By Todd Campbell, Jason Hall, And Nicholas Rossolillo
Aggressive growth stocks can produce market-beating returns by disrupting industries and taking advantage of big, new trends, but there are risks. High-growth companies often spend more money than they make to stay ahead of competitors, and that means there’s little money left over to reward investors with earnings, share repurchases, or dividends. That situation can lead to stomach churning volatility, so picking the right growth stocks to buy is important.
To help you find the best growth stocks, we asked three Motley Fool investors for their top picks. They recommended Xilinx (NASDAQ:XLNX), NV5 Global (NASDAQ:NVEE), and Aurora Cannabis (NYSE:ACB). Are these stocks right for your growth portfolio?
Custom programming for AI and the cloud
Nicholas Rossolillo (Xilinx): Semiconductor outfit Xilinx invented the field programmable chip back in the 1980s, but recently the technology has really started to take off. That’s due to the advent of artificial intelligence (AI), especially in data centers and resulting cloud computing services. The ability to customize and reprogram these chips is winning lots of new customers, a trend that could continue to pick up steam as AI-powered computing increases in importance.
Xilinx is winning in other areas, too, partnering with Samsung (NASDAQOTH:SSNLF) to bring new 5G mobile network technology to market. The automotive and consumer industries are also growing rapidly. Over the next three years, Xilinx expects its addressable market to grow 13% a year, from about $14 billion right now to $23 billion in 2022.
That has already led to massive growth in the past year. Through Xilinx’s the first three quarters of the 2019 fiscal year, the company’s sales and earnings per share have soared 22% and 106%, respectively. As a result, the stock is up 76% over the last trailing 12-month stretch as of this writing. Despite the big return, though, there could be plenty left in the tank.
Wall Street seems to agree, and Xilinx shares thus trade at a premium of 33.7 times free cash flow (money left over after basic operating expenses and capital expenses are paid for). A fair amount of future growth is therefore already priced in at this point. However, demand for field programmable chips is expected to keep rising in the coming years, and Xilinx is handily in the lead in this space. Shares could continue to soar if the company can keep demonstrating its capabilities in AI and cloud computing.
A high-growth stock to buy on the dip
Jason Hall (NV5 Global): Since its peak in late summer of 2018, shares of infrastructure engineering company NV5 Global have fallen more than 30%. Or to be more accurate, they fell by 30%, gained 45%, and then fell sharply a second time:
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