Companies experiencing above-average earnings growth, which is often fueled by innovations and market expansions, are known as growth stocks. However, investing in them requires more than just chasing their rising share prices. These companies typically command higher valuations than their peers, which reflects investor confidence in their future potential. While they offer the prospect of substantial returns, they also come with heightened volatility and are susceptible to economic pressures like inflation and supply chain disruptions. Despite recent market fluctuations, periods of decline can present strategic entry points for long-term investors.
On February 20, Adam Crisafulli, Vital Knowledge founder, and Ryan Detrick, Carson Group chief market strategist, joined ‘Closing Bell Overtime’ on CNBC to discuss the state of the market. Detrick addressed the broadening nature of the market and the lack of panic following recent Fed minutes. He noted that all 11 sectors have increased year-to-date, with 7 sectors outperforming the S&P 500. Detrick highlighted that after two consecutive years of over 20% gains, the market has continued its upward trajectory, showing an increase of over 4%, almost 5%, so far this year. He emphasized that surprises in a bull market typically lean towards positive outcomes and reiterated that the ongoing rotation among sectors is beneficial for investors because it allows for a diversified portfolio.
Crisafulli then shifted the focus to specific companies which are set to report earnings. He connected these companies to trends in digital payments and marketing, emphasizing the role of data in driving customer loyalty and business growth in a modern economy. He discussed a broader theme of valuation reversion among high-multiple stocks and suggested that cheaper segments of the market are starting to catch up in terms of valuation expansion. Detrick added to this by discussing record highs for major indexes such as the S&P 500 and NASDAQ 100, as well as European indices like the DAX and Stoxx Europe 600. He also mentioned gold trading at record levels and questioned whether it is wise to invest at these heights or if the opportunity has passed. Detrick explained that they incorporated gold into their tactical models back in March 2023, adding more during a pullback post-election when the dollar rose sharply. He attributed gold’s rise to central bank indecision and suggested that the US dollar may have peaked. He advocated for including gold in a diversified portfolio, particularly within a 60-40 asset allocation model.
The overall discussion underscored the importance of diversification in investment strategies amidst changing market dynamics. That being said, we’re here with a list of the 12 best growth stocks to invest in according to analysts.
Methodology
We used stock screeners to compile a list of the top growth stocks. We then selected 12 stocks that had high average upside potential of over 30% and were the most popular among elite hedge funds. The stocks are ranked in ascending order of their average upside potential. We’ve also added the hedge fund sentiment for each stock, as of Q4 2024, which was sourced from Insider Monkey’s database.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
12 Best Growth Stocks to Invest In According to Analysts
12. Vertiv Holdings Co. (NYSE:VRT)
Number of Hedge Fund Holders: 92
Upside Potential as of February 19: 31.13%
Vertiv Holdings Co. (NYSE:VRT) designs, manufactures, and services digital infrastructure technologies and lifecycle services. These are essential for data centers, communication networks, and industrial environments worldwide. It offers a portfolio of power management, thermal management, and IT infrastructure solutions under well-known brands like Vertiv and Liebert.
Bank of America’s Andrew Obin reiterated a Buy rating on this company on January 21. He cited the company’s AI and data center positioning for this sentiment while projecting a 25% yearly EPS growth from 2024-2027, despite market caution. He sees undervalued potential due to both AI and non-AI revenue growth, driven by hyperscaler capex and overall data center expansion.
Power management is a critical component of AI data centers, and Vertiv Holdings Co. (NYSE:VRT) is a market leader in this area. AI’s demand for complex power distribution plays to the company’s strengths in AC and DC power conversion. It’s also investing in R&D and strategic acquisitions, such as BSE, to enhance its technology portfolio and maintain a competitive edge. It acquired BSE to enhance its cooling solutions for demanding AI data centers.
In Q4 2024, the company reported adjusted EPS of $0.99, which was a 77% year-over-year increase. 2025 adjusted EPS is projected between $3.5 and $3.6, with sales expected to reach $9.2 billion. The Americas are forecast to lead this growth, with sales increasing in the low 20% range. The company aims to stay price-cost positive and is expanding its capacity to meet the rising demand driven by AI and data center growth.
Baron Small Cap Fund highlighted the company’s strong performance as a key data center infrastructure provider. It cited its leadership in power and cooling, raised growth forecasts, and potential for further gains. The fund stated the following regarding Vertiv Holdings Co. (NYSE:VRT) in its Q4 2024 investor letter:
“Vertiv Holdings Co (NYSE:VRT), a critical digital infrastructure solutions provider for data centers, continued to perform well. With a leading market share in power and cooling applications for data centers, Vertiv is seen as a prime beneficiary of the AI-related data center buildout. At its November Analyst Day, Vertiv raised organic sales guidance to 12% to 14% CAGR for the next five years and gave guidance of 16% to 18% organic revenue growth for 2025. Vertiv also increased its target adjusted operating profit margin from 20% to 25%. While impressive on their own, these forecasts can prove conservative we think. With the stock up 141% in 2024, we have been trimming the stock into strength to manage position size but hold a large stake as we believe in its growth and that the stock is reasonably valued even after great appreciation the last two years.”
11. L3Harris Technologies Inc. (NYSE:LHX)
Number of Hedge Fund Holders: 48
Upside Potential as of February 19: 31.51%
L3Harris Technologies Inc. (NYSE:LHX) is an aerospace and defense technology company that delivers mission-critical solutions across several domains. Operating through specialized segments, it provides advanced technologies ranging from satellite payloads and ISR systems to tactical radios and propulsion systems. It serves both government and commercial clients worldwide.
The company has built a substantial satellite business, achieving a record backlog of 40 satellites in just five years. It’s a key partner in the SDA’s (Space Development Agency) Tranche 2 tracking layer program, which is a US government initiative to deploy a constellation of satellites. In the program, this company’s satellites are designed to detect and track hypersonic threats. L3Harris Technologies Inc. (NYSE:LHX) has already secured contracts for 38 satellites across various tranches, demonstrating its position in space-based missile defense. In 2024, it launched 4 satellites for SDA and 1 for MDA (Missile Defense Agency).
Its commitment to missile defense extends beyond satellites. It won contracts for the Glide Phase Interceptor and next-generation interceptor programs, which will fuel growth in its solid rocket motor business for decades. This aligns with national security priorities, including the development of advanced missile defense systems. The Space and Airborne Systems segment, which encompasses these activities, is projected to generate revenue between $6.9 billion and $7.1 billion in 2025. While facing some budgetary constraints in the space sector, the company anticipates growth resuming in 2026.
Diamond Hill Mid Cap Strategy initiated a position in L3Harris Technologies Inc. (NYSE:LHX) due to a favorable future defense budget, alignment with current defense priorities, and a compelling valuation after a share-price decline. It made the following comment about the company in its Q3 2023 investor letter:
“L3Harris Technologies, Inc. (NYSE:LHX) is a defense contractor focused primarily on communications, surveillance and electronic warfare. We anticipate the US’s defense budget will be better than expected over the next few years as the Defense Department focuses on preparing for peer-level threats — an area in which LHX’s capabilities fit nicely. We believe there is room for improvement in recent execution — particularly at recently acquired Aerojet Rocketdyne — and we think LHX’s new management team is well-qualified to improve results. We accordingly capitalized on a recent share-price decline to initiate a position at what we consider a compelling valuation.”
Hedge Fund Resource Center