Volatility is an inherent aspect of the stock market, particularly evident in growth stocks. While these stocks often experience sharp declines during sell-offs, they are also among the first to rebound when broader market rallies ensue.
Viewing these downturns as opportunities to acquire high-quality businesses at discounted valuations can be advantageous. Preparation, such as maintaining a watch list, ensures readiness to capitalize on opportunities during cyclical downturns.
With this objective in mind, let’s explore some exceptional growth stocks worth considering during a stock market sell-off.
1. Microsoft
Microsoft (NASDAQ: MSFT) stock currently trades at a relatively high valuation, standing at approximately 14 times annual sales. This places it among the premium-priced tech leaders in the market. For context, Apple shares are valued at 7 times revenue, while Amazon is even more affordable at just 3 times sales.
Despite its steep valuation, Microsoft remains a favorite among investors due to its diverse growth opportunities. The company is deeply entrenched in the artificial intelligence (AI) sector, benefiting from its OpenAI partnership and integrating AI technology across its software portfolio. Moreover, Microsoft’s rapidly expanding enterprise services division contributes to its robust sales growth, evidenced by a notable 16% increase in revenue in the most recent quarter.
2. Costco
Costco Wholesale (NASDAQ: COST) shares often don’t appear to be undervalued, unlike the consumer staples products the warehouse giant sells in large quantities. Over the past year, the stock has been a significant winner for investors, surging by over 40% compared to the broader market’s 26% increase. This rally has propelled its valuation to over 1.3 times sales, double the rate for rival Walmart. Given this valuation, it might be prudent to await a market decline before considering investing in Costco stock.
Certainly, Costco is currently experiencing robust performance across various metrics. Customer traffic is on the rise, membership renewal rates have reached record highs, and the company’s online business is attracting shoppers, thanks to innovative merchandise offerings like the recent trend around gold bars. However, there’s a possibility of investor disappointment this year, particularly concerning high expectations regarding a potential membership fee hike and increasing profitability.
I would consider buying the stock if there’s a pullback resulting from the company slightly missing the lofty Wall Street targets.
3. Meta Platforms
Meta Platforms (NASDAQ: META) stands out as one of the standout performers among the “Magnificent Seven,” having surged over 130% over the past year. This rally is well-justified, given the remarkable momentum of the social media giant’s business. Despite challenges in the digital advertising landscape, Meta witnessed a 16% increase in revenue last year, with earnings skyrocketing by 66% to $39 billion. CEO Mark Zuckerberg remarked on the company’s strong performance in a February press release, stating, “We had a good quarter as our community and business continue to grow.”
With anticipation mounting for further earnings growth once the digital advertising market rebounds, Wall Street is closely monitoring metrics like the average price per ad for indications of recovery in the upcoming quarters. Meanwhile, investors may want to keep Meta on their watch list, particularly in case a downturn presents an opportunity to acquire shares at a more attractive valuation. Currently, the stock appears a bit pricey, trading at a premium of 33 times earnings.
