In this article, we will discuss the 5 best high-margin growth stocks to buy now. If you want to explore similar growth stocks that have the ability to sustain and grow their profit margins, you can also read the 10 Best High Margin Growth Stocks to Buy Now.
5. NVIDIA Corporation (NASDAQ:NVDA)
Operating Margin: 38.27%
Number of Hedge Fund Holders: 84
NVIDIA Corporation (NASDAQ:NVDA) is a leading manufacturer of graphics processing units and integrated circuits that power high-performance computers and data centers. On August 8, NVIDIA Corporation (NASDAQ:NVDA) announced preliminary earnings results for its fiscal second quarter of 2023. The company expects its data center revenue to grow by 61% year-over-year.
NVIDIA Corporation (NASDAQ:NVDA) has the ability to integrate rising input costs into its products and therefore maintain its profitability. As of August 24, the stock has a trailing twelve-month operating margin of 38.27%.
On August 9, Susquehanna analyst Christopher Rolland revised his price target on NVIDIA Corporation (NASDAQ:NVDA) to $210 from $220 and reiterated a ‘Positive’ rating on the shares. The analyst noted that the company will continue buybacks while maintaining strong free cash flow. As of August 24, NVIDIA Corporation (NASDAQ:NVDA) has free cash flow of $7.92 billion.
At the close of Q2, 84 hedge funds were long NVIDIA Corporation (NASDAQ:NVDA) with stakes worth $3.31 billion. That was down significantly from 102 positions in the previous quarter with stakes worth $6.35 billion. As of June 30, Fisher Asset Management owns over 7.59 million shares of NVIDIA Corporation (NASDAQ:NVDA) and is the leading shareholder in the company.
Here is what ClearBridge Investments had to say about NVIDIA Corporation (NASDAQ:NVDA) in its “Large Cap Growth ESG Strategy” second-quarter 2022 investor letter:
“Chipmaker Nvidia (NASDAQ:NVDA) has also been pressured by multiple compression of higher growth companies and weakness in its gaming business. While Nvidia has grown into a top 10 position with its strong performance through late 2021, we have been consistently trimming the position to derisk against short-term volatility in its gaming business. The company is clearly exposed to the semiconductor cycle but also participates in the secular growth of cloud and AI adoption through its data center business. With these secular drivers intact and new products ramping up in the second half of the year, we are maintaining an overweight to the company.”
4. Apple Inc. (NASDAQ:AAPL)
Operating Margin: 30.53%
Number of Hedge Fund Holders: 128
Apple Inc. (NASDAQ:AAPL) is among the few companies that have managed to maintain strong consumer demand for its products in 2022, and therefore its profitability. The company’s position allows it to have significant pricing power over rivals, and pass on higher costs to consumers.
According to research firm Counterpoint Research, Apple, Inc. (NASDAQ:AAPL) recorded 147% year-over-year growth in the Chinese smartphone market in Q2, and accounted for 46% of the country’s total market share. As of August 24, Apple Inc. (NASDAQ:AAPL) has gained 12.1% over the past twelve months and has a trailing twelve-month operating margin of 30.5%.
This month, KeyBanc analyst Brandon Nispel raised his price target on Apple Inc. (NASDAQ:AAPL) to $185 from $177 and reiterated an ‘Overweight’ rating on the shares. The analyst is bullish on Apple Inc. (NASDAQ:AAPL) because of the strong demand trends for its products.
At the end of Q2, 128 hedge funds were long Apple Inc. (NASDAQ:AAPL) with stakes worth $143 billion, compared to 131 positions in the preceding quarter with stakes worth $182 billion. As of June 30, Berkshire Hathaway owns roughly 895 million shares of Apple Inc. (NASDAQ:AAPL) and is the largest shareholder in the company. The investment covers 40.76% of Warren Buffett’s 13F portfolio.
Here is what Wedgewood Partners had to say about Apple Inc. (NASDAQ:AAPL) in its second-quarter 2022 investor letter:
“Apple grew revenues +9%, driven by +17% growth in the Services segment. While iPhone revenues grew a modest +5%, it was on an exceptional year ago comparison of +66%. iPhone continues to capture most industry smartphone profits by focusing on high-end price tiers. Apple is taking nearly two-thirds of the revenue share in the premium ($400 and above) smartphone segment. Further, most of the growth was driven by expansion in the “ultra-premium” price tier of $1000 or more per unit.[1] As we have highlighted in the past, Apple’s relentless focus on the development and integration between hardware (especially integrated circuits) and software continues to add significant value for customers of its products and services. We expect this favorable competitive dynamic to continue for the foreseeable future.”
3. Alphabet Inc. (NASDAQ:GOOG)
Operating Margin: 29.65%
Number of Hedge Fund Holders: 153
On July 26, Alphabet Inc. (NASDAQ:GOOG) reported fiscal Q2 earnings per share of $1.21, while it generated revenue of $69.7 billion, up 12.61% year-over-year. As of August 24, the company has a trailing twelve-month operating margin of 29.65% and free cash flow of $65.18 billion.
On July 27, Wells Fargo analyst Brian Fitzgerald revised his price target on Alphabet Inc. (NASDAQ:GOOG) to $160 from $170 and reiterated an ‘Overweight’ rating on the shares. The analyst noted that Google Search and Cloud are the two key drivers of the company’s core long-term growth and profitability.
At the end of Q2, 153 hedge funds were long Alphabet Inc. (NASDAQ:GOOG)’s class C shares, with stakes worth $22.3 billion. 191 funds were also long its class A shares, with a collective stake valued at $22.1 billion. As of June 30, TCI Fund Management owns roughly 2.47 million shares of Alphabet Inc. (NASDAQ:GOOG)’s class C shares, worth $5.41 billion. The investment covers 17.13% of TCI Fund Management’s 13F portfolio.
Here is what Wedgewood Partners had to say about Alphabet Inc. (NASDAQ:GOOG) in its second-quarter 2022 investor letter:
“Alphabet grew its core search revenues +24% on a +30% year-ago comparison. Despite this stellar top-line performance, shares sold off as the market began to discount fears of a recession. However, the stock has outperformed relative to other holdings as core Google Search has been less affected by disruptions related to Apple’s privacy initiatives. Alphabet’s Cloud segment is generating revenue at a $24 billion run rate but is still running at a loss. We think this business can generate much better margins at some point. In the meantime, the Company has 4% to 5% of shares authorized for repurchase which is an attractive use of capital as the stock trades for about just 18X 2023 consensus estimates.”
2. Meta Platforms, Inc. (NASDAQ:META)
Operating Margin: 33.40%
Number of Hedge Fund Holders: 184
Meta Platforms, Inc. (NASDAQ:META) dominates the social media industry, owning Facebook, WhatsApp, Instagram, and Facebook Messenger, some of the most widely used social media applications across the globe. The company’s strong position and market share in the industry allow it to maintain its profit margins. Moreover, the stock is currently trading at bargain levels, making now an attractive time to buy it. As of August 24, Meta Platforms, Inc. (NASDAQ:META) is trading at a P/E ratio of 14.1x and has free cash flow of $35.8 billion. The company has a trailing twelve-month operating margin of 33.40%.
On July 28, RBC Capital analyst Brad Erickson revised his price target on Meta Platforms, Inc. (NASDAQ:META) to $190 from $200 and reiterated an ‘Outperform’ rating on the shares.
At the end of Q2, 184 hedge funds held stakes in Meta Platforms, Inc. (NASDAQ:META) worth $18.2 billion, compared to 200 positions in the previous quarter with stakes worth $19.3 billion. Fisher Asset Management raised its stake in Meta Platforms, Inc. (NASDAQ:META) by 4% in Q2, giving it a holding valued at $1.86 billion. As of June 30, Fisher Asset Management owns over 11.5 million shares of Meta Platforms, Inc. (NASDAQ:META), making it the most prominent investor in the company.
Here is what Rowan Street Capital had to say about Meta Platforms, Inc. (NASDAQ:META) in its first-half 2022 investor letter:
“Now, there are valid concerns around Meta Platforms, Inc. (NASDAQ:META) business like competition from TikTok, Apple privacy update on iOS (reduced effectiveness of targeted ads), and heavy capital investments in the Metaverse (Reality Labs Division).
Meta’s revenue growth slowed to just 7% in recent quarter, and it ramped up its spending at the same time on new short videos for Facebook and Instagram, which could eventually widen its moat against TikTok; and its unprofitable Reality Labs segment, which produces its virtual reality (VR) and augmented reality (AR) devices. The combination of slowing sales and rising expenses spooked investors, and the bears were convinced that Meta’s high-growth days are over.
Combine that with the mounting macro concerns and a huge sell-off in growth stocks and we have Meta currently trading like a cyclical energy stock selling at just 14x this year’s earnings and 12x 2023 estimated earnings. In 2021, they generated $13.68 in free cash flow per share, which translates to ~10% free cash flow yield based on trailing numbers (obviously their cash flow can decline). On a price-to-sales basis, stock trading at just 3.6x (see below) — all-time low…” (Click here to read more)
1. Microsoft Corporation (NASDAQ:MSFT)
Operating Margin: 42.05%
Number of Hedge Fund Holders: 258
Microsoft Corporation (NASDAQ:MSFT) is a well-managed software behemoth and one of the largest cloud infrastructure services providers. On July 26, the company released its fiscal 2022 fourth quarter earnings report. The company’s revenue grew 12.38% year-over-year to come in at $51.9 billion. Microsoft’s Azure cloud platform grew its 365 consumer subscriber base to 59.7 million during the quarter, while its Intelligent Cloud revenue grew to $20.9 million, up 20% year-over-year. Overall server and cloud services revenue grew by 26% year-over-year. Microsoft Corporation (NASDAQ:MSFT) reported that its fiscal 2022 revenue amounted to $198 billion, up 18% year-over-year, while its net income was $72.7 billion, up 19% year-over-year.
On July 27, Cowen analyst J. Derrick Wood revised his price target on Microsoft Corporation (NASDAQ:MSFT) to $320 from $330 and reiterated a buy-side ‘Outperform’ rating on the shares. The analyst sees Microsoft Corporation (NASDAQ:MSFT) capturing further market share in the current environment.
As of August 24, Microsoft Corporation (NASDAQ:MSFT) shares offer a forward dividend yield of 0.86% and the company has trailing 1-year free cash flow of $65.1 billion. The company also has a trailing twelve-month operating margin of 42.05%.
At the close of Q2 2022, 258 hedge funds held stakes in Microsoft Corporation (NASDAQ:MSFT) worth $56 billion, compared to 259 hedge funds in the previous quarter with stakes worth $65.6 billion. Fisher Asset Management raised its stake in Microsoft Corporation (NASDAQ:MSFT) by 3% during Q2, building a $7.36 billion position in the stock. The investment covers 5.21% of Ken Fisher’s 13F portfolio.
Here is what Carillon Tower Advisers had to say about Microsoft Corporation (NASDAQ:MSFT) in its first-quarter 2022 investor letter:
“Stock selection contributed the most while sector allocation was also positive. An underweight to communication services and an overweight to energy helped performance, while an underweight to consumer staples and an overweight to materials detracted. Stock selection was strong within healthcare and materials but was weak within information technology and industrials. Microsoft (NASDAQ:MSFT) reported positive results driven by personal computing strength, but analysts were especially positive on its growth outlook for its Azure cloud-computing services.”
You can also take a look at 10 Best Growth Stocks to Buy Right Now and 10 Best Tech Growth Stocks to Buy Right Now.
