So far in 2015, the S&P 500 has been mostly flat, with the broad-based index hovering around breakeven as investors prepare to close out the year. But growth stocks have modestly outperformed. For instance, the S&P 500 Growth Index is up about 3% year to date, while the S&P 500 is down 1% year to date.
If you're looking for growth stocks for 2016, here are a few ideas from some of our contributors.
Earlier this month, Wall Street appeared torn about what to think after Ambarella released quarterly results that significantly beat expectations -- revenue climbed an impressive 41.9% year over year, while earnings per share rose 65.6% -- but followed by suggesting near-term weakness in the wearable sports camera market would negatively impact growth over the next two quarters. Specifically, the video processing chip specialist expects revenue in its current quarter (fiscal Q4 2016) will be in the range of $65 million to $67.5 million, up only slightly from $64.7 million in the year-ago period. What's more, the effects of these headwinds are expected to extend into Ambarella's following quarter as well, causing fiscal Q1 sales to fall slightly on a year-over-year basis.
After that, however -- and once customers in the wearable camera space sell through their excess inventory -- all of Ambarella's core markets should resume growing on a year-over-year basis, especially as new products hit the market and it works to diversify its revenue base with new market verticals. To be sure, Ambarella's longer-term guidance calls for full-year fiscal 2017 revenue growth between 15% and 20% in spite of its rough beginnings.
With shares down more than 50% over the past six months as of this writing, I think Ambarella's stock price already reflects this near-term weakness, and offers patient investors a perfect chance to pick up this promising growth stock early in its long-term story.
Brian Feroldi (Teligent): Investors who are looking for a company that offers huge growth potential in 2016 might want to consider giving Teligent (NASDAQ:TLGT) -- the company formerly know as IGI Laboratories -- a look. Teligent is a specialty generic pharmaceutical manufacturer focused on creating products for the topical, injectable, complex, and ophthalmic markets. The company creates generic copies of specialty pharmaceutical products that have lost patent protection and sells them to pharmacies nationwide at a discount, allowing it to steal market share.
Teligent boasts an impressive backlog of 31 products that are currently pending FDA approval, and as those products hit the market, the company's revenue should leap higher. Analysts expect that Teligent's revenue will jump 79% in 2016 and that the company will produce a yearly profit for the first time. If Teligent can hit those targets, it will substantially reduce its current risk profile, which the market may reward with a higher valuation.
Taligent has been a massive winner for several years now, and with it poised to show strong revenue growth and profitability in the year ahead, I think this stock could be an interesting choice for investors with an above-average tolerance for risk.
Celgene is set to deliver top-line sales growth of 21% in 2016, according to Wall Street's forecasts, with projected full-year EPS growth of 19% to $5.75 per share. Celgene's growth comes as the result of strength in its triumphant trio: multiple myeloma blockbuster Revlimid; breast, pancreatic, and lung cancer drug Abraxane; and anti-inflammatory pill Otezla.
Revlimid has been Celgene's workhorse for years, accounting for just shy of two-thirds of its total revenue. Expected to deliver $5.7 billion to $5.8 billion in 2015, Revlimid could see its sales top $7 billion by 2017. Increased demand, superior market share, and higher prices are all working in Revlimid's favor. It also doesn't hurt that Celgene is looking to expand Revlimid's use into about a half-dozen new indications.
The same can be said for Otezla, which could net as much as $2 billion in sales by 2017 (it was just launched in 2014). Otezla is being studied in a half-dozen additional indications that could help it rapidly expand. Abraxane is also being examined as a potential treatment for triple-negative breast cancer.
Celgene's pipeline is also mouthwatering. The purchase of Receptos for $7.2 billion gave Celgene access to ozanimod, a drug likely to be a next-generation relapsing multiple sclerosis treatment. Ozanimod has the potential to peak between $4 billion and $6 billion annually in sales. It also has exciting collaborations that are examining CAR-T drugs, anti-cancer stem cell drugs, IDH-mutation-targeting drugs, and cancer immunotherapies, as well as other inflammation and immunology targets.
Altogether, Celgene's recipe for growth could deliver 20%-plus year-over-year revenue increases for multiple years to come, yet its PEG ratio of less than one implies it's still incredibly cheap. This is a growth stock that I expect to have a good year in 2016.
Evan Niu, CFA (WisdomTree Investments): For my top growth stock for 2016, I'm going with WisdomTree Investments (NASDAQ:WETF). ETFs have been on a precipitous rise for two decades, since they are more approachable than mutual funds and offer far greater tax efficiency for investors. Investors are also wary of trying to pick active mutual fund managers that might beat the market, since most of them fail to do so anyway, and many are now perfectly happy going with a passive indexed approach.
This secular trend is a major opportunity for ETF providers like WisdomTree. Vanguard is the elephant in the room here, but Vanguard isn't publicly traded and uses a unique ownership structure where clients are the owners. Pure-play WisdomTree is an attractive candidate, though. Revenue last quarter jumped a solid 71% to $80.8 million, while net income more than doubled to $23.3 million. The company continues to grow assets under management, or AUM, at an impressive clip, jumping 48% over the past year to $53 billion total.
More recently, shares took a beating after the European Central Bank cut short-term rates, which caused the U.S. dollar to fall. This hurts some of WisdomTree's most popular and profitable products, hedged currency ETFs. But in the long run, the continued rise in popularity of ETFs should help WisdomTree recover.
I'm also putting my money where my mouth is -- I recently added to an existing position in WisdomTree just a few weeks ago to take advantage of the likely temporary price dip.