Fed Chair Jerome Powell might not be ready to give the market what it wants in terms of rate cut rhetoric, but investors are nevertheless betting on a more favorable interest rate environment next year - and that should be good news for some of Wall Street's favorite growth stocks as we head into 2024.
Simply put, growth stocks are like the go-getters of the stock market - they're companies expected to ramp up their sales and earnings faster than the usual market pace. Investors who buy into these names are hoping for outsized capital appreciation in the long run, as these companies typically don't pay out dividends - and in fact, they often rely on debt to help fund their growth, at least in the early years.
Despite the turbulence from inflation and interest rate hikes, 2023 has been a prosperous year for many growth stocks, thanks to high hopes for artificial intelligence (AI)-fueled growth across multiple industries. Heading into the seasonally bullish time of year known as the "Santa Claus Rally," and with a more favorable macro environment on the horizon, now's a great time to pick up some top-rated growth stocks for more upside - like the three we've highlighted here.
ALKS: A Biopharmaceutical Leader That's Reasonably Priced
Alkermes Plc (ALKS) is a biopharmaceutical company diving into treatments for major central nervous system disorders. Along with proprietary products like VIVITROL, ARISTADA, and LYBALVI, they've got candidates in the pipeline like ALKS 2680 for narcolepsy, ALKS 4230 for cancer treatment, and ALKS 3831 for schizophrenia and bipolar disorder. The biopharma firm currently has a market cap of just over $4 billion.
It's been a volatile year for ALKS in 2023, as the shares are down 6.7% to lag the broader equities market. However, one analyst called the stock's recent sell-off on negative trial data an “overreaction,” and ALKS is now attractively valued relative to many of its peers - creating a potential buying opportunity.
The Q3 2023 results from ALKS blew away analyst expectations, with a net income arriving at $47.8 million - which shakes out to $0.64 per share. That's a massive jump from a loss of $158.3 million in the same period last year. They pulled in a whopping 51% more revenue at $380.9 million. Both earnings and revenue for the period comfortably topped consensus estimates.
Looking ahead, Wall Street expects another 46% EPS growth in the next fiscal year.
Analysts are upbeat, with the majority calling ALKS a “moderate buy” based on 11 recommendations. Five rate it a “strong buy,” while six suggest a “hold." The average 12-month target price is $33.33, signaling a potential 37% upside from the current price.
FROG: A Software Powerhouse with a Sticky Customer Base
Sunnyvale-based Jfrog Ltd (FROG) is a software specialist, providing a one-stop-shop platform to handle software binaries throughout their journey in development. Their platform speeds up software app delivery while ensuring top-notch quality, security, and compliance. They're like the Swiss Army knife for developers, ops teams, and security buffs, supporting over 30 programming languages and linking up with more than 300 tools and services like GitHub, AWS, Azure, Docker, and Kubernetes.
The market cap stands at $2.74 billion, with an enterprise value of $2.70 billion.
FROG has outperformed on the charts in 2023, up around 29% - including a massive bull gap in early November, sparked by the company's most recent earnings results.
In the third quarter of 2023, FROG knocked it out of the park financially, topping analyst predictions. Adjusted EPS of $0.15 nearly doubled analysts' expectations, and revenue jumped 35% to a stronger-than-forecast $88.6 million, thanks to stronger subscription revenue and an expanding customer base.
Analysts seem pretty upbeat about FROG, with the consensus leaning towards a “moderate buy” based on recommendations from 14 analysts. Nine advocate a “strong buy,” one suggests a “moderate buy,” and four recommend “hold.”
The average price target is $32.83, suggesting a potential 18.8% upside from the current price.
FOUR: A Payment Innovator with Strong Growth Momentum
Shift4 Payments Inc (FOUR) simplifies payments for businesses, offering a slick fintech platform that handles payments, business management, and revenue optimization. They cover it all, from cards to digital wallets, online banking, and QR codes. Their reach extends to over 200,000 merchants in the hospitality, retail, e-commerce, and gaming industries.
FOUR's had a strong run in 2023, scoring about an 18% gain so far this year to keep pace with the broader market. The stock swung between a high of $76.40 and a low of $42.79 before settling at $63.64.
In Q3 2023, FOUR showed off some serious financial muscle, beating analysts' bottom-line predictions - even as revenue missed the mark. Net income jumped to $0.82 per share, on an adjusted basis, compared to estimates of $0.70. Revenue spiked by 51% to $675.4 million, powered by a surge in payment volume and merchant numbers, but Wall Street was looking for $701 million.
Looking ahead, FOUR raised its full-year EBITDA forecast to a range between $456 million and $464 million, up from the prior guidance of $435 million to 460 million.
Analysts seem pretty hyped about FOUR, giving it a “strong buy” consensus based on recommendations from 18 analysts. Fifteen call it a “strong buy,” two suggest a “moderate buy,” and one leans toward “hold.” The average target price is $76.42, signaling a potential 14.5% upside from the current price.
