The end of the year is always a good time for investors to evaluate their investment holdings to see if any adjustments could strengthen their portfolios for the new year. If you're in need of growth stocks that can hold up relatively well when the rest of the market is shaky, you're in the right place.
Google parent Alphabet (GOOGL +0.37%) (GOOG +0.52%), Mastercard (MA 0.36%), and Costco Wholesale (COST +0.17%) all have long records of delivering superior returns to investors. These companies' recent growth in the face of mounting headwinds for consumer spending over the past year has pushed these growth stocks higher this year. Here's why these industry leaders are great buys in December.
1. Alphabet
Alphabet stock has climbed 390% over the last decade as it remains one of the leading digital advertisers, with valuable assets like Google Search and YouTube. Investments in artificial intelligence technology will help Google deliver better performance for advertisers, and that will ultimately translate to more growth and returns for investors.
NASDAQ: GOOG
Key Data Points
Alphabet has solid momentum in digital advertising already. Search and other revenue grew 11% year over year in the third quarter, while YouTube ad revenue grew 12% year over year. Solid growth in these businesses, along with improving profitability in Google Cloud, which also benefits from AI demand, pushed the stock up 46% in 2023.
In search, Google's investments in generative AI technology will deliver more accurate results for users. The endgame for Google is more clicks on advertisements because that's what generates revenue. AI is ultimately making Google Search more useful and fun for consumers when shopping or brainstorming ideas, which will create more clickable links and more profitable growth to drive higher share prices for shareholders.
And this is just the tip of the iceberg. AI is central to everything the company does -- building apps, delivering ads, and recommending content. Alphabet generates a massive amount of cash from operations every year that can fuel investments in cutting-edge technologies. With $77 billion in free cash flow coming in the door every year and growing, Alphabet could be unstoppable in the age of AI.
Data by YCharts
The consensus Wall Street estimate expects Alphabet to grow earnings per share by 15.8% per year over the long term, but the stock trades at an average forward price-to-earnings ratio of 23.8.
2. Mastercard
Mastercard is one of the top brands worldwide, with nearly 3.3 billion cards in circulation. With an extensive customer reach, investors are ultimately gaining a royalty on global consumer spending by holding the stock, which has returned 443% over the last decade. Mastercard continues to find ways to expand its reach, setting up great prospects for more returns for shareholders.
NYSE: MA
Key Data Points
Mastercard has remained very resilient in an uncertain consumer spending environment in 2023. Revenue and net income increased by 70% and 111%, respectively, compared to the third quarter of 2020. Analysts expect revenue to grow another 12% in 2024.
The company's growth strategy centers around expanding the places that accept Mastercard. The big opportunity here is with the emergence of digital ordering and delivery. New delivery services are transforming what used to be a single transaction at a store into as many as three transactions between the customer, the delivery driver, and the merchant. This significantly expands Mastercard's addressable market.
Over the last five years, Mastercard doubled the number of acceptance points for its card. The adoption of digital wallets on phones is allowing Mastercard to deliver financial services in emerging markets.
The world is a big place, and that's why Mastercard should be able to grow for a long time. It's also why investors are willing to pay a high forward P/E of 34 for the stock right now. It's not too expensive considering the company's long runway of growth and global brand dominance. Wall Street's long-term earnings growth estimate is currently 19% on an annualized basis.
3. Costco Wholesale
Costco is a simple business that wins customers by selling quality merchandise at rock-bottom prices. It's a formula that has worked for decades and continues to reward investors. The stock has nearly tripled in value over the last five years. While it may not continue to climb at that rate, it has one advantage over the competition that should keep the business growing in value for years to come.
NASDAQ: COST
Key Data Points
Costco warehouses are fun to shop at. Customers pay the annual membership fee for access, which helps fuel most of the company's operating profit.
But the key ingredient to Costco's success is what goes on behind the scenes. The warehouses are stacked high to the ceiling with huge quantities of goods, but Costco is very good at buying only what it knows is going to sell. Costco's inventory turnover ratio -- a measure of how many times it has sold and replaced inventory over a given period -- is well above those of other leading retailers.
Data by YCharts
Costco generates razor-thin margins on sales, which makes high inventory turnover essential to its success. High customer demand for items is ultimately linked to Costco's stellar financial results, especially where it matters most. Over the last 10 years, Costco has grown earnings per share at an above-average rate of 11.8% per year.
Costco's no-frills, high-volume purchasing business strategy won't become obsolete with technological changes. This is why the market is willing to pay a high forward P/E of 39 for the stock, despite annualized earnings growth estimates of 10% over the long term. It's expensive, but Costco has never looked cheap by traditional valuation metrics.
A new investor who starts buying shares at regular intervals and holds for 20 years will build an investment in a resilient business that could pay dividends for a lifetime. The stock's dividend yield sits at 0.67%, but investors can also look forward to occasional special dividends that boost the payout with one-time larger payouts. The last special dividend was $10 per share in 2020.
