Investors with a long timeline should be looking for growth stocks to buy that are poised to beat the market well into the future. While making those kinds of predictions can be risky, choosing investments with solid long-term growth runways and efficient operations is a great way to build out the growth portion of your portfolio.
Here’s a look at four growth stocks worth considering and one I wouldn’t touch with a 10-foot pole.
Stocks to Buy: Splunk (SPLK)
Over the past three months, Splunk (NASDAQ:SPLK) stock has fallen almost 20% on concerns about the firm’s worse-than-expected cash flow guidance. During the software firm’s second-quarter earnings call, management revealed that it was expecting cash flow to be in the negative — to the tune of $300 million. That’s a far cry from the $250 million SPLK had been previously expecting.
However, that negative cash flow is actually a good thing for SPLK stock. The software firm has been shifting its business toward subscription-based services rather than licenses, and the shift is on track to happen faster than management initially predicted. That shift toward subscriptions means cash will be tight in the near term, but things should even out over the long term.
That 20% discount makes SPLK one of the best growth stocks to buy now, because it is based solely on a short-term problem. The firm’s overall growth story is still intact as it maintains its position as market leader in the IT operations management software market.
Boston Omaha (BOMN)
This tiny conglomerate got a lot of airplay when it hit the market because one of its co-CEOs is Warren Buffett’s grandnephew. However, although the Oracle of Omaha himself hasn’t endorsed Boston Omaha (NASDAQ:BOMN) stock, it looks like a good bet for growth investors.
Management is a big part of the reason to like BOMN stock — the firm’s two CEOs took minimum wage for the first few years, relying instead on the stock’s performance for compensation. BOMN puts a heavy emphasis on aligning shareholder interests with those working within the company, meaning the stock’s performance will be at the top of everyone’s mind.
The majority of the firm’s revenue comes from investments in billboard companies, an industry that has fared particularly well compared to the rest of the advertising space. In addition BOMN invests in surety insurance businesses, which is one of the safest plays in that space. The average loss ratio in the surety space is 30% — compared to ratios of 71% and 61% for homeowner’s insurance and commercial insurance.
As BOMN is still in the very early stages of growth, it’s a great option if you’re looking for long-term growth stocks to buy.
Home Depot (HD)
As the world’s largest home improvement retailer, you may not initially consider Home Depot (NYSE:HD) stock to be a growth play. However, the firm is set to ride the wave of a stable housing market and deliver gains in the years to come. HD stock has historically been a well-oiled machine and moving forward, that looks set to continue.
Home Depot is focused on delivering an omni-channel experience in which shoppers can enjoy the benefits of online shopping while they’re in-store and vice-versa. HD has been revamping it’s existing store layouts to include things like electronic pricing displays that allow users to view reviews and other product info. So far, this approach to blending customer engagement both in stores and online has been successful in keeping HD at the top of the home improvement retail space.
Moving forward HD should see benefits from the expansion of its Pro arm, which has an estimated addressable market of around $50 billion. Home Depot recently rolled out a business-to-business website to support this initiative as well as a host of services like tool rental and delivery to support Pro customers.
As growth plays go, Costco (NASDAQ:COST) stock is one of the best. Right now, Costco stock is relatively expensive, trading near all-time highs with a trailing price-to-earnings ratio of 36.4. However, COST trades at a premium for a reason — the firm’s business is unique and profitable.
Costco makes most of its money from member fees, so the fact that its customers are fiercely loyal is a big part of the reason COST stock is so attractive. Membership renewal rates stand at about 90%, and even in times of economic uncertainty, that figure doesn’t tend to change much. That’s because Costco customers trust that they’re getting the best possible price on a quality item with every purchase.
Moving forward, COST stock has plenty of room to run as the firm continues its expansion. A big part of its future growth story is China, where the first location opened to an impressive reception. Costco is also building out its online presence with a new and improved app that is expected to drive engagement both in stores and online.
Stocks to Sell: Beyond Meat (BYND)
There’s no greater example of a stock that’s been driven almost exclusively by hype than Beyond Meat (NASDAQ:BYND) stock. Investors who bought shares during its IPO saw returns upwards of 200% depending whether they’ve held on to them. However, in recent weeks the share price has come down significantly on worries about how BYND stock will fare once the lockup period expires at the end of October.
However, Beyond Meat stock still isn’t attractive even after losing 50% of its value over the past three months. First, there’s the issue of competition. BYND is hardly alone in being a plant-based food company. Rivals like Impossible Foods and even Tyson Foods (NYSE:TSN) have their own meat-replacement options as well.
Plus, there’s an often overlooked lawsuit going on between BYND and Don Lee Farms, a family run business that was Beyond Meat’s exclusive manufacturer before things went sour. Court documents shared by Don Lee’s Danny Goodman show that BYND allegedly walked away from its contract. In doing so, BYND took “trade secrets” like which ingredients to use and how long to mix them. BYND then shared those secrets with other manufacturers.
Florida trial attorney Donald E. Peterson told me in an email interview if Don Lee Farms were to win the suit, the consequences could be far reaching. Don Lee could ultimately receive royalties for every Beyond Burger sold for the duration of the initial contract, both retroactively and moving forward. That would be a serious hit for BYND as the Beyond Burger makes up 70% of the firm’s sales.