CPA - Running Of The Bulls: 3 Top Growth Stocks To Buy

2023-07-12 06:00:00 ET

Summary

• Growth stocks were crushed in 2022 but are leading the market rally in 2023.
• My Top 5 Growth Stocks for a Volatile Market portfolio, selected in January 2022, is up 13% compared to the S&P 500 +2%, with (ONTO) +61% and (CCS) +44% YTD.
• All three growth stocks have forward EPS growth rates above 150% and significantly surpass the growth rates of Mega-tech stocks.
• Despite their 2023 rallies, the three selected stocks have plenty of room to run, valuation frameworks that are more attractive than the Mega-tech stocks, and excellent fundamentals.
• Although inflation and high interest are eating into the revenue and profits of many companies, my three unique picks offer strong quant grades, excellent momentum, and upward earnings revisions with upside to help weather volatile markets in 2023.

Is now a good time to buy growth stocks?

Tech is leading the surge in the high-flying growth stocks, typically characterized by high revenue and earnings growth, high P/E ratios, little to no dividends, and the promise of innovation maintaining bullish price momentum. With the 2023 market rally continuing, it may be time to consider some well-rounded growth stocks with bullish momentum on an uptrend.

Value stocks are based on bargain hunting for companies with cheap valuations in hopes of greater future cash flows and higher expected returns. I recommend that growth stocks offer reasonable valuation frameworks, well-rounded metrics, and superior long-term price momentum. Although growth stocks can be more expensive than value stocks, Seeking Alpha's quant ratings perform the analyses that selected each of the three picks, whose strong buy ratings draw on the best collective characteristics of valuation, growth, profitability, momentum, and EPS revisions. Each recommendation possesses some of the fastest Revenue and Earnings Per Share Growth. All three growth stocks have forward E.P.S. growth rates above 150% and significantly surpass the growth rates of the Mega-tech stocks.

Top Growth Stocks

Following a rough 2022 for growth stocks, many have rebounded, giving investors opportunities to purchase bargains leading the market rallies. Where high-growth companies can pose risks in slowing economic environments, especially as high-interest rates can eat into profits, I’ve pinpointed three quant strong buys focused on rapid revenue and earnings per share growth.

3 Strong Buy Growth Stocks On A Rally (CPA, ATI, OPRA)

Economists anticipate a slowdown in U.S. economic growth through 2023 and into 2024. However, threats of recession are delayed . With the first half of 2023 winding down and some growth stocks rewarding investors, finding high-quality growth-oriented stocks that could insulate investors from an uncertain economic environment is why I am highlighting these three strong buy-rated stocks in unique sectors.

1. Copa Holdings, S.A. ( CPA )

• Market Capitalization: $4.35B

• Quant Rating: Strong Buy

• Quant Sector Ranking (as of 7/10/23): 26 out of 653

• Quant Industry Ranking (as of 7/10/23): 10 out of 27

Passenger airline company Copa Holdings, S.A., through its subsidiaries, provides flights and cargo services worldwide. With over 300 daily flights to more than 78 destinations in 32 nations, the Panama-based company has recovered well from the COVID crisis, boasting low operating costs and efficiency that has strengthened its balance sheet for growth and substantial profitability.

CPA Stock Growth & Profitability

Copa Holdings not only offers a strong financial position that includes expansion and projected revenues expected to double by 2028, but its strong management team has also navigated elevated fuel prices to deliver an operating margin of 22.3% and, over the last few months, experienced a +15% surge in passenger traffic and capacity. One of the top five gainers following strong Q1 results that beat estimates, Copa Holdings stock surged nearly 11%, and management expects to maintain healthy travel demand throughout the year, increasing its operating guidance.

“These results were mainly driven by a robust demand environment in the region which led to an improved load factor as well as an increase in passenger yields during the quarter…we increased our operating margin guidance to a range of 22% to 24%, mainly driven by the current solid demand environment in the region as well as a lower fuel curve for the remainder of the year,” said Pedro Heilbron , Copa Chief Executive Officer.

Copa Holdings beat earnings expectations

In addition to improved margins, first-quarter revenues of $867.30M beat by +51% year-over-year, and Non-GAAP EPS of $3.99 beat by $0.74, resulting in seven FY1 upward analyst revisions in the last 90 days. Copa’s exemplary metrics and pandemic recovery are the perfect highlight to their factor grades below.

Copa Holdings Factor Grades

Copa Holdings’ A+ Growth, strong Profitability, Momentum, and Revisions Grades indicate that it is one of its sector's fastest-growing, most profitable, and fundamentally sound companies. Copa’s A+ growth includes forward EPS Diluted Growth of +558% versus the sector median of 10.39% and FCF per share growth of +160% versus the sector's 10%. With the confidence of Copa’s financials, management backing, and expected strengthening of the airline industry , Copa offers some of the best growth in its sector and industry to help offset macro headwinds, and it is severely undervalued.

CPA Stock Valuation & Momentum

Copa Holdings is continuing its rally, +34% YTD and +74% over the last year. On a longer-term uptrend, Copa showcases a gradually increasing quarterly price performance compared to sector median peers.

In addition to bullish momentum, CPA’s ‘A-’ valuation grade indicates the stock is trading at a discount. A forward P/E ratio of 7.79x versus the sector 18.88x and an A+ forward PEG of 0.29x highlight extreme differences to the sector, indicating a bargain buy. Severely undervalued, as airlines increase capacity, inflation cools, and costs begin to come down, consider Copa Holdings, a strong buy stock for a portfolio. Here are some Top Airlines Stocks if you would like to explore different Quant Strong Buy recommendations in the airline sector.

2. ATI Inc. ( ATI )

• Market Capitalization: $5.69B

• Quant Rating: Strong Buy

• Quant Sector Ranking (as of 7/10/23): 14 out of 281

• Quant Industry Ranking (as of 7/10/23): 3 out of 28

Dallas, Texas-headquartered ATI Inc. is a global producer of high-performance materials, specializing in the manufacturing and selling of specialty materials and components from two segments: High-Performance Materials & Components (HPMC) and Advanced Alloys & Solutions ((AA&S)). Focused on improving its balance sheet and long-term value, ATI sold its lowest margin (less than 1%) subsidiaries to focus on the more lucrative aerospace and defense business. "As ATI accelerates its strategy to become an aerospace and defense leader, we continually review our operations for opportunities to maximize value and optimize cost structure," said Kimberly Fields , Executive Vice President and Chief Operating Officer.

With $1.2B in new sales commitments announced last month from several aerospace and defense companies, it’s clear that ATI is focused on keeping the bull running.

ATI Stock Valuation & Momentum

Unlike Copa Holdings, ATI is one of my two picks that requires some prudence when investing at its current price point. Trading at its 52-week high of $45.92 per share, ATI Inc. has rallied +55% YTD and is up +110% over the last year. Although its P/E ratios indicate the stock is trading at a premium, the all-important PEG ((TTM)) is nearly a 100% difference to the sector.

Complemented by an A+ Momentum grade whose quarterly price performance is gradually increasing, investors have been actively purchasing shares of this stock to drive the price higher.

A Top Materials Stock , in addition to its low valuation, ATI offers significant growth qualities on the back of consecutive earnings beats.

ATI Stock Growth & Profitability

With a new Chief Operating Officer at the helm, ATI is focused on new business and diversification by investing in various industries to solve the challenges of finding materials and creating pioneering solutions. As a tech-driven company, ATI’s advanced alloys, solutions, and expertise have delivered exceptional growth, strong profitability, and consecutive earnings beats.

The first quarter of 2023 delivered an EPS of $0.49, beating by $0.01, and revenue of $1.04B beating by +24% year-over-year. With sequential top-line growth, ATI’s revenue exceeded $1B, more than a 25% increase from the previous year.

ATI seeks to increase sales and operate more efficiently than its competitors. For Q1, airframe sales grew 81%; energy sales +32%; aerospace and defense accounted for 56% of ATI’s revenues, up 44% from Q1 2022; and titanium assets saw a 35% increase in production. Despite softness from China, some supply chain constraints, and macro and cyclical headwinds, the ATI team is executing on goals. It is laser-focused on continuing its growth, highlighted by the crushing figures above, relative to its sector peers. With four analysts revising estimates up over the last 90 days and strong demand for ATI products driving commitments and growth, its investment in global defense , a market expected to grow and reach +$25B by 2028, is offering the potential for long-term growth in a thriving industry. Consider ATI stock for a portfolio, along with my final tech pick. Here are the Top Steel Stocks if you would like to explore different Quant Strong Buy recommendations in the Steel Industry.

3. Opera Limited ( OPRA )

• Market Capitalization: $2.2B

• Quant Rating: Strong Buy

• Quant Sector Ranking (as of 7/10/23): 1 out of 583

• Quant Industry Ranking (as of 7/10/23): 1 out of 204

Ranked #1 in its sector and industry as of 7/10/23, Opera Limited is a top application software company focused on gaming, privacy, and security and improving browser capabilities for your day-to-day online activities. Showcasing A+ Momentum and Growth Grades, this debt-free company has rapidly rising margins, highlighted by year-over-year EBIT Growth of 1,847% versus the sector median of 10.24% and forward EPS Diluted Growth nearly a 1,500% difference to the sector.

OPRA Stock Growth & Profitability

With nearly $69M cash from operations and trending up since it beat first-quarter top-and-bottom-line estimates, Opera raised its FY23 outlook . Revenue of $87.05M beat by nearly 22% Y/Y, and EPS of $0.17 beat by $0.03. I included OPRA Stock as one of my Top 10 Tech Stocks for the second half of 2023. Opera’s adjusted EBITDA of $21.7M, a 25% margin, and year-over-year EBIT growth showcasing a +17,900% difference to the sector makes clear the company is on the right track. Partnering with YouTube for an influencer campaign to launch live scoring for football, OPRA’s already large user base received an added push after the YouTube launch surpassed 50 million users in less than six months, highlighting Opera’s distribution strength.

AI is becoming a must-have for companies, and Opera is capitalizing. As expressed by Co-CEO Song Lin ,

"Year-to-date, integration of the AI services has become a top priority for many popular consumer apps, and we set out to be among leaders within browsers and AI. After announcing our collaboration with Open AI, Opera became among the first browsers to have support for popular services such as the Chat GBT directly in our browser sidebar, as well as innovative AI prompts."

Well-positioned to capture market share in gaming and the use of AI applications, the company’s strong YTD performance offers the bulls an opportunity for upside with a strong-buy stock with A+ momentum.

OPRA Stock Valuation & Momentum

Opera Limited’s current share price reflects a premium to the sector median. Despite an overall ‘D’ valuation grade, Opera offers some discounted valuation metrics. OPRA’s Price/Book ratios are a difference of 15.06% ((TTM)) and 33.02% ((FWD)) compared to the sector. While the stock trades near its 52-week high, the tech sector has been rallying in 2023, and this stock has a forward EPS growth rate of 154%, more than justifying the valuation.

OPRAs momentum demonstrates excellent quarterly price performance compared to the sector. And like my two previous growth stocks, it demonstrates rapid revenue and earnings per share growth. With revenue estimates expected to climb, consider the big opportunity posed by each growth stock.

OPRA revenue estimates are expected to climb

The latest earnings for CPA, ATI, and OPRA were impressive and supported their growth prospects. The economic outlook is still uncertain, which poses risks. So, consider the risks to growth stocks while reviewing the quant ratings and factor grades supporting my fundamentally strong picks. Here are the Top Application Software Stocks if you would like to explore different Quant Strong Buy recommendations in the Software Industry.

Risks: Growth Stocks

Growth stocks come with inherent risks, including higher volatility. Because growth stocks do not typically offer dividends, investors hope for upside to earn money so that they can sell shares of the stock. If a company performs poorly, investors take a loss.

Because many growth stocks trade at premium valuations, they can be more susceptible to price swings. Additionally, given the inflationary and high-interest rate environment, high-growth companies looking to borrow money are more likely to take a hit in terms of expensive borrowing costs. Factor in the banking crisis and regulatory overhauls tightening lending practices, and newer and smaller growth companies could face greater difficulties in turning a profit and growing.

Conclusion

Growth stocks rated Strong Buys can offer a great opportunity to capture the upside. All three growth stocks have forward EPS growth rates above 150%, and they significantly surpass the growth rates of the Mega-tech stocks and offer valuation frameworks that are more attractive than the Mega-tech stocks. The investment fundamentals on these stocks are excellent.

On the heels of the markets rallying, growth stocks that have fallen in price may offer upside. Although many growth stocks continue to decline, CPA, ATI, and OPRA are great considerations for long-term investors.

Although growth stocks pose some inherent risks in a recessionary environment, and volatility still exists, each stock offers tremendous growth with some of the fastest revenue and earnings per share growth in their respective sectors and bullish momentum in diversified industries. Wall Street analysts have also favored these three top growth stocks and have been revising their earnings estimates. The Wall Street analysts covering these stocks indicate that results will be better than expected, giving way to the next running of the bulls. In addition to these growth stocks, if you would like to review a screen of Quant Strong Buy growth stocks, please review Top Growth Stocks . Alternatively, please visit Alpha Picks if you want just two of the top quant recommendations every month, sifted from Seeking Alpha’s analysis of thousands of stocks.

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