Growth stocks in the S&P 500 are racing back. And analysts are scrambling to choose their favorites.
Analysts think eight stocks in the S&P 500 Pure Growth index, including Moderna, Enphase Energy and Marathon Oil, will gained at least another 35% in the next 12 months, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. The S&P 500 Pure Growth index contains S&P 500 stocks that tilt most toward growth characteristics.
Such huge gains would only add to an impressive 10.7% rally by S&P 500 growth stocks this year so far.
"The 'defensive' trade that worked so well in 2022 has given way to a 'growth-led' market in 2023," says Bespoke Investment Group. "This action can be attributed to the market forecasting the end of the Fed tightening cycle, but it also coincides fairly closely with the introduction of ChatGPT on Nov. 30, 2022."
S&P 500 Growth Outperforms, Morphs
Talk about an about-face with investors. Dividends and value-stocks are out. Growth is in.
Just look at the 10.7% gain this year so far by the SPDR Portfolio S&P 500 Growth ETF. That demolishes the 8% rise by the SPDR S&P 500 ETF Trust and the 3.6% gain by the SPDR Portfolio S&P 500 Value ETF.
Practically overnight, investors are skipping safety and going for the growth gold. "Stock with no or very low dividends are up 10% year-to-date," Bespoke said. "While stocks with the highest dividend yields are solidly in the red."
The Nasdaq 100, chock full of stocks in the more speculative areas of the market, is up 23% this year. "While growth stocks, especially in Tech and Communication Services, have experienced a resurgence in 2023, dividend stocks are in a long winter," Bespoke said.
But which growth stocks are analysts' favorites? Ironically many of them hail from sectors that would have been deemed value just two years ago.
Analysts' Favorite S&P 500 Growth Stocks
Interestingly, none of analysts' favorite growth stocks in the S&P 500 in the next 12 months participated in the growth rally so far this year.
Take their No. 1 favorite: advanced vaccine maker Moderna. Shares of the company are down by more than 30% this year. It's to be expected, as the company is on pace to lose $2.82 a share in 2023, after making $20.12 a share in 2022. Additionally, analysts think the company will lose money each year until 2027.
Even so, analysts still think the sell-off is overdone. They're calling for Moderna to trade for 211.33 a share in 12 months. And if they're right, that's more than 69% upside, more than any other stock in the S&P 500.
Plugging Into Growth Stocks
Well-run solar-equipment maker Enphase Energy is another top growth stock pick by analysts. The company's stock price is seen hitting 256.26 a share in 12 months' time by analysts. If that's right, it would mark a nearly 59% gain. Such lofty expectations are buffeted by solid profit growth projections. The company is supposed to make $5.53 a share this year, which is up nearly 20% from 2022.
But in an interesting twist, many traditional energy firms are now considered growth stocks. Marathon Oil, a member of the S&P 500 Pure Growth index, is a case in point. And analysts think the stock, down nearly 19% this year like many dividend payers, is worth much more. They've slapped a 33.26 a share price target on the stock, which is 51% higher from where it is now.
Growth may be back. But the winners in the future, if analysts are right, will be very different from the ones that have led so far.
Analysts' Favorite "Pure" Growth Stocks In The S&P 500
| Company | Symbol | Tuesday close | Upside to analysts' target | Sector |
|---|---|---|---|---|
| Moderna | 125.11 | 68.9% | Health Care | |
| Enphase Energy | 160.96 | 59.2% | Information Technology | |
| Marathon Oil | 21.97 | 51.4% | Energy | |
| APA | 31.63 | 50.3% | Energy | |
| Targa Resources | 68.51 | 44.5% | Energy | |
| Devon Energy | 46.13 | 41.2% | Energy | |
| CF Industries | 64.93 | 39.5% | Materials | |
| Diamondback Energy | 124.86 | 37.5% | Energy |
Sources: S&P Global Market Intelligence, IBD
Follow Matt Krantz on Twitter @mattkrantz
