“Growth stocks,” as their name suggests, are known for their potential to deliver substantial increases in earnings and revenue. These companies typically prioritize reinvesting in their own growth over paying quarterly dividends, which can make them more volatile. While they outperformed during the first half of the year, concerns about a hawkish Fed have led to recent selling pressure on these stocks. Now, as markets recover from last month’s lows, it’s an opportune moment to explore two growth stocks with promising long-term potential.

Meta Platforms

After a challenging year in which its stock plummeted by 64%, Meta Platforms (NASDAQ:META) has staged an impressive comeback in 2023. Year-to-date, META stock has surged by over 146%, significantly outperforming the S&P 500 Index’s 17.5% return.

Meta’s “Family of Apps” now reaches a staggering 3.8 billion individuals, a 6% increase year-over-year as of the second quarter. The company’s user base continues to expand, thanks in part to its “Year of Efficiency” strategy. This approach emphasizes generative artificial intelligence (AI) over the resource-intensive metaverse and has included cost-cutting measures, including over 21,000 job layoffs since November.

In its recent second-quarter earnings report, Meta Platforms exceeded expectations with an earnings surprise of 12.54%. The tech giant has achieved a double-digit earnings surprise in three out of the past four quarters, with reported earnings-per-share for the quarter at $3.23, surpassing estimates by 36 cents. Revenues also rose by 11% year-over-year to $32 billion, surpassing estimates of $31.12 billion, driven by a 34% year-over-year increase in ad impressions across its integrated app family.

Furthermore, Meta raised its third-quarter revenue guidance to a range between $32 billion and $34.5 billion, marking a second consecutive quarter of double-digit revenue growth. Analysts are optimistic, with expectations of a 115.24% earnings increase in the current quarter.

Barclays analyst Ross Sandler, in response to the earnings report, reiterated his bullish “overweight” rating on META and raised his price target to $410 from $320. Sandler praised CEO Mark Zuckerberg’s leadership and highlighted increasing engagement, monetization, and innovative product launches as positive signs for the second half of the year.

The majority of analysts share this optimism, with 34 out of 38 maintaining a “Strong Buy” rating, and two more calling it a “buy.” The average 12-month price target of $361.51 implies an expected rally of at least 21.7% from current levels.

Salesforce

Salesforce (NYSE:CRM), a leader in cloud computing and customer relationship management (CRM), has achieved impressive growth over the past five years, with sales and EBITDA both increasing by over 20%. The company has maintained its position as the top CRM provider for a decade.

CRM has been a standout performer this year, boasting a year-to-date gain of 66%, surpassing the S&P 500 and earning the title of the best-performing Dow stock in 2023.

In its second-quarter earnings report, Salesforce continued its trend of surpassing bottom-line estimates with an 8.49% earnings surprise. CRM reported earnings per share of $1.15, while revenues of $8.60 billion marked an 11.4% increase, exceeding consensus expectations. Additionally, Salesforce raised its full-year sales guidance to approximately 11% year-over-year growth, projecting a range between $34.70 billion and $34.80 billion.

Wedbush Securities analyst Dan Ives drew parallels between Salesforce’s impressive financial results and tennis champion Novak Djokovic, noting a “Djokovic-like performance” driven by MuleSoft momentum and its subscription business. Ives raised the stock’s price target to $255.

Most analysts anticipate a more modest upside for CRM in the future, with an average 12-month price target of $231.49, representing a 4.4% increase from current levels. The consensus rating among 38 analysts is a “Moderate Buy.”

In conclusion, both Meta Platforms and Salesforce have demonstrated resilience and growth in a challenging environment for growth stocks. Strategic shifts and strong leadership make META and CRM compelling options for investors seeking robust and rewarding growth stocks, especially after recent market volatility.

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