The major stock market indexes have been experiencing wild price swings since the beginning of the year due to the U.S.-Russia-Ukraine tensions and the Fed’s decision to raise interest rates multiple times this year to combat the rising inflation.
However, given a steady economic recovery, growth stocks are anticipated to outperform the broader market. Growth stocks generally trade at a higher price-to-earnings (P/E) ratio, but the recent market correction has caused many of these stocks to trade at relatively lower P/E multiples. The expected improvement in corporate earnings should also support the performance of growth stocks. According to a FactSet report, the S&P 500 members are expected to report average earnings growth of 9% year-over-year in 2022. Investors' interest in growth stocks is evident in the SPDR Portfolio S&P 500 Growth ETF's (SPYG) 10.2% returns over the past year.
Given this backdrop, we think it could be wise to bet on fundamentally strong growth stocks PulteGroup, Inc. (PHM) and Box, Inc. (BOX). However, Snowflake Inc. (SNOW) and Marvell Technology, Inc. (MRVL) are best avoided now, because they are not well-positioned to outperform the broader market in the near term.
Stocks to Buy:
PulteGroup, Inc. (PHM)
PHM is a homebuilder in Atlanta, Ga., that operates through the homebuilding and financial services segments. Through its brands Centex, Pulte Homes, American West, Del Webb DiVosta Homes, and John Wieland Homes and Neighborhoods it offers a range of home designs from single-family detached to townhouses, condominiums, and duplexes.
On Feb. 1, 2022, PHM announced that its board of directors had approved a $1 billion increase to its share purchase authorization. PHM’s President and CEO Ryan Marshall said, “Consistent with our disciplined and balanced approach to capital allocation, in 2021 we invested $4 billion in land acquisition and development, while returning over $1 billion to shareholders and retiring $726 million of bonds.”
PHM’s total revenues increased 36.5% year-over-year to $4.35 billion for the fourth quarter, ended Dec. 31, 2021. The company’s adjusted net income increased 53.6% year-over-year to $637.30 million. Also, its adjusted EPS came in at $2.51, representing a 64% increase.
PHM’s revenue has grown at a 10.9% CAGR over the past three years. The company’s net income has grown at a 23.9% CAGR over the past three years.
Analysts expect PHM’s EPS for the quarter ending June 30, 2022, to increase 43.6% year-over-year to $2.47. Its revenue for its fiscal year 2022 is expected to grow 19% year-over-year to $16.58 billion. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 1.7% to close its last trading session at $46.23.
PHM’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has a B grade for Growth, Value, Momentum, Sentiment, and Quality. It is ranked first in the 24-stock, B-rated Homebuilders industry. Click here to see the rating of PHM for Stability.
Box, Inc. (BOX)
BOX in Los Altos, Calif., provides a cloud content management platform that enables organizations of various sizes to manage and share their content from anywhere on any device. The company’s Software-as-a-Service platform allows users to collaborate on content internally and with external parties, automate content-driven business processes, and develop custom applications.
On Feb. 3, 2022, BOX announced the general availability of an enhanced Box for Slack integration that enables customers to use Box as the single file storage system in the Slack environment. Chief Product Officer at BOX, Diego Dugatkin, said, “With today’s announcement, thousands of Box and Slack joint customers will have more time to get work done, thanks to boosted efficiency and productivity, as well as constant assured security.”
For its fiscal third quarter, ended Oct. 31, 2021, BOX’s revenue increased 14% year-over-year to $224 million. The company’s non-GAAP gross profit increased 16.2% year-over-year to $167.30 million. Also, its non-GAAP EPS came in at $0.22, representing an increase of 10% year-over-year.
BOX’s revenue has grown at a 13% CAGR over the past three years. Also, the company’s levered free cash flow has grown at a 38.4% CAGR over the past three years.
For the quarter ending April 30, 2022, BOX’s EPS is expected to increase 33.3% year-over-year to $0.24. Its revenue for the quarter ending Jan. 31, 2022, is expected to grow 15% year-over-year to $228.79 million. It surpassed the Street’s EPS estimates in each of the trailing four quarters. And over the past year, the stock has gained 42.9% in price to close the last trading session at $25.17.
BOX’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system.
It has an A grade for Quality and a B grade for Growth and Value. Within the Technology – Services industry, it is ranked #11 of 81 stocks. To see the other ratings of BOX for Momentum, Stability, and Sentiment, click here.
Stocks to Avoid:
Snowflake Inc. (SNOW)
SNOW provides a cloud-based platform internationally. The San Mateo, Calif., company’s platform offers Data Cloud, an ecosystem that enables customers to consolidate data into a single source of truth to drive meaningful business insights, build data-driven applications, and share data. Its platform is used by organizations of various sizes in multiple industries.
SNOW’s total operating expenses for nine months ended Oct. 31, 2021, increased 83.5% year-over-year to $1.07 billion. The company’s operating loss widened 63.8% year-over-year to $563 million. Also, its net loss widened 61% year-over-year to $547.79 million.
Analysts expect SNOW’s EPS for its fiscal year 2022 to remain negative. Over the last three months, the stock has declined 24.7% to close the last trading session at $267.78.
SNOW’s POWR Ratings reflect bleak prospects. The stock has an overall rating of D, which equates to a Sell in our proprietary rating system.
It has an F grade for Value and a D grade for Momentum, Stability, and Quality. It is ranked #70 of 81 stocks in the Technology – Services industry. Click here to see the other ratings of SNOW for Growth and Sentiment.
Marvell Technology, Inc. (MRVL)
MRVL is a provider of data infrastructure semiconductor solutions. Its semiconductor designs help companies move, store, process, and secure data. In addition, its subsidiary, Inphi Corporation, is engaged in providing analog and mixed-signal semiconductor solutions for the communications and the cloud markets. MRVL is headquartered in Hamilton, Bermuda.
For its fiscal third quarter ended Oct. 31, 2021, MRVL’s operating expenses increased 59% year-over-year to $621.16 million. The company’s cost of sales increased 68.9% year-over-year to $623.42 million. And its net loss widened 172.9% year-over-year to $62.53 million.
The stock has declined 23.7% in price year-to-date to close the last trading session at $66.70.
MRVL’s POWR Ratings reflect weak prospects. The stock has an overall D rating, which equates to a Sell in our proprietary rating system.
It has a D grade for Value, Stability, and Quality. Within the Semiconductor & Wireless Chip industry, it is ranked #87 out of 97 stocks. To see the other ratings of MRVL for Growth, Momentum, and Sentiment, click here.
Click here to checkout our Semiconductor Industry Report for 2022
What To Do Next?
If you would like to see more top growth stocks, then you should check out our free special report:
What makes them "MUST OWN"?
All 9 picks have strong fundamentals and are experiencing tremendous momentum. They also contain a winning blend of growth and value attributes that generates a catalyst for serious outperformance.
Even more important, each recently earned a Buy rating from our coveted POWR Ratings system where the A rated stocks have gained +31.10% a year.
Click below now to see these top performing stocks with exciting growth prospects:
SNOW shares were trading at $263.76 per share on Wednesday morning, down $4.02 (-1.50%). Year-to-date, SNOW has declined -22.14%, versus a -9.88% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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