Feeling overwhelmed by all the potential stock picks out there? It's challenging for veteran investors to sort through them all, but it can be downright mind-numbing for a new investor to process all the options.
To this end, newcomer investors might want to consider a couple of (related) tips in the search for growth: 1. Keep it simple, and 2. Don't get cute. In other words, don't be afraid to play it straight and go for some obvious names.
Let's take a closer look at two simple, straightforward growth stock options. It's no coincidence that both are high-profile picks, making them easy to keep an eye on.
1. Alphabet
You know the company (although some of you may know it more by a different name). Alphabet (GOOG 0.10%) (GOOGL 0.13%) is the parent of the globally dominant search engine Google, as well as the owner of the dominant digital video platform YouTube. The company also operates an "other bets" arm, though search advertising and video ads account for 90% of the company's revenue. Cloud computing makes up another 9% of its top line.
Anyone keeping close tabs on the company of late likely already knows it fell short of last quarter's earnings estimate of $1.28 per share, earning only $1.21. And, depending on how you count it, Alphabet's sales also arguably came up short of expectations; cloud revenue was particularly disappointing.
What was largely overlooked about the latest quarterly report, however, is that the company is still growing nicely despite a brewing economic headwind. Google Search's ad revenue was up 13%, while Google Network advertising sales grew 9% year over year. YouTube's ad business improved by 5%. Traffic acquisition costs swelled to the tune of 12%, explaining the surprise profit shortfall. Given the challenging backdrop, though, that's still a solid three-month stretch.
It's also why shares of Alphabet jumped following the release of its second-quarter earnings results, which didn't quite live up to expectations. If nothing else, they proved the company's business is resilient and all-weather.
The thing is, the forward progress of the quarter in question is neither new nor unusual. Alphabet's quarterly top line has only failed to grow twice on a year-over-year basis since 2010, and one of those quarters was the second quarter of 2020 when the COVID-19 pandemic was prompting shutdowns and cinching corporate advertising purse strings. This resiliency is a testament to just how much the world depends on Alphabet as a digital gateway to all the web's offerings. Although other options exist, Global Stats says Google still fields more than 90% of the world's web searches. Indeed, as long as the internet exists, Alphabet will have multiple products to monetize.
2. Microsoft
The other top growth stock for new investors to step into is just as obvious, if not more so. Microsoft (MSFT 0.98%) is not only still the king of computer operating systems, it's also the gold standard in productivity software. Despite a growing list of alternatives, some estimates still peg Microsoft's share at around half of the office-productivity software market.
The company also owns the professional networking website LinkedIn, the Xbox video gaming console, and the cloud-computing platform Azure. In fact, Azure accounts for nearly one-fourth of the global cloud computing market, according to market research outfit Canalys, with the cloud-management platform's revenue growing an impressive 40% year over year during the fiscal 2022 fourth quarter (for the three months ending June 30).
As is the case with Alphabet's offerings, it would be tough for the world to abandon all of Microsoft's goods and services.
That's not the ultimate reason, however, that a newcomer would want to buy a stake in this company, even following the stock's weakness since the end of last year. What makes Microsoft's stock compelling is the evolving nature of Microsoft's business. A growing proportion of it consists of software that is subscribed to rather than outright purchased. For example, instead of buying a stand-alone copy of its Office productivity suite of software that will eventually become obsolete, Office 365 provides its users with affordable cloud-based access to such software that's perpetually updated -- and perpetually paid for. Azure is also available on a subscription basis, along with a few other software-as-a-service offerings. The model may not provide as many big revenue jolts as the company enjoyed in the past, but as Microsoft's product base matures, the value of predictable top and bottom lines grows.
But just because the company is predictable doesn't mean shareholders are giving up great growth in exchange for predictability. Sales are forecast to grow 11.4% in fiscal 2023 (ended June 30, 2023) and then accelerate to nearly 14% in fiscal 2024, paired with a comparable earnings growth projection. That's more or less in line with the company's long-term average growth, and a glimpse at its likely long-term future. That bodes well for the stock's continued strong growth as well.
