Growth stocks have been the talk of the town in 2023. Unlike stable dividend-paying companies, which tend to be established, many growth-orientated companies are valued based on what they will become in the future, not where they are in the present. Bullish stock markets coincide with investor optimism, which can help fuel a rally in growth stocks.
First Solar (FSLR 2.12%), Woodward (WWD 0.56%), and LanzaTech Global (LNZA 7.73%) have posted incredible gains. Here's why each growth stock has what it takes to continue roaring higher.
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1. A simple yet effective solar stock
Daniel Foelber (First Solar): First Solar stock has been on a tear and is up more than 200% in the last year. But before the recent run-up, the stock had gone practically nowhere over the last decade.
The recent enthusiasm toward First Solar is centered around the company's panel improvements, technology, and its industry-leading position when it comes to U.S.-based panel manufacturers.
First Solar is a major beneficiary of the Inflation Reduction Act (IRA), which provides tax incentives for domestic production of renewable energy. First Solar has a major advantage over project developers, investors, and utilities because it doesn't have to go through the capital-intensive process of building out a project and waiting years for it to pay off. Rather, First Solar can simply respond to customer orders.
The company's revenue has stalled, and its profits have plunged as it builds out its production capacity. But the investments should be well worth it to fulfill customer demand. Perhaps the greatest reason why First Solar has experienced massive growth is because of its growing order backlog --which explains the surge in expenses.
FSLR Revenue (TTM) data by YCharts.
In August 2022, First Solar announced $1.2 billion in additional investments to scale its U.S. manufacturing capacity.
Consensus analyst estimates for 2023 are $7.25 in earnings per share (EPS) and $12.85 in EPS in 2024. Given the projected earnings growth, it's easy to see why First Solar stock isn't all that expensive even after its run-up.
2. Woodward's end demand ensures strong growth in the coming years
Lee Samaha (Woodward): If you want to know about an industrial company's end markets, look at what its significant customers are doing. Woodward is a manufacturer and service provider to the aerospace and industrial markets. Digging into its 10-K SEC filings, the company's list of its significant customers (those responsible for 10% or more of its sales individually) includes Boeing, Raytheon, General Electric (in aerospace), and Caterpillar (industrial business).
In aerospace (64% of 2022 sales), Woodward primarily supplies the original equipment market (OEM) and has significant content that ends up on the Boeing 737 MAX and Airbus A320 neo family of aircraft -- the two narrow-body airplanes that are the workhorses of the skies. Woodward provides fuel pumps, metering units, actuators, valves, and actuation systems.
Both Boeing and Airbus are aggressively ramping up production of these airplanes as they seek to deliver on multiyear backlogs. This ensures that end demand will remain strong for Woodward as the commercial aerospace industry recovers from a difficult period caused by travel restrictions imposed on the populace. GE and Raytheon are major suppliers for these airplanes.
Turning to its industrial end markets (36% of 2022 sales), it manufactures and sells valves, actuators, and systems used in industrial gas turbines. These products are used in Caterpillar's energy & transportation sales -- a segment whose sales grew 24% in the recently reported first quarter.
The strength in demand leads Wall Street to expect Woodward's sales to increase 16% in 2023 and nearly 7% in 2024. As such, investors in the stock can expect tremendous earnings growth for at least the next few years.
3. LanzaTech is capturing carbon and putting it to good use
Scott Levine (LanzaTech): Before considering a position in this growth stock, it'd be best to look for a pair of oven mitts, considering how red-hot it is. Over the past month, shares of LanzaTech, an innovator in carbon capture, have skyrocketed more than 56% -- far outpacing the S&P 500, which has risen 5.2%. And the company is still in the early innings of its development, making it a stock that has the potential to soar even higher.
What's fueling the stock's recent rise? Aside from the overall bullish sentiment that has been building in the markets, LanzaTech announced two positive bits of news that stoked investors' excitement. In mid-May, the company announced that it, along with partner Plastipak Packaging, has used captured carbon emissions to produce the world's first polyethylene terephthalate (PET) resin -- a product that's suitable for variable packaging applications, including food, personal care, and pharmaceuticals. Several weeks later, LanzaTech reported that it had made progress in advancing the development of a facility in Belgium that captures carbon emissions from an ArcelorMittal steel mill and uses them to create ethanol.
Investors celebrated these two announcements as important validations of LanzaTech's carbon capture and utilization technology. Besides PET resin and ethanol, LanzaTech intends to use captured carbon to help produce other materials like glycols, surfactants, and sustainable aviation fuel. In total, LanzaTech estimates that its total addressable market for these products is $1 trillion.
Growth stocks like LanzaTech aren't for the faint of heart. There are bound to be bumps in the road as the company strives to develop future carbon capture and utilization facilities and prove that it can be a profitable endeavor. Nonetheless, there is considerable global interest in reducing our carbon footprints -- something that LanzaTech has the potential to help achieve but also commercialize.
