Growth stocks have gotten the wind knocked out of them over the past year on fears that the global economy is slowing down. That could impact the growth rates of companies with more economically sensitive businesses.
However, some companies are relatively immune to economic downturns because they're benefiting from longer-term growth trends that likely won't slow during a recession. That makes them ideal growth stocks to buy now that their stock prices are lower. Three that stand out as good buys right now for those with around $1,000 to invest are Palo Alto Networks (PANW 4.19%), Prologis (PLD 0.72%), and NextEra Energy (NEE 1.36%). They're relatively low risk and have lots of visible growth ahead.
Cashing in on cybersecurity
Palo Alto Networks is a global leader in cybersecurity. The company is growing rapidly, powered partly by its next-generation security innovations. Revenue was up 29% in its last fiscal year, driven by 60% growth in next-gen security offerings. Meanwhile, the company is converting one-third of every dollar of sales into free cash flow. That's giving it the cash to continue innovating and repurchasing its stock.
Despite concerns of an impending economic slowdown, Palo Alto Networks expects its strong sales growth to continue over the next fiscal year. It sees total revenue surging more than 25%, powered by 37% to 40% growth in next-gen security. Meanwhile, it expects an even higher adjusted free cash flow margin, setting it up to produce more cash in the coming year to drive innovation and repurchase shares.
With cyber risks growing, Palo Alto should be able to continue expanding its sales rapidly in the future. Meanwhile, its ability to generate free cash flow gives it the capital to continue investing even if market conditions deteriorate so that it can keep growing.
Enormous embedded growth
Prologis is a global leader in logistics real estate. The real estate investment trust (REIT) has a vast warehouse portfolio that it leases to e-commerce companies and other businesses under long-term contracts. Demand for warehouse space is robust these days, powered by the growing adoption of e-commerce and a shift in inventory management practices from "just-in-time" to "just-in-case" because of persistent supply chain issues.
Prologis thus has limited available warehouse capacity. As a result, rental rates are skyrocketing as businesses scramble to lock up space as it becomes available. Rents on new and renewal leases were 46% above the rates of expiring leases in the second quarter. That pushed the difference between its existing lease rates and the market rate to 56%. The company estimates its net operating income will grow at a more than 8% annual rate through 2025 as existing leases expire, and it captures current market lease rates. That assumes no further increase in rental rates, which seems unlikely, given the continued growth in demand.
On top of that embedded rent growth, Prologis has an active development program. Those new warehouses will grow its portfolio and rental income. The company is also working to acquire its closest rival, Duke Realty, in a $26 billion deal. The highly accretive acquisition will further boost its development pipeline and embedded rent growth upside. These drivers position Prologis to grow at a double-digit rate for years to come.
Plugged into a powerful megatrend
NextEra Energy is leading the decarbonization of the U.S. power system. The utility is investing heavily to expand its renewable energy generation capacity to supply the country with more clean power. It plans to invest $85 billion to $95 billion through 2025.
That investment level should support adjusted earnings-per-share growth of roughly 10% per year at the high-end of its guidance range. Meanwhile, the company expects cash flow to grow at or above that rate. This outlook supports NextEra Energy's plans to increase its dividend by around 10% annually through at least 2024.
The utility expects to continue growing rapidly for years to come. Its Real Zero strategy will see it eliminate carbon emissions from its operations by 2045 by investing heavily in solar energy, battery storage, renewable natural gas, and green hydrogen at its Florida-based utility. In addition, its energy resources segment expects to invest in building new wind, solar, battery storage, and electricity transmission lines to help decarbonize the U.S. economy. That sets it up to capitalize on a $4 trillion commercial opportunity through 2050.
The power to continue growing
A potential slowdown in the economy has weighed on growth stocks this year, and shares of Palo Alto Networks, Prologis, and NextEra Energy are all down. Those lower prices make them look like great buys right now since they expect to continue growing rapidly even if the economy slows.
