As the bear market drags on, it might be tempting to park all of your excess cash in stable income-generating investments like CDs and Treasury bills. However, bear markets can also be a great time for investors to accumulate shares of promising growth stocks -- as long as they can afford to ride out the near-term volatility.
Investors who are shopping around should look for companies with long growth runways and wide moats. These three no-brainer buys check all the right boxes: Microsoft (MSFT 0.26%), Wolfspeed (WOLF +0.00%), and Mobileye (MBLY 1.09%).
Image source: Getty Images.
1. Microsoft
Microsoft became an exciting growth stock again over the past decade after it prioritized the expansion of its cloud, mobile, and AI ecosystems. Between fiscal 2014 and fiscal 2022 (which ended last June), its annual revenue rose at a compound annual growth rate (CAGR) of 11% as its adjusted earnings per share (EPS) grew at a CAGR of 15%.
NASDAQ: MSFT
Key Data Points
Those stable returns were driven by the expansion of Azure into the world's second-largest cloud infrastructure platform after Amazon Web Services, fresh iOS and Android versions of its desktop and productivity software, the evolution of Windows into a cloud-based OS, and the growth of its Xbox gaming and Surface divisions.
Some of those businesses face near-term macro headwinds, but Microsoft continues to plan for the future with its pending acquisition of Activision Blizzard, its investments in ChatGPT, and the expansion of Teams into a prisoner-taking enterprise ecosystem to support the long-term growth of its software and services.
Between fiscal 2022 and fiscal 2025, analysts expect Microsoft's revenue to grow at a CAGR of 10% as its EPS rises at a CAGR of 9%. We should take those estimates with a grain of salt, but Microsoft still looks reasonably valued at 27 times forward earnings -- and it could have plenty of room to run as the cloud and AI markets expand.
2. Wolfspeed
Wolfspeed is a leading producer of wide-bandgap (WBG) semiconductors, which are manufactured with silicon carbide and gallium nitride to operate at higher voltages, temperatures, and frequencies than traditional chips. That resilience makes WBG chips well-suited for short-length LEDs, lasers, 5G base stations, military radars, and powertrains for electric vehicles.
NYSE: WOLF
Key Data Points
The WBG market represents a small niche of the global chip market, but it's a resilient one that should profit from the growth of the EV market while being insulated from the post-pandemic slowdown of the PC and smartphone markets.
Wolfspeed grew its revenue by 42% to $746 million in fiscal 2022 (which ended last June) as it notched more customer wins and opened the world's first fully automated 200mm silicon carbide fab in New York state. Between fiscal 2022 and 2025, analysts expect its revenue to rise at a CAGR of 39% as its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) grows at a staggering CAGR of 157%.
Wolfspeed's stock isn't cheap at 9 times this year's sales, but its dominance of the WBG niche justifies that slight premium. Its low enterprise value of $8.7 billion should also make it a tempting takeover target for a bigger chipmaker.
3. Mobileye
Mobileye is the world's top producer of ADAS (advanced driver assistance systems), which utilize a mix of cameras, sensors, and chips to help drivers park their vehicles, stay in a single lane, and access other advanced driving features. These systems are powered by Mobileye's own EyeQ computer vision chips, which are manufactured by its partner STMicroelectronics. Mobileye was acquired by Intel in 2017, but Intel spun off the Israeli chipmaker in a fresh IPO last October.
NASDAQ: MBLY
Key Data Points
In 2022, Mobileye's revenue rose 35% to $1.9 billion -- even as it faced some difficult supply chain constraints at STMicro -- and it expects to generate 17%-22% growth in 2023. Between 2022 and 2025, analysts expect its revenue to grow at a CAGR of 29% as its adjusted EBITDA rises at a CAGR of 26%.
That robust growth will likely be driven by the expansion of the driverless vehicle market, which Mordor Intelligence estimates will grow at a CAGR of 23% between 2022 and 2027. The latest version of Mobileye's EyeQ chips are already built for fully autonomous vehicles, and it will likely leverage its dominance of the ADAS market to lock in more automakers.
Mobileye's stock might seem a bit pricey at 13 times this year's sales and 46 times its adjusted EBITDA, but it remains one of the best long-term plays on the driverless market -- so it's definitely a no-brainer stock to buy right now.
