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These 5 Growth Stocks Are Worth a Closer Look logo 5/4/2021

Stocks are selling off this morning, so the murmurs of a correction may finally be materializing. Or it may be the typical “sell in May” syndrome. It’s hard to tell.

But not everything about the stock market is as unpredictable. The fact that we’ve had so much of history of stock price movements and the fact that we’ve been able to match those movements with events has greatly increase the predictability of the inherently uncertain market.

That’s why we need to keep a cool head when considering investments and choose only those stocks that are aligned with our own needs and risk appetites.

Growth stocks are those that are expected to appreciate more rapidly because the companies tend to reinvest most of what they make back into the business for ever-increasing returns. They are often less mature companies and often don’t pay a dividend. But because they are priced based on future expectation rather than past performance, they tend to come with a greater amount of risk.

But that isn’t a good reason to avoid them either. In fact, some of the big technology companies continue to deliver phenomenal growth with an amazing amount of steadiness. There really is minimal risk in investing in stocks of these companies, as long as they are aligned with your own investment strategies of course.

And once you have done your homework and more or less decided the stocks you want to get into, it’s obviously good to get them as cheap as possible. So, if they’re getting punished on any day, all the better. And a day like today might be just be perfect.

And if you’d like to further mitigate risk, you could consider stocks that carry a Zacks Rank #1 (Strong Buy), that have topped expectations by a handsome margin in the last quarter, that are seeing positive estimate revisions and have a good ROA (Return on Assets) history.

The Zacks stock rank is a tried and tested proprietary tool that helps identify stocks with the best upside potential. So #1 (Strong Buy) or #2 (Buy) ranked stocks are the ones most likely to appreciate. #3 denotes a Hold rank, #4 Sell and #5 Strong Sell.

ROA is a good metric to check when choosing growth stocks because you want to own companies that are able to eke the most from their balance sheet assets, as a measure of efficiency.

However, when comparing businesses across industries, it’s important to keep in mind that asset-heavy businesses like banks, iron and steel manufacturers, power distribution companies, etc would typically have a lower ROA because of the nature of the business. Conversely, software-focused technology companies would be able to earn more from relatively fewer assets.

Here is a list of stocks that fit the above criteria, i.e. a Zacks Rank #1, Growth Score A or B, a strong EPS surprise in the last quarter, strong estimate revision trends and attractive 5-year average ROA.

Apple Inc. AAPL

Apple is best known for its iPhone, but also other devices like iPad, MacBook, Watch, AirPod and HomePod. Apple also makes the iOS, macOS, watchOS and tvOS operating systems that run its devices. Additionally, its services business has gained some traction of late.

Zacks Rank #1

Growth Score B

Last EPS Surprise 40.0%

Current-year estimate up 12.7% over the past month

5-year average ROA 16.14%

Generac Holdings Inc. GNRC

Generac Holdings is a leading manufacturer of power generation equipment, energy storage systems and other power products including portable, residential, commercial and industrial generators.

The company also manufactures light towers for temporary lighting solutions, as well as commercial and industrial mobile heaters and pumps that are used in the oil & gas, construction and other industrial markets. Its product portfolio also includes engines, alternators, transfer switches, mobile heaters, power washers, water pumps, energy monitoring devices and other components of outdoor power equipment for residential and commercial use.

Zacks Rank #1

Growth Score B

Last EPS Surprise 25.3%

Current-year estimate up 10.2% over the past month

5-year average ROA 12.12%

Alphabet Inc. GOOGL

Alphabet is one of the most innovative companies of today. Over the last few years, the company has expanded beyond its search-engine business to cloud computing, ad-based video and music streaming, autonomous vehicles, healthcare and more.

Zacks Rank #1

Growth Score B

Last EPS Surprise 67.9%

Current-year estimate up 23.6% over the past month

5-year average ROA 13.39%

MKS Instruments, Inc. MKSI

MKS Instruments is a global provider of instruments, subsystems and process control solutions that measure, monitor, deliver, analyze, power and control critical parameters of advanced manufacturing processes.

These solutions are used in pressure measurement and control, flow measurement and control, gas and vapor delivery, gas composition analysis, residual gas analysis, leak detection, control technology, ozone generation and delivery, RF & DC power, reactive gas generation, vacuum technology, lasers, photonics, sub-micron positioning, vibration control and optics.

Zacks Rank #1

Growth Score B

Last EPS Surprise 18.0%

Current-year estimate up 10.2% over the past month

5-year average ROA 11.31%

West Pharmaceutical Services, Inc. WST

West Pharmaceutical Services is a global drug delivery technology company that applies proprietary materials science, formulation research and manufacturing innovation to advance the quality, therapeutic value, development speed and rapid market availability of pharmaceuticals, biologics, vaccines and consumer healthcare products.

Zacks Rank #1

Growth Score B

Last EPS Surprise 44.4%

Current-year estimate up 10.2% over the past month

5-year average ROA 11.21%

Year-to-Date Price Performance

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