A bumpy few months for mega caps like the “Magnificent Seven” have led some investors to question whether now is the best time to be buying growth stocks. One investor says growth stocks still offer opportunities — but it’s time to get selective. “Growth stocks will continue to outperform value stocks, generally speaking. But valuations are stretched so we are looking for higher quality names,” Adam Coons, portfolio manager at Winthrop Capital Management, told CNBC Pro on May. 1. Growth stocks are expected to grow rapidly, but do not pay out dividends and are often often more expensive than so-called value stocks. For Coons, high-quality growth stocks produce “real free cash flow from lower amounts of debt, have resilient earnings, a strong balance sheet and a sustainable business model over a 5-10 year time horizon.” When considering which stocks to buy, Coons stressed the importance of valuations. “We need to ask what we are really paying for the stock, rather than FOMO [fear of missing out] or just the story of what it hopes to achieve,” he said. “I would stay away from growth stocks outperforming because of story and invest in those with real revenue and earnings growth.” Here are three under-the-radar stocks that Coons is watching right now: PayPal Holdings Coons is bullish on PayPal given that it is “one of the cheaper names” in the digital wallets and fintech ecosystem. The stock is down around 80% from its 2021 peak, and is 3% lower over the last 12 months. “When I look at it, I see it is cheap, plus it’s using its different products as a way of getting their customer into a routine of sticking with PayPal versus using all the different wallets that are out there. So I like the PayPal story,” Coons said. The company recently reported that it had increased expectations for its 2024 adjusted profit from flat to ” mid-to-high single-digit percentage ” growth. It has also been investing in its Venmo debit and credit cards which has proved instrumental in “PayPal’s growth strategy as it offered more avenues to reach out to its great user base,” according to Coons. According to FactSet data, of 48 analysts covering the stock, 22 give it a buy or overweight rating. Their average price target is $74.61, giving it around 18% potential upside. SS & C Technologies Software-as-a-service player SS & C Technologies is another favorite of Coons, who likes its market share. Given the duopolistic nature of its industry, the company has a “massive amount of data from both the investment security standpoint and from a user base,” the portfolio manager said. “When we look into the future, they’re going to be one of the big data sources,” he added. Shares in the software giant are up around 14% over the last 12 months. Of 12 analysts covering the stock, 10 give it a buy or overweight rating at an average price of $71.63, according to FactSet data. This gives it upside potential of 13%. Moody’s Also among Coons’ picks is credit ratings agency Moody’s — another company he likes for its “tremendous amount of data.” The portfolio manager sees the company leveraging on AI to utilize its data more effectively, and eventually monetize it more. The company’s first-quarter profit beat Wall Street’s estimates on strong demand for its products. Shares in Moody’s are up around 30% in the last 12 months. Of the 24 analysts covering the stock, 13 give it a buy or overweight rating while 11 have hold ratings. The average price target is $408.73, according to FactSet data, giving it potential upside of around 3%.
Growth stocks to buy right now: Winthrop Capital’s Adam Coons
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