Growth stocks, typically, are shares of companies expected to grow at an above-average rate compared to other companies in the market. They typically operate in industries or sectors undergoing rapid growth or disruptive innovation.
One of the primary advantages of the best growth stocks is their ability to generate significant capital gains over time, because the company has plenty of room to grow. And as they grow and expand their operations, their stock price has the potential to skyrocket, too - offering investors attractive returns.
Here, we'll highlight two growth stocks that Wall Street considers "strong buys" right now. The first is McKesson Corporation (MCK), a healthcare and information technology company. The company has shown resilience and impressive growth potential amidst the rapidly changing healthcare landscape. MCK stock has returned 317% in the past five years.
The second is the renewable energy company American Superconductor Corporation (AMSC), also known as AMSC. The company has built a reputation for using cutting-edge technologies to improve energy efficiency and reliability.
So far in 2024, both of these stocks have performed well. While McKesson's stock has risen about 27% year-to-date, AMSC stock is up an impressive 104.8%, massively outperforming the S&P 500 Index's ($SPX) 14.7% gain. Let's take a closer look at why these two standout growth stocks are currently attractive investments.
1. McKesson Corporation (MCK)
Though it's officially a healthcare company, McKesson (MCK) operates at the intersection of pharmaceutical distribution, healthcare technology, and medical supplies. McKesson ensures that medicines and medical products arrive at their destinations efficiently and reliably.
Its core business is divided into four segments: U.S. Pharmaceuticals, Prescription Technology Solutions, Medical-Surgical Solutions, and International. Over the last few years, its revenue and earnings have been growing at a steady rate.
In 2023, consolidated revenue increased 12% year-over-year to $309 billion, while adjusted earnings per diluted share rose 6% to $27.44. The U.S. Pharmaceuticals segment’s revenue rose 16% in the year, led by increased prescription volumes. Increased prescription volumes in technology services and third-party logistics drove a 9% increase in revenue for the Prescription Technology Solutions segment.
Medical-Surgical Solutions segment revenue rose slightly, by 2%, with a 31% decline in International segment sales resulting from the divestitures within McKesson’s European business.
Another green flag for investors is that McKesson is also a dividend stock. Its forward dividend yield of 0.42% is lower than the healthcare industry average of 1.58%. However, its forward payout ratio is only 6.94%, implying plenty of room for dividend growth as earnings rise. Moreover, McKesson has been increasing its dividend for the past 16 years.
In 2023, the company generated free cash flow of $3.6 billion. This allowed it to return $3.3 billion to shareholders, including $314 million in dividends and $3.0 billion in share repurchases.
The company will release its first-quarter results on Aug. 7. Analysts who cover MCK stock predict revenue growth of 11.3% to $82.9 billion.
For fiscal 2025, the company believes “continued operating momentum, a strong financial position, and a balanced approach to capital deployment” will boost earnings growth by 13.8% to 16.8%. By comparison, analysts predict revenue and earnings growth of 15.9% and 15.4% in fiscal 2025, respectively.
With global healthcare spending expected to rise steadily, McKesson is well-positioned to benefit from increased demand for pharmaceuticals and medical products. McKesson appears to be a reasonable buy, trading at 18 times forward earnings.
What is Wall Street’s View on McKesson Stock?
Overall, Wall Street rates MCK stock as a "strong buy." Out of the 16 analysts covering MCK stock, 12 recommend it as a "strong buy," one as a "moderate buy," and three as a "hold."
Analysts' average price target of $617.36 suggests the stock can rise by 5.3% from its current levels. However, the high target price of $679 implies a potential 15.8% gain over the next year.
2. American Superconductor Corporation (AMSC)
American Superconductor's (AMSC) innovations in superconductor technologies, power electronics, and grid solutions serve various sectors such as utilities, renewable energy developers, and industrial customers worldwide. The company's products, Windtec Solutions, Gridtec Solutions, and others, have proved critical to improving the stability and efficiency of electrical grids, particularly in this era of renewable energy integration.
AMSC has shown consistent revenue growth, driven by increased demand for its Grid and Wind products. The company's customer base has expanded globally, particularly in markets with increasing renewable energy investment. Over the last five years, AMSC’s revenue has increased at a compounded growth rate of 20.9%.
However, consistent profitability has remained a challenge until now, due to high R&D and operational costs, which have had an impact on net income.
In fiscal 2023, revenue increased by 37.3% year on year to $145.6 million, driven by higher Grid and Wind segment revenues. While the company reported a net loss of $0.37 per share, losses decreased from $1.26 per share in fiscal 2022.
AMSC CEO Daniel P. McGahn stated, “We believe our company’s diverse orders bookings, strengthened balance sheet, and operational success in fiscal 2023 has laid the groundwork for AMSC’s long-term growth trajectory.”
Its recent $75 million contract with Irving Shipbuilding has caught Wall Street's attention. AMSC is also targeting emerging markets with significant renewable energy growth potential. These regions offer key growth opportunities for deploying AMSC's Grid and Wind solutions.
AMSC ended fiscal 2023 with $92.3 million in cash, cash equivalents, and restricted cash. Management expects revenue to increase by 67% to 85% in the first quarter of fiscal 2024.
While the company did not provide full fiscal year guidance, analysts who cover AMSC expect revenue to increase by 8.5% to $158 million in fiscal 2024. Analysts also expect the company to make a profit of $0.10 in 2025, rising to $0.36 by 2026.
Trading at five times forward 2024 sales, AMSC is a reasonable buy now, given its long-term prospects with the global shift towards renewable energy. However, the industry is also extremely competitive. To maintain a competitive advantage, AMSC will need to continue to invest in R&D to create innovative products that address the changing needs of the energy sector.
What is Wall Street’s View on AMSC Stock?
Overall, Wall Street rates AMSC stock a “strong buy,” with all three analysts covering the name in agreement.
Due to its outsized gains so far this year, the stock is trading close to analysts' average price target of $24.33. However, its Street-high estimate of $27 implies a potential upside of about 20.2% over the next 12 months.
