What are the characteristics of great growth stocks? They usually represent businesses selling great products or services that create undeniable value for customers. Those could be the sleek electronics sold by Apple, or even boring water heaters sold by A.O. Smith.

Believe it or not, the latter has been a better investment since it went all-in on water technology products in 2011. Shares of A.O. Smith have delivered a total return of 491% in that span, while Apple has rewarded shareholders with a total return of "only" 322%.

That's a great example to make investors rethink where they're looking for growth stocks. We recently asked three Motley Fool contributors for their top growth investments right now. Here's why they chose Vanda Pharmaceuticals (NASDAQ:VNDA), XPO Logistics (NYSE:XPO), and HubSpot (NYSE:HUBS).

Check out the latest Vanda, XPO, and HubSpot earnings call transcripts.

A small plant growing in soil.

Image source: Getty Images.

Animal studies or not, this growth stock is cheap

Maxx Chatsko (Vanda Pharmaceuticals): Shares of Vanda Pharmaceuticals recently cratered after the company announced the Food and Drug Administration had placed a partial clinical hold on a promising drug candidate called tradipitant. Regulators won't allow the drug to be studied in human trials lasting longer than 12 weeks until the small-cap pharma conducts additional toxicology studies in dogs, primates, or miniature pigs. 

That surprised Wall Street analysts, who are penciling in peak annual sales of up to $900 million if the experimental therapy is approved for gastroparesis, its lead indication. It delivered positive results in a phase 2 trial in late 2018. That excited analysts, especially considering that the only other drug approved for the condition hit the market in 1979. That drug carries a black box warning about serious and irreversible side effects and can't be used for more than 12 consecutive weeks -- likely the cause of the FDA's overly cautious approach to tradipitant. 

While the partial clinical hold isn't expected to delay the drug candidate's development, the news still chopped $700 million off the company's market cap. That's a bit surprising given that Vanda finally became profitable in 2018 on the heels of solid growth for one of its two commercial drug franchises.

Vanda reported full-year 2018 operating income of $21.7 million, versus an operating loss of $16 million in 2017. Hetlioz, a drug approved to treat a rare sleep disorder and awaiting expanded use in jet lag, reported full-year 2018 revenue of $115.8 million. That was a healthy improvement from $89.9 million in 2017. Management expects the franchise to deliver revenue of about $140 million in 2019 and help to drive total revenue to about $220 million.

Meeting guidance while achieving the same operating margin from the fourth quarter of 2018 would result in full-year 2019 operating income of $38 million -- a 75% improvement from the prior year. 

Simply put, successful commercial operations significantly de-risk current and future drug development for Vanda. With shares trading hands at just five times sales and 28 times future earnings, the recent fallout from the FDA's partial clinical hold creates an intriguing opportunity for investors with a long-term mind-set.

A man drawing an ascending trend line.

Image source: Getty Images.

E-commerce is big business

Neha Chamaria (XPO Logistics): XPO Logistics shares were on a tear for several years until around three months ago. That's when concerns of decelerating earnings growth and -- worse -- a stinging short-seller report alleging financial irregularities in the company's books sent the stock tumbling. As of this writing, XPO shares are down nearly 25% in the last three months. XPO Logistics, however, remains a growth story that looks poised to grow faster than its industry.

While XPO operates in a competitive industry dominated by players like FedEx and United Parcel Service, its unparalleled lead in crucial "last-mile delivery" gives XPO a solid advantage. Last-mile is the most challenging lap in the e-commerce supply chain -- it includes the final delivery and even the assembly and installation of heavy goods such as home appliances and furniture at a customer's home. During its third quarter, XPO's last-mile revenue grew 12% year over year as it expanded its hub network aggressively in prior months. XPO now claims to have a last-mile presence within 125 miles of 90% of the population in the U.S., essentially positioning itself to provide package delivery to nearly the entire country.

E-commerce is big business, and XPO's initiatives -- such as a smart warehouse platform and a digital freight marketplace called XPO Connect -- should boost sales. XPO stock has had a solid run-up in recent years, which wasn't a fluke: Between 2015 and 2018, XPO should have grown its revenue at a compound annual rate of 32% (the company's fiscal 2018 numbers are about to be released).

XPO Chart

XPO data by YCharts.

Even if XPO falls short of analysts' expectations of 38% growth in earnings over the next five years, there's every possibility the company will still outgrow the industry given its foothold and growth initiatives in one of the highest-potential industries, e-commerce. With the shares still down significantly in recent months, XPO Logistics is one growth stock you might want to own now.

A woman sitting in a chair and a light bulb hovering overhead.

Image source: Getty Images.

HubSpot's growth is on target

Chris Neiger (HubSpot): If you're unfamiliar with HubSpot, just know that the company is creating a new way to help businesses connect with customers through its suite of inbound marketing services. HubSpot's cloud-based tools allow businesses to create content, send emails, keep up with potential customers -- and find new ones -- through its sales, marketing, and services hubs.

The company's business is based on a freemium model, which means HubSpot lets businesses use some of its services free, hoping they'll get hooked and sign up for the paid services. And this approach is working amazingly well so far. The company reported its fourth-quarter results this month, and total sales were up 35% year over year to $144 million, which beat the company's own guidance range. Non-GAAP earnings outpaced management's expectations as well, reaching $0.37 per share.

Subscription revenue, which is the bread and butter of HubSpot's sales, was up 37% in 2018. The company is continually building out its international footprint as well, and global sales were up 48% from the year-ago quarter. Even more impressive is the fact that the company ended 2018 with 56,628 customers, a 36% jump versus 2017. In short, HubSpot is growing its customer numbers rapidly and generating lots more revenue as it does.

HubSpot's shares have popped 69% over the past year, but there could still be a lot more runway. With the company adding more customers all the time, increasing its subscriptions sales, and expanding into more enterprise services, it looks like its growth story is just beginning.