So far, 2023 has been great year for growth stocks. For one, it seems that the Federal Reserve’s rate hiking campaign is approaching its limits. Two, the banking system has started to stumble amid sharply higher interest rates. While this has been rough for bank investors, we’re now seeing a rotation out of financials and back into growth stocks. From here, if inflation starts to come down and interest rates reverse course, we could see a meaningful recovery in growth stocks.
In any case, many growth stocks are priced for attractive returns after steep declines in 2022. In fact. these seven growth stocks, in particular, should offer investors a favorable outlook for the rest of 2023.
Datadog (NASDAQ:DDOG) operates a cloud-based platform that enables firms to manage their monitoring and security functions with just one product.
With Datadog, its clients can monitor and secure their servers, workflows, databases, and other IT hardware from just one application — a stark contrast to traditional systems which are compartmentalized. The company also gets rid of blind spots and vulnerabilities within the enterprise, making it easier to monitor and secure just about everything. As hacking and cyberwarfare are pressing concerns, firms like Datadog should enjoy a strong tailwind in coming years.
Datadog has been one of the industry’s most remarkable success stories. The company has grown revenues from a modest $101 million in 2017 to $1.7 billion in its latest fiscal year. Analysts expect the strong growth to continue, with Datadog set to top $2 billion in sales this year.
Datadog is already profitable, which puts it ahead of many of its peers. DDOG stock is down more than 50% over the past year, making shares a far more reasonable bargain at today’s price.
Visa (NYSE:V) along with Mastercard (NYSE:MA) have a tremendous business model which reliably earns some of the highest EBITDA profit margins of any S&P 500 constituent companies.
What makes Visa’s business model so great is that it doesn’t take credit risk. Rather, the bank that issues a credit card shoulders the risk if a client fails to pay. Visa, by contrast, is paid on transactions. As volumes go up, so do Visa’s profits. With inflation setting in globally, that leads to an increase in Visa’s business as well as average transaction size goes up.
Visa was hampered over the past few years due to the pandemic. It charges much higher fees on international cross-border transactions, which were necessarily limited in recent times. With global travel roaring back, however, Visa’s next leg up should be upon us. Meanwhile, V stock has been flat over the past two years, making for a more attractive entry point today.
Unity Software (U)
Unity Software (NYSE:U) is the operator of a leading graphics engine. Game developers use Unity as the framework for designing video games. All because the company is highly flexible, allowing developers to build a game that will work cross-platform across PC, consoles, mobile, and even augmented and virtual reality.
Reportedly, Mark Zuckerburg wanted to acquire Unity for Meta Platforms (NASDAQ:FB) to be a central piece of Meta’s virtual reality plans. However, that never came to fruition and Unity remains an independent company today.
Analysts expect for Unity to reach profitability in 2023. Better, top-line revenue growth is expected to run nearly 20%/year over the next few years, which is an impressive base for a company that already generates $2 billion per year in annualized revenues. With Meta shares on the rebound, and potential revival of interest in the metaverse or augmented reality could bode well for U stock.
Dutch Bros (BROS)
Dutch Bros (NYSE:BROS) is a small, but rapidly growing coffee chain. The firm is seeking to shake up the industry and take some significant market share from Starbucks (NASDAQ:SBUX).
Starbucks has long dominated the American coffee market. However, the pandemic caused people to reimagine their daily routines. Now, some people may not want to linger at Starbucks stores like they did before. Dutch Bros is well-positioned for this, as it operates small stores that emphasize serving folks quickly rather than being a place to hang out for extended periods.
Dutch Bros has also focused on customer service. It is known for having upbeat personable staff. Given Starbucks’ current issues with labor unions and potential worker strikes, Dutch Bros’ focus on its employees could be a strong feature.
It remains to be seen just how much purchasing power and economic activity the next generation will account for. That said, Dutch Bros looks like an early entrant in the category of growth stocks that will win as Gen Z — aka the “zoomers” — start to make their presence felt in the economy.
Sticking with restaurants, there’s Toast (NYSE:TOST), which offers a cloud-based digital technology platform for restaurants, bars, and other such related types of businesses.
Toast offers its clients a sophisticated point-of-sale (POS) system that handles ordering and payments for restaurants. The company also offers other related products and services such as its mobile order and pay offerings, its kitchen display system, and a management tool that allows restaurants to set and change menus across multiple locations and channels. Within payments, Toast has other features such as a card-reader which enable contactless payments.
Toast has had success in recent years, growing from about $665 million in revenues in 2019 to an estimated $3.5 billion in sales in 2023. The pandemic, in particular, drove a great deal of adoption as restaurants needed to enable contactless payments, digital ordering, and other such features that Toast offers.
Toast is still unprofitable, which can be risky given current market conditions. However, shares have pulled back from $25 to $17 since February. That has TOST stock at a market capitalization of less than $9 billion, which works out to less than three times revenues. That’s not a bad price.
Texas Instruments (TXN)
Texas Instruments (NASDAQ:TXN) is the world’s largest analog semiconductor company. Analog semiconductors are of vital importance, since they can take real-world information, such as climatological observations, and convert them into data that software can utilize.
These analog semiconductors will be vital for many emerging industries and technologies such as connected and self-driving cars, Internet of Things devices, remote monitoring and security, and many other such functions. The analog chips are also less cyclical than other parts of the industry, like memory, since analog feeds into many industrial applications rather than just fast-moving consumer electronics devices.
Texas Instruments’ unceasing focus is on growing its free cash flow generated per share. This has allowed the firm to repurchase large amounts of stock while also giving shareholders generous dividend increases. With TXN stock flat over the past year, shares are at a reasonable 23x forward earnings. That’s a fine price given that Texas Instruments has put up an incredible 20%/year compounded earnings growth rate over the past decade.
Concentrix (NASDAQ:CNXC) is a technology firm which offers data processing and outsourcing services for its clients. It focuses on providing tools for managing customer experiences. These include products which help clients manage customer lifecycles, data analytics, customer experience and design, and so on.
Concentrix has a wide customer base, serving clients across retail, e-commerce, travel, banking, and healthcare, among other industries. Customer experience isn’t the most glamorous vertical for software and outsourcing, but it is vital to making enterprises work over the long-term. As such, Concentrix should enjoy steady and recurring revenue streams.
The company has grown revenues from $2.5 billion in fiscal year 2018 to $6.3 billion last year. Analysts expect the company to continue to grow at a high single digits rate, despite the current industry slowdown, while shares sell for just 10 times forward earnings today.
On the date of publication, Ian Bezek held a long position in U, V, TXN stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.