These growth stocks come from Morningstar’s Hare Portfolio.
The Morningstar Hare Portfolio includes analysts’ top growth stock picks that have valuation upside. Some growth stocks have taken big hits in recent weeks following disappointing earnings reports and 2022 guidance, so growth stock investors are now taking a closer look at valuations. Growth stocks have outperformed the market for more than a decade, but concerns over inflation, tax hikes and Federal Reserve tapering may warrant a more conservative approach for growth investors heading into the end of the year. For investors looking for growth stocks at reasonable valuations, here are the top eight holdings in the Morningstar Hare Portfolio.
Alphabet Inc. (ticker: GOOG, GOOGL)
Google and YouTube parent company Alphabet is the top holding in Morningstar’s Hare Portfolio of top growth stocks. It’s also the second-largest holding in its Tortoise Portfolio of top value stocks. Analyst Ali Mogharabi says Alphabet has opportunities to further monetize YouTube and Google apps, and it’s also gaining traction in cloud services. Mogharabi says retail and travel industry advertising spending continues to recover, providing tail winds for Alphabet heading into 2022. The larger its user base grows, the more ad-pricing leverage Alphabet will generate. Morningstar has a “buy” rating and a $3,400 fair value estimate for GOOGL stock, which closed at $2,957.52 on Nov. 16.
Microsoft Corp. (MSFT)
Microsoft is a market leader in cloud services and enterprise software applications. Even at a market capitalization of more than $2.5 trillion, analyst Dan Romanoff says Microsoft is still an attractive growth stock investment. Romanoff says Microsoft’s enterprise customers are investing heavily in transitioning their businesses to more cloud-based, online models. In addition, Microsoft’s gaming and Windows revenue growth remains strong, even amid supply constraints for PCs and Surface tablets. Romanoff says Microsoft continues to impress with its ability to grow and expand margins at scale. Morningstar has a “buy” rating and a $345 fair value estimate for MSFT stock, which closed at $338.89 on Nov. 16.
Mastercard Inc. (MA)
High-flying stocks like PayPal Holdings Inc. (PYPL) and Square Inc. (SQ) have gotten a lot of attention from investors as plays on the global shift to digital payments. Mastercard may not be as flashy of an investment as PayPal or Square, but it’s certainly a great way to invest in the digital payment trend. Analyst Brett Horn says the digital payments theme still has plenty of growth ahead, especially in emerging markets. Horn says Mastercard is diversified to earn fees in credit, debit and mobile payments. Morningstar has a “buy” rating for MA stock.
IQVIA Holdings Inc. (IQV)
IQVIA is a clinical research company that provides health care data solutions. In the third quarter, the company reported greater than 20% growth in both revenue and earnings before interest, taxes, depreciation and amortization. Analyst Rachel Elfman says IQVIA’s new lab in North Carolina will help it maintain bullish momentum. The company’s contracted research backlog grew 13% in the third quarter to more than $24 billion, suggesting that IQVIA’s business is flourishing. Elfman says IQVIA’s database of diversified patient information and analytics also gives it a competitive advantage. Morningstar has a “hold” rating and a $276 fair value estimate for IQV stock, which closed at $267.54 on Nov. 16.
Enbridge Inc. (ENB)
Enbridge is one of the largest energy infrastructure companies in North America. Analyst Stephen Ellis says Enbridge should continue to generate consistent long-term annual revenue growth in the 5% to 7% range. The company’s Line 3 pipeline is finally operational. Enbridge also recently acquired Moda Midstream LLC, owner of North America’s largest oil export hub, for $3 billion. Ellis says Moda is a quality asset, and the deal was fairly valued. Enbridge is also investing for the future, including hydrogen, renewable natural gas and offshore wind projects. Morningstar has a “hold” rating and a $44 fair value estimate for ENB stock, which closed at $40.33 on Nov. 16.
Meta Platforms Inc. (FB)
The “metaverse” is one of the biggest and most exciting long-term growth sources in the tech world today. The metaverse is an integrated online environment in which people live, work and play. Facebook recently demonstrated to investors just how serious it is about focusing on the metaverse by changing its corporate name to Meta Platforms. Mogharabi says Facebook, Instagram and Meta’s other platforms will continue to grow their user bases and attract advertisers. In addition, he says Meta has opportunities to significantly expand its e-commerce business. Morningstar has a “buy” rating and a $404 fair value estimate for FB stock, which closed at $342.96 on Nov. 16.
Amazon.com Inc. (AMZN)
Amazon has been one of the best-performing growth stocks in the world for more than two decades. Fortunately, Romanoff says Amazon still has plenty of growth left in the tank. He says wage and shipping cost inflation are squeezing Amazon’s margins in the near term, but Amazon remains the leader in e-commerce and public cloud services, two growth trends for the next decade. Romanoff says Amazon Web Services’ 39% revenue growth in the third quarter was “staggering” and believes AWS and advertising will be key drivers of growth. Morningstar has a “buy” rating and a $4,100 fair value estimate for AMZN stock, which closed at $3,540.70 on Nov. 16.
Booking Holdings Inc. (BKNG)
Booking Holdings is one of the largest global online travel companies and is the parent company of Priceline.com, Booking.com and Kayak.com. The online travel booking industry has recovered significantly after it was crushed by the pandemic in 2020. Analyst Dan Wasiolek says Booking is relatively well positioned for the recovery, even within the competitive online booking industry. He says companies like Booking that have significant exposure to Europe and China will experience stronger relative demand in 2022 than companies focused on nonurban U.S. destinations. Morningstar has a “hold” rating and a $2,650 fair value estimate for BKNG stock, which closed at $2,380.33 on Nov. 16.
Growth stocks to buy at attractive prices:
— Microsoft Corp. (MSFT)
— Mastercard Inc. (MA)
— IQVIA Holdings Inc. (IQV)
— Enbridge Inc. (ENB)
— Meta Platforms Inc. (FB)
— Amazon.com Inc. (AMZN)
— Booking Holdings Inc. (BKNG)
