Returns on the best growth stocks are considerably bigger than the prevailing inflation rate in an economy, allowing investors to generate real income on their total investments.
Considering the high interest rate environment, investors could consider buying fundamentally strong, high-quality stocks, PDD Holdings Inc. (PDD), General Electric Company (GE), and Eaton Corporation plc (ETN) for long-term growth.
Investing in growth stocks is a great strategy for long-term wealth accumulation. They typically grow at a rate exceeding inflation, ensuring that the investment's value increases over time and preserves its purchasing power. The U.S. Labor Department reported that the consumer price index, a crucial measure of inflation, increased by 3.3% in May compared to the previous year. This showed signs of moderation and raised hopes of a rate cut.
Moreover, the World Bank said the global economy is poised to do better this year than earlier thought, approaching the “soft landing” dreamed of by economists where growth continues and a recession is avoided. OECD’s latest economic outlook forecasts a consistent global GDP growth rate of 3.1% for 2024, with a minor increase to 3.2% expected in 2025.
This looks great for growth names, as an economic expansion will likely translate into more spending and a boost in the stocks’ performance. Given this backdrop, let’s examine the fundamentals of three high-quality stocks for long-term growth.
PDD Holdings Inc. (PDD)
PDD is a multinational commerce group that owns and operates a portfolio of businesses. It operates Pinduoduo, an e-commerce platform that provides products in categories, including agricultural produce, apparel, shoes, bags, mother and childcare products, and food and beverage. Underscoring its international push, PDD shifted its headquarters from China to Ireland last year.
In terms of the trailing-12-month gross profit margin, PDD’s 61.83% is 67.8% higher than the 36.86% industry average. Likewise, its 26.19% trailing-12-month EBIT margin is 240.9% higher than the 7.68% industry average.
PDD’s levered FCF grew at a CAGR of 181% over the past three years. Also, its revenue grew at a CAGR of 58.1% during the same period.
For the first quarter that ended March 31, 2024, PDD’s revenues grew 130.6% year-over-year to $12.02 billion. Its non-GAAP operating profit increased 237.5% from the prior year’s quarter to $3.95 billion. Further, non-GAAP net income attributable to ordinary shareholders increased 202.1% year-over-year to $4.24 billion.
Also, the company’s non-GAAP earnings per ordinary share increased 199.4% year-over-year to $0.71.
Street expects PDD’s revenue and EPS for the second quarter ending June 2024 to increase 92.8% and 92.7% year-over-year to $13.84 billion and $2.77, respectively. Further, PDD topped the consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
Over the past nine months, the stock gained 44.5% to close the last trading session at $144.18.
PDD’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
PDD has an A grade for Quality and a B in Sentiment, Momentum, and Growth. It is ranked #12 out of 40 stocks in the B-rated China industry.
In addition to the POWR Ratings we’ve stated above, we also have PDD ratings for Value and Stability. Get all PDD ratings here.
General Electric Company (GE)
GE designs and produces commercial and defense aircraft engines, integrated engine components, electric power, and mechanical aircraft systems. It also offers aftermarket services to support its products.
GE’s trailing-12-month levered FCF margin of 8.83% is 38.1% higher than the industry average of 6.39%. Its trailing-12-month ROCE of 13.63% is 8.7% higher than the industry average of 12.54%.
GE’s EBITDA grew at a CAGR of 54.8% over the past three years. Also, its revenue grew at a CAGR of 16.1% over the past year.
For the fiscal first quarter that ended March 31, 2024, GE’s adjusted revenues increased 10.7% year-over-year to $15.17 million. Its adjusted other income increased 104.3% year-over-year to $470 million. The company’s adjusted profit increased 75.8% year-over-year to $1.54 million.
Analysts expect GE’s EPS for the second quarter ending June 2024, to increase 44.6% year-over-year to $0.98. The company’s revenue is expected to be $8.81 billion for the same quarter. Further, GE topped the consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
GE’s stock has gained 67.3% over the past six months to close the last trading session at $164.97.
GE’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
The stock has an A grade for Growth and a B for Momentum, Quality, and Sentiment. GE is ranked #10 in the B-rated 34-stock Industrial - Manufacturing industry.
Click here to access all GE ratings (Stability and Value).
Eaton Corporation plc (ETN)
Based in Dublin, Ireland, ETN is a power management company worldwide. The company's Electrical Americas and Electrical Global segment provides electrical components, industrial components, power distribution and assemblies, residential products, single and three-phase power quality and connectivity products, wiring devices, circuit protection products, and utility power distribution products.
On June 4, 2024, ETN announced its participation in the EU research and innovation project BIG LEAP. Lasting for three and a half years, this Horizon Europe program aims to enhance energy storage efficiency, reliability, and compatibility using second-life batteries from varied electric vehicles.
On May 31, 2024, ETN announced it had completed a significant strategic investment in NordicEPOD AS, formerly a wholly-owned subsidiary of CTS Nordics. NordicEPOD AS designs and assembles standardized power modules for data centers in the Nordic region, which should benefit the company strategically.
ETN’s levered FCF grew at a CAGR of 9.2% over the past three years. Also, its revenue grew at a CAGR of 10% during the same period.
ETN’s trailing-12-month levered FCF margin of 10.52% is 64.1% higher than the industry average of 6.41%. Its trailing-12-month gross profit margin of 37.06% is 19.7% higher than the industry average of 30.98%.
During the first quarter that ended March 31, 2024, ETN’s net sales increased 8.4% from the prior year’s period to $5.94 billion, and its adjusted earnings increased 28.3% year-over-year to $966 million. Its adjusted earnings per ordinary share grew 27.7% year-over-year to $2.40.
Street expects ETN’s EPS for the quarter ending June 2024 to increase 17.6% year-over-year to $2.60. The company’s revenue is expected to grow 8.2% year-over-year to $6.35 billion for the same quarter. Moreover, the company has topped the consensus EPS estimates in each of the four trailing quarters.
Over the past year, the stock has gained 71.3% to close the last trading session at $327.59.
ETN’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has a B grade for Growth, Stability, Sentiment, and Quality. Within the A-rated Industrial - Machinery industry, ETN is ranked #17 out of 79 stocks.
Click here to access additional ratings of ETN for Value and Momentum.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
PDD shares were trading at $143.45 per share on Thursday afternoon, down $0.73 (-0.51%). Year-to-date, PDD has declined -1.95%, versus a 15.60% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
The post 3 High-Quality Stocks for Long-Term Growth appeared first on StockNews.com