When investors look back on 2023, rapidly rising interest rates, receding inflation, a potential recession (or the avoidance of it), and artificial intelligence (AI) mania will dominate the discussion. All these topics have broad implications for the economy, but they only offer vague clues about where to look for winning companies across industries.
If you are looking for more clear-cut clues about where to invest based on the headlines, a look at the companies that Wall Street analysts are reporting on can be an excellent starting point. While analysts are just as fallible as anyone when it comes to stock picking, they have resources to help them generate insights that investors can use. When doing due diligence on stock picks, it helps to seek out multiple sources. Just remember that we all have different investing goals and that should be factored into whatever analyst opinions you study.
With this in mind, let's look at three diverse growth stocks that Wall Street thinks could soar.
1. Secular opportunity and strong execution at Progyny
The average age of birth mothers in the U.S. has risen from 21 in the 1970s to over 27 now. The median age is now 30, and many women are having babies while in their 40s. Starting careers, wanting to be financially stable, and many other factors influence the decision. Regardless of why they wait, pregnancy at a later age can lead to fertility complications.
People who have gone through fertility treatments (or know someone who has) also know the treatments can be incredibly costly. This is where Progyny (PGNY -1.42%) can be a lifesaver (or, more accurately, a life creator). Progyny provides insurance coverage for various fertility treatments using a preferred network of specialists in all 50 states. It also provides support for adoption and surrogacy.
Progyny focuses on offering these services through employers who provide them to their employees. With the tight job market, employers look to provide the best benefits to lure top talent, and having a supplementary insurance program like this can be a valuable perk for certain employees.
Like most other insurers, Progyny makes money by charging the employers monthly premiums and usage-based costs (which may or may not be passed along to the employee). As a small company, its biggest challenge is growing its client base. This leads to revenue growth, and Progyny has been highly successful at both, as shown below.
Data source: Progyny.
The chart references the first quarter of each year since most companies choose their insurers when the calendar year changes. This makes Progyny's Q1 client increases the most anticipated metric each year. The company increased its base by 44% in 2023, grew trailing 12-month (TTM) sales by 58%, and expects sales over $1 billion in calendar 2023 -- not bad for a company with a market cap of only $3.6 billion.
Progyny is also profitable and cash-flow positive with a strong balance sheet. These are all reasons Wall Street analysts are unanimous with five "buys" on the stock and an average stock price target of $50, or 38% higher than the closing price.
If you are looking for profitable growth in an emerging market, Progyny is a terrific choice. Just be aware that small-market-cap companies are a bit more risky than their larger peers and the stock price can be a bit more volatile as it grows.
2. Intuitive Surgical stays on the cutting edge
Robotic-assisted surgery is another rapidly growing industry, and Intuitive Surgical's (ISRG 0.59%) da Vinci system holds 80% of the global market. This is a massive advantage because competitors' entry barriers are extraordinary due to regulations and research and development costs.
Intuitive makes money through a "razor and blades" approach. First, it sells the system, but then it makes most of its revenue from recurring sources like instruments, accessories, and services. This is the key to long-term success. Intuitive will make more money as the market gets saturated. There were 8,042 systems installed as of the second quarter of 2023, an increase of 13% from the prior year.
Being far and away the market leader has made Intuitive hugely profitable. Its operating margin this year is 25%, and its operating cash flow margin is 30%. Intuitive has no long-term debt and a cash-and-investments hoard of $7.1 billion.
Wall Street gives Intuitive a high price target of $400 with a median of $371.50, compared to the current stock price of $297. There are 17 overweight or buy ratings, 11 holds, and just one underweight rating from the pros.
Intuitive still has a long runway due to our aging population, so it is worth a look for investors looking for profitable growth blessed by Wall Street.
3. Nvidia
Nvidia (NVDA 6.18%) needs little introduction at this point. The chipmaker's stock has soared over 200% this year on spectacular performance (and a little bit of hype). But make no mistake, much of this hype is earned. Wall Street has a high price target of $1,100, or 140% higher than the current price, on the stock with a median target of $615.
What's the big deal about Nvidia and AI, anyway? Many experts believe AI and machine learning will be as transformational to society as the internet was, and these applications require immense amounts of data processed at lightning-fast speeds. Nvidia's GPUs are the most sought-after in the business, bar none.
As shown below, Nvidia's revenue and free cash flow have skyrocketed, reaching $33 billion and $10 billion over the TTM.
NVDA Revenue (TTM) data by YCharts.
The recently released Q2 earnings of fiscal year 2024 were stunning, with sales doubling over the prior year (you read that right) to $13.5 billion. Operating income grew more than 200% to $6.8 billion (a ridiculous 50% margin), and the company announced a $25 billion share buyback program.
Management's comments on the earnings call indicate demand is still increasing as the AI wave builds. It's easy to see why Wall Street is enthusiastic about Nvidia. The stock looks like a tremendous buy for long-term investors. However, since it has soared this year and draws a ton of retail interest, dollar-cost averaging your way into this stock is wise to take advantage of dips in the price.
