If building an investment portfolio is like making a meal, growth stocks would be the spice. Hot and volatile, the right growth stocks can add some zest to your portfolio. But just like the real thing, the wrong growth stocks can turn a well-balanced portfolio into an unsavory disaster.
So, let’s look at three growth stocks that get the balance right — tangy but not overwhelming: Tesla (NASDAQ: TSLA), The Trade Desk (NASDAQ: TTD), and Costco Wholesale (NASDAQ: COST).
A lot of money has been lost betting against Elon Musk. And after Tesla’s superb fourth-quarter earnings results, I’m left wondering: Why do people still do it? After all the hubbub about how owning Twitter would distract Musk — and potentially put Tesla’s finances in jeopardy — Tesla seems just fine, thank you.
The company’s revenue hit a record $24.3 billion in the fourth quarter, with earnings per share of $1.19 — beating consensus estimates by $0.06.
Critically, production levels continue to rise — even as other electric vehicle makers struggle. Total production in 2022 was 1.3 million vehicles, with analysts predicting that figure to be near 2 million vehicles in 2023.
Moreover, Tesla and the U.S. government continue to play nice. The Treasury Department expanded the EV tax credit to Tesla’s Model Y, among other vehicles. Similarly, the Federal government and Tesla struck a deal to open the latter’s network of EV charging stations to non-Tesla EVs.
Despite its massive $659 billion market capitalization, Tesla remains a no-brainer growth stock worth owning.
The Trade Desk
If you’re like me, you subscribe to multiple streaming services. Similarly, you might have a live TV service, like Alphabet‘s YouTube TV or Dish Network‘s Sling.
Indeed, the choices for what to watch — and on what platform — can be overwhelming. Yet, confusing as it is for consumers, imagine the difficulty advertisers have in predicting who will be watching and where they’ll be watching.
For that reason, The Trade Desk’s business model looks mighty appealing. It allows advertisers to centralize, monitor, and measure the effectiveness of their ad campaigns across multiple formats and platforms.
With a market capitalization of $31 billion and trailing-12-month revenue of $1.6 billion, the company is still in its relative infancy. However, management believes the company’s total addressable market (TAM) is huge at over $816 billion. And as The Trade Desk grows — particularly overseas — management thinks it can capture more and more of that enormous TAM.
Incidentally, Wall Street agrees. Analysts expect the company to grow sales 26% in 2023 and 19% the next year.
Yet, those high growth rates come at a cost. The company’s price-to-earnings (P/E) ratio stands at a staggering 603. And even on a price-to-sales basis, the stock is pricey at 19 times sales.
Nevertheless, for investors looking to spice up their portfolio, The Trade Desk brings plenty of potential high-octane growth.
It might be a surprise to see a warehouse-style retailer on my list of growth stocks, but consider this: Costco has averaged 8.8% revenue growth for the past decade. Walmart has averaged revenue growth of only 2.6% over the same period.
Indeed, Costco has been one of the best retail stocks to own over the last decade. And with a P/E multiple of 35, it comes with a growth stock’s valuation.
While it’s true that Costco has been hit hard by persistently high inflation, the company has weathered the storm thanks to its enormous membership base. Costco has over 67 million members, of whom roughly 30 million are Executive members who pay a higher yearly rate.
Consequently, the prospect that Costco might hike the membership price could lead to a significant bounce in revenue. The company last increased membership dues in 2017, and with renewal rates over 90%, it might be time for Costco to pull the trigger.
In the meantime, cooling inflation might give the stock the boost it needs to break out of its recent doldrums and skyrocket once again.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jake Lerch has positions in Alphabet and Tesla and has the following options: long March 2023 $130 puts on Tesla and short March 2023 $140 puts on Tesla. The Motley Fool has positions in and recommends Alphabet, Costco Wholesale, Tesla, Trade Desk, and Walmart. The Motley Fool has a disclosure policy.