Growth stocks are quietly making their way back into Wall Street's good graces. After plunging last year, shares of many tech and consumer-focused businesses have rallied in the first six weeks of 2023 as fears ease about a recession on the horizon.
But smart investors know that real gains are measured in years rather than weeks. With that longer time frame in mind, let's look at why even a small initial investment in Chewy (CHWY 1.92%) or McDonald's (MCD -0.42%) could pay off over the next decade or more.
Chewy's customers are loyal
Chewy's financial metrics meet most of the standards that a growth investor might have for a stock. The pet-supply specialist is expanding sales at a double-digit rate following huge gains in earlier phases of the pandemic. Pricing power has been clear in recent quarters, and profitability is holding steady despite cost spikes.
But the bigger reason to like this stock over the next decade, shopper loyalty, is more qualitative than quantitative. You can see evidence of this loyalty in the fact that a record 73% of sales are coming from the company's subscription-based services. It also shows up in continued volume growth even though Chewy raised prices in 2022.
In contrast with many of its e-commerce peers, this platform continued to gain customers through the growth-hangover phase of the pandemic. This level of outperformance should serve shareholders well as they hold this stock over the long term.
McDonald's has options
It has been dominating a global industry for decades, but McDonald's business is still firmly in growth mode. The fast-food titan announced in late January that comparable-store sales were up 12% in the final quarter of 2022, representing a solid acceleration compared to the prior quarter. The chain is winning more customer traffic and higher spending and is increasingly leaning on new store openings to boost its footprint.
Not many companies on the market can match Mickey D's in the financial arena, either. The chain routinely turns more than 40% of sales into operating profit, making it one of the most efficient businesses on the planet. Chipotle's comparable figure is less than 14% of sales, and Restaurant Brands International, another highly franchised chain, only books a 31% operating margin.
MCD Operating Margin (TTM) data by YCharts.
McDonald's isn't a cheap stock. Shares are trading for more than 8 times annual sales compared to roughly 5 for peers like Chipotle. Yet in addition to the market-leading growth and profit figures I mentioned, McDonald's shares deliver a few extra layers of security that investors will love.
The company pays a steadily growing dividend, for one thing. And the chain has demonstrated an ability to stay ahead of big shifts in the industry, capitalizing on whatever new trend is driving fast-food fans in the moment.
That flexibility has allowed McDonald's to stay relevant more than five decades after it launched the popular Big Mac burger. That makes it a valuable asset to have in a growth portfolio aimed at beating the market over the next decade or more.
