Trailing 5-Year Avg. Annual Sales Growth
n/a
Forward Sales Growth Next Year
-3.2%
Return on Equity
-1.6%
Trailing 5-Year Avg. Annual Sales Growth
n/a
Forward Sales Growth Next Year
-3.2%
Return on Equity
-1.6%
Why We Picked It
Constellation Energy operates the largest U.S. nuclear fleet and generates carbon-free electricity in the U.S. and Canada.
The utility sector is certainly not known for its growth stocks, but Constellation shares are up 54% in the past year. Constellation generated 26.5% revenue growth in 2022, and EPS was up more than 365% on the year.
Bank of America analyst Paul Zimbardo says Constellation has an attractive free cash flow profile, but the stock may take a breather in the medium-term after its strong run.
Bank of America has a “neutral” rating and $88 price target for CEG stock.
Chipotle Mexican Grill (CMG)
Trailing 5-Year Avg. Annual Sales Growth
Forward Sales Growth Next Year
+13.0%
Return on Equity
+41.6%
Trailing 5-Year Avg. Annual Sales Growth
+14.5%
Forward Sales Growth Next Year
+13.0%
Return on Equity
+41.6%
Why We Picked It
Chipotle Mexican Grill operates more than 3,000 fast casual Mexican restaurants in the U.S., Canada and Europe. Chipotle recently reported January 2023 same-store sales in the low-double-digits and guided for first-quarter same-store sales growth in the high-single-digits.
Bank of America analyst Sara Senatore says Chipotle is focusing on several improvements to its operating efficiency, including prioritizing fewer menu deactivations and staffing shortages, as well as improving its on-time digital order percentage. In addition, Senatore says menu innovation and loyalty program membership are growth drivers in 2023.
Bank of America has a “buy” rating and $1,850 price target for CMG stock.
Alphabet (GOOG, GOOGL)
Trailing 5-Year Avg. Annual Sales Growth
+19.4%
Forward Sales Growth Next Year
+11.2%
Return on Equity
+22.5%
Trailing 5-Year Avg. Annual Sales Growth
+19.4%
Forward Sales Growth Next Year
+11.2%
Return on Equity
+22.5%
Why We Picked It
Alphabet is a global leader in online advertising and search and is the parent company of Google, YouTube and Google Cloud.
Alphabet’s revenue growth slowed to just 10.3% in 2022, and Post projects revenue growth will continue to slow to 7% in 2023 before rebounding in 2024 and beyond.
Alphabet has recently battled negative investor sentiment following the integration of OpenAI’s ChatGPT program into the Microsoft (MSFT) Bing search engine, but Post says a recent surge in Bing mobile downloads has not hurt Google’s download numbers.
Bank of America has a “buy” rating and $125 price target for GOOGL stock.
Eli Lilly (LLY)
Trailing 5-Year Avg. Annual Sales Growth
+3.5%
Forward Sales Growth Next Year
+19.2%
Return on Equity
+50.8%
Trailing 5-Year Avg. Annual Sales Growth
+3.5%
Forward Sales Growth Next Year
+19.2%
Return on Equity
+50.8%
Why We Picked It
Eli Lilly is a pharmaceutical company that produces brand-name prescription drugs to treat a wide range of conditions, including diabetes, neurological disorders and cancer.
Bank of America analyst Geoff Meacham says the large-scale launch of type 2 diabetes drug Mounjaro will be the key focus for Eli Lilly investors in coming months. Meacham projects 8.5% revenue growth in 2023.
Additional 2023 launches of Jaypirca for treating mantle cell lymphoma, mirikizumab for treating ulcerative colitis and lebrikizumab for treating atopic dermatitis also highlight Eli Lilly’s strong late-stage drug pipeline.
Bank of America has a “buy” rating and $390 price target for LLY stock.
Match (MTCH)
Trailing 5-Year Avg. Annual Sales Growth
-2.1%
Forward Sales Growth Next Year
+11.6%
Return on Equity
-90.3%
Trailing 5-Year Avg. Annual Sales Growth
-2.1%
Forward Sales Growth Next Year
+11.6%
Return on Equity
-90.3%
Why We Picked It
Match is a market leader in online dating and is the owner of several popular dating platforms, including Tinder, Hinge and OkCupid.
Flat year-over-year growth in Tinder revenue in the fourth quarter suggests the Tinder team is now paying the price for “resting on its laurels” in the past several years, says Bank of America analyst Nat Schindler. However, he also says Tinder’s recent struggles are not indicative of a systemic problem, and aggressive product launches and a new marketing campaign should help rekindle Tinder’s growth and profitability.
Bank of America has a “buy” rating and $66 price target for MTCH stock.
Progressive (PGR)
Trailing 5-Year Avg. Annual Sales Growth
+13.3%
Forward Sales Growth Next Year
+13.0%
Return on Equity
+4.9%
Trailing 5-Year Avg. Annual Sales Growth
+13.3%
Forward Sales Growth Next Year
+13.0%
Return on Equity
+4.9%
Why We Picked It
Progressive is one of the largest U.S. auto insurance companies and is a market leader in both motorcycle insurance and commercial auto insurance.
Bank of America analyst Joshua Shanker says Progressive’s Personal Lines segment loss ratio improved by 3% year-over-year in the fourth quarter of 2022. In addition, Personal Auto policies in force increased by 69,000 on a monthly basis in December.
Shanker says that strength is particularly impressive when compared to poor auto results from Progressive’s competitors. He projects 21.5% revenue growth in 2023.
Bank of America has a “buy” rating and $174 price target for PGR stock.
SolarEdge Technologies (SEDG)
Trailing 5-Year Avg. Annual Sales Growth
+37.1%
Forward Sales Growth Next Year
+22.3%
Return on Equity
+8.5%
Trailing 5-Year Avg. Annual Sales Growth
+37.1%
Forward Sales Growth Next Year
+22.3%
Return on Equity
+8.5%
Why We Picked It
SolarEdge Technologies produces and sells direct current (DC) optimized inverter systems for solar photovoltaic installations.
Many investors see green energy as a secular growth trend. In addition, the 2022 Inflation Reduction Act extended the 30% residential solar Investment Tax Credit (ITC) through 2032, a major tailwind for the solar industry.
Bank of America analyst Julien Dumoulin-Smith says SolarEdge has opportunities to grow its margins as its Mexico facility ramps up production. Dumoulin-Smith projects impressive 58.2% revenue growth and 126.3% EPS growth in 2023.
Bank of America has a “buy” rating and $393 price target for SEDG stock.
T-Mobile (TMUS)
Trailing 5-Year Avg. Annual Sales Growth
+13.8%
Forward Sales Growth Next Year
+3.5%
Return on Equity
5.7%
Trailing 5-Year Avg. Annual Sales Growth
+13.8%
Forward Sales Growth Next Year
+3.5%
Return on Equity
5.7%
Why We Picked It
T-Mobile is the third largest U.S. wireless carrier, and Bank of America projects the company will average 44.9% EPS growth over the next five years.
Bank of America analyst David Barden says T-Mobile is positioned to generate sustained subscriber growth, average revenue per user (ARPU) growth, free cash flow growth and EPS growth in 2023 and beyond.
T-Mobile is one of two stocks that are currently included on both Bank of America’s Growth 10 list of top growth stocks and its Value 10 list of the best value stocks.
Bank of America has a “buy” rating and $175 price target for TMUS stock.
United Rentals (URI)
Trailing 5-Year Avg. Annual Sales Growth
+12.1%
Forward Sales Growth Next Year
+4.5%
Return on Equity
+30.7%
Trailing 5-Year Avg. Annual Sales Growth
+12.1%
Forward Sales Growth Next Year
+4.5%
Return on Equity
+30.7%
Why We Picked It
United Rentals is the world’s largest construction and industrial equipment rental company. Bank of America analyst Michael Feniger says the outlook for construction, manufacturing and infrastructure spending is solid, even in an uncertain macroeconomic environment.
In January, United implemented its first ever dividend, a potential indicator of the confidence management has in the company’s project pipeline and growth outlook following the passage of 2021’s Bipartisan Infrastructure Deal.
In fact, United is the only stock other than T-Mobile that’s included in both Bank of America’s Growth 10 list and its Value 10 list.
Bank of America has a “buy” rating and $450 price target for URI stock.
*All analysis and commentary is sourced from Bank of America Securities. Other data is sourced from StockRover, current as of June 2, 2023.
Methodology
Bank of America has been maintaining its Growth 10 list since 1999. The firm chooses list members based on the following four criteria:
- Companies included in the list must have a Bank of America vs. Consensus Earnings Surprise Rating of “1,” suggesting near-term earning upside relative to consensus Wall Street estimates.
- They must have a “buy” rating from Bank of America analysts.
- Members must maintain a “1” or “2” BofA vs. Consensus Earnings Surprise Rating for at least 10 months.
- Among the stocks that meet the first three criteria, the 10 stocks with the highest five-year projected earnings growth rate are chosen for the list.
To learn more about our rating and review methodology and editorial process, check out our guide on How Forbes Advisor Rates Investing Products.
The stocks highlighted on this list are sourced from industry analysts, but they may not be a perfect fit for your portfolio. Before you decide to purchase any of these stocks, do plenty of research to ensure they are aligned with your financial goals and risk tolerance.
What Are Growth Stocks?
Growth stocks are public companies that are growing their profits, revenue or cash flow at rates well above their competitors and the market at large. Investors choose growth stocks to earn profits from the rapid price appreciation they promise.
Generally growth stocks are smaller, newer companies that are disrupting their industries. They tend to offer unique services and products, and frequently develop novel technologies or intellectual property that puts them ahead of their competitors.
By and large, growth companies reinvest their earnings and take on debt to expand rapidly. They are constantly ramping up production, acquiring other businesses and hiring lots of new employees to grow their businesses quickly.
What Is Growth Investing?
Growth investing is a strategy that involves identifying stocks to buy based on the long-term expansion potential of their underlying businesses.
Growth investors prioritize a company’s future potential over its current business metrics or fundamental market valuation. Growth investing is generally considered a more offensive investment style than value investing. Growth stocks have historically performed better during periods when interest rates are low or falling and corporate earnings are growing.
Growth investors are often willing to buy stocks with high price-to-earnings ratios (P/E ratio) or price-to-sales ratios based on the expectation that the companies will eventually grow into and beyond their current valuation. Growth stocks tend to be more volatile than the broader market, and investors often sell growth stocks during periods of uncertainty in the market.
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Risks of Growth Investing
Because most growth stocks price in expectations for future growth, they tend to trade at high valuations relative to their current businesses.
If a growth stock’s price already factors in expectations for strong future growth numbers, even revenue growth that would otherwise impress Wall Street can disappoint growth stock investors and lead to a sell-off. If a growth stock shows signs of slowing or stagnating growth, growth investors can exit a stock all at once, triggering a steep decline.
Growth stocks are also particularly sensitive to rising interest rates. Discounted cash flow models are commonly used by fund managers who value future cash flows lower when the discounted interest rate is higher. In other words, the lower the discount rate, the higher future cash flows are valued today.
Growth vs. Value Stocks
Value stocks are public companies that investors and analysts believe are underpriced based on their current business metrics. Growth stocks are companies that investors believe will deliver better-than-average returns in the future.
Value stocks are typically considered low-risk, low-volatility investments, whereas growth stocks are higher-risk stocks with the potential for much larger upside over time.
Growth stocks may be overvalued based on current market prices but are expected to grow and exceed their current valuation. Value stocks are considered to be undervalued at current market prices.
Generally, value stocks feature attractive fundamental metrics, such as low price-to-earnings (P/E) and price-to-sales ratios (P/S). Growth stocks often have relatively high P/E and P/S ratios. Value stocks often have profitable businesses and pay relatively high dividend yields. Many growth stocks are unprofitable and pay no dividends.
Growth Stock FAQs
How do you find growth stocks?
When screening for growth stocks, investors look at the following metrics:
• Revenue growth. Growth stocks should be seeing rapid expansion in sales. Consider both backwards looking reported sales growth in addition to forward-looking analyst expectations for future sales growth.
• Earnings growth. Like with revenue, growth stocks should be demonstrating strong profit growth
• Share price gains. Rapid earnings and sales growth provide a strong foundation for stock performance that outpaces peers.
• Sustainable debt load. Growth companies with too much debt can run into trouble and run out of growth. High debt loads are not in and of themselves a bad thing, but a growth company needs to maintain a sustainable level of debt.
Most importantly, growth stocks are companies that offer products or services that truly change the way people live their lives.
How do you value growth stocks?
Investors use fundamental analysis and financial ratios to uncover a growth stock’s intrinsic value and compare it to the current market price. This can help them determine whether a growth stock is overvalued or undervalued.
Not all growth stocks are good deals. Overvalued growth stocks can decline in value until they reach a price that reflects their fundamentals—avoiding these growth stocks is key.
Why do growth stocks underperform when interest rates rise?
Rising interest rates make it more expensive for growth stocks to borrow money to fund their rapid expansion of sales and earnings.
In addition, higher interest rates make future cash flows less valuable. That means that when interest rates rise, future earning growth becomes less valuable in today’s dollars because they must be discounted at a higher rate.
When will growth stocks recover?
The Federal Reserve is committed to raising interest rates until U.S. inflation begins to cool off. That’s bad news for growth stocks, which suffer in a rising rate environment.
Growth stocks may recover when the Fed achieves its mission to tame inflation and stops hiking interest rates. But even then, higher rates could dampen the prospects of growth stocks for years to come.
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