The best US growth stocks in 2023

Growth stocks are companies that are increasing their revenue and earnings faster than the average company in their industry or the market as a whole. But investing in growth stocks involves more than just picking the stocks that are rising.

Companies that can grow faster than average tend to be rewarded by the market, providing good returns for shareholders, so the faster they grow, the higher the returns.

Unlike value stocks, growth stocks are usually more expensive than average in terms of earnings ratios such as price-to-earnings, price-to-sales, and cash flow-to-freedom ratios.

Growth stocks took a hit in the market in 2022 due to high inflation which led to underestimating the future value of their expected earnings. In addition, supply chain constraints affected the ability of some to expand, and other macroeconomic factors affected the entire economy. But this economic downturn may give long-term investors a buying opportunity while growth stock prices are low.

• Block (NYSE:SQ)
• Tesla (NASDAQ:TSLA)
• Etsy (NASDAQ:ETSY)
• Shopify (NYSE:SHOP)
• MercadoLibre (NASDAQ:MELI)
• Netflix (NASDAQ:NFLX)
• Amazon (NASDAQ:AMZN)
• Meta Platforms (NASDAQ:FB)
• Salesforce.com (NYSE:CRM)
• Alphabet (NASDAQ:GOOGL)

As this list shows, growth stocks come in all shapes and sizes, and they can be found in a variety of industries. Although all of the stocks on this list are huge companies, small companies can be fertile ground for growth investors as well.

A great way to invest in a variety of small cap growth stocks is through exchange-traded funds like the Vanguard Small-Cap Growth ETF that tracks the performance of the US Small Cap Growth Index (CRSP) and gives investors an easy way to invest in nearly 580 growing companies. at the same time.

Most importantly, the Vanguard Small-Cap Growth ETF has an extremely low expense ratio of just 0.07%. This means that investors will receive nearly all of the fund’s returns, with only a small amount of fees being transferred to Vanguard. An annual expense ratio of 0.07% equates to only $0.70 in fees for every $1,000 invested annually.

To find and invest in US growth stocks, you will need:

The first thing you need to do to find and invest in US growth stocks is to identify the trends and companies that are driving them. Companies that can take advantage of strong long-term trends can increase their sales and profits for many years, generating wealth for their shareholders along the way. The COVID-19 pandemic has accelerated several trends that were already underway such as:

Ecommerce: As more people shop online, Amazon, Shopify, and Etsy are well positioned to profit within the US.

Digital Advertising: Meta and Alphabet have the lion’s share of the digital advertising market and are poised to turn a profit as marketing budgets shift from television and print to the Internet.

Digital Payments: Block formerly Square helps accelerate the global shift from cash to digital forms of payment by allowing businesses of all sizes to accept debit and credit card transactions.

Streaming Entertainment: Millions of people are canceling their cable subscriptions and replacing them with cheaper, more convenient streaming options. As the global leader in streaming entertainment, Netflix offers a great way to capitalize on this trend.

Telework: Telework arrangements have become a necessity during the pandemic for many organizations. Studies show that the trend of remote working will continue even after the pandemic is over as companies have realized its many benefits such as flexibility and convenience.

Electric cars: The world is moving from its dependence on gasoline to the use of electricity in all its forms to power cars. Half of all car sales are expected to be electric vehicles by 2030. Tesla is the leader in its vehicle lineup and battery technologies.

The key is to try to invest in these types of trends and companies as early as possible, as the earlier you start, the higher your chance of profiting. Plus, the strongest trends can last for many years and even decades, which will give you plenty of time to claim your share of the profits you make.

To find and invest in US growth stocks, you should also prioritize companies with competitive advantages.

Competitive advantages become especially important during turbulent times like the pandemic. A strong competitive advantage will help companies survive and thrive during market downturns, while companies without a competitive advantage will struggle and may end up failing.

If you can identify stocks of companies that have strong competitive advantages, you may have an opportunity to generate massive returns. Here are some competitive advantages:

Network effects: Facebook’s Meta is a prime example here. It makes each person who joins this social networking platform more valuable to other members. Network effects can make it difficult for new entrants to replace an existing market leader, and Facebook’s 2.9 billion users certainly make it impossible for a new social media company to replace it.

Size: Amazon is a great example in this category because its massive global fulfillment network is something its smaller competitors may find very difficult to imitate or outperform.

High Conversion Costs: Conversion costs are the expenses and difficulties involved in switching to a competing product or service. Shopify, which operates as an online retail platform for over a million businesses, is a great example of a company with high conversion costs. Once a company starts using Shopify as the core of its online operations, switching over to another competitor becomes very daunting.

Finally, you should invest in companies with large addressable markets. Industry reports from research firms such as Gartner and eMarketer that provide estimates of industry sizes, growth projections, and market share figures can be very helpful in this regard.

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