Growth-oriented investors are often compelled to make a compromise on current profitability when selecting high-growth stocks to buy.
This is often the case because companies that usually offer exposure to high growth opportunities are often startups that are yet to earn any positive profit margins, let alone prove their business models can generate high margins and positive cash flows.
What if I told you there are some high-growth stocks with proven track records of high profits margins that investors could buy in February?
The rationale for buying high-growth stocks with high earnings margins in February is quite simple: The target companies’ businesses are still growing rapidly, their business models have already been proven to be highly profitable, and stocks are beaten down going into February. And the stock market has a stellar record of recovering to reclaim record highs since the great depression of 1929.
A market correction in January has afforded investors a rare chance to find better entry points into proven (relatively low risk) businesses and build long-term wealth-generating positions.
Below is a list of seven high-growth stocks with high margins investors could buy in February.
- Advanced Micro Devices (NASDAQ:AMD)
- Veeva Systems (NYSE:VEEV)
- Nvidia Corporation (NASDAQ:NVDA)
- Silvergate Capital (NYSE:SI)
- Nova Ltd (NASDAQ:NVMI)
- RH (NYSE:RH)
- Universal Display (NASDAQ:OLED)
High-Growth Stocks: Advanced Micro Devices (AMD)
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Rising semiconductor chip designer Advanced Micro Devices is one high-growth stock I have recommended for some time, and I remain bullish on its future growth prospects as it battles with, and continues to gain traction against industry leaders Intel (NASDAQ:INTC) and Samsung.
AMD’s traction in developing the most efficient, faster, and cost-effective processors and advanced computing chips has been far better than Intel’s over the past two recent years or so.
Recent news reports reveal that Intel intends to invest $20 billion in an Ohio chip manufacturing plant. Some investors worry that perhaps Intel’s new production plants on U.S. soil could steal back the limelight from AMD. However, AMD’s key supplier TSMC has similar plans too. Further, the fact that Intel may produce chips locally won’t make AMD chips any less competitive per dollar of investment. Efficacy and speed of execution have given AMD a lead in enterprise computing chips, and customers keep flocking to AMD as they build new capabilities, even for the metaverse.
Moreover, computing chips are delicate products whose manufacturing plants are built on seismically stable ground, and it takes years to get the factory built, equipped, and running. Intel expects U.S. production output to start in 2025. AMD won’t be sitting on its laurels during all these years.
Analysts estimate that AMD grew its revenue by 65% in 2021 and they project a 19% growth in 2022. AMD’s net income margin came in at nearly 27% over the last 12 months, and Wall Street has a strong five-year earnings growth estimate of 38.6% per annum on AMD stock right now.
Earnings margins may even expand further in 2023 and beyond.
AMD is among the high-growth stocks with high and expanding earnings margins to buy as the market weakens. More so as the company keeps winning epic battles against Intel in the enterprise server space with its EPYC processor while gaining strong traction in the PC market.
Veeva Systems (VEEV)
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Veeva Systems is a leading supplier of software to the life sciences industry. Its offerings ensure compliance with legal and regulatory requirements for the industry, leading to strong customer loyalty and high growth visibility.
The company reported an income from continuing operations margin of 24.6% over the last 12 months. Its net income margins expanded from under 16% in 2017 to nearly 26% for 2020, and this trend followed a significant expansion in gross margins from around 68% in 2016 to about 73% lately.
Veeva’s revenue grew at a compound annual rate of more than 29% annually between 2016 and 2021. Wall Street analysts project another strong 26% growth in total sales for 2022, and they attach a strong five-year earnings per share growth rate of 15.8% to VEEV stock right now.
Although the stock market devalued Veeva stock by nearly 23% over the past 12 months, the business continues to grow at double-digit rates in 2022. Veeva Systems stock could be a steal in February if the ongoing market sell-off persists for much longer.
Silvergate Capital (SI)
Commonly referred to as the crypto bank, Silvergate Capital provides innovative financial infrastructure solutions and services to U.S. exchanges and global investors in the cryptocurrency industry. The company also provides traditional commercial banking, business lending and residential real estate lending, and mortgage warehouse lending.
Silvergate Capital’s stock price has fallen more than 36% so far in January 2022. This includes a deep 23% decline on Jan. 18 after the company’s reported 85% growth in revenue and a 38% year-over-year increase in earnings per share during the fourth quarter of 2021 didn’t impress the market. Analysts expected more, and investors wanted SI to pop up more fireworks.
That said, sales growth forecasts for 2022 remain high at 46.4%. A net income margin of 45% for 2021 could remain intact going forward. Even better, the bank could enjoy better earnings spreads if interest rates begin to rise this year – as expected.
The bank continues to attract huge, non-interest-bearing deposits from clients. These deposits could act as free trading capital in other business lines. Most noteworthy, a 1% parallel increase in interest rates could increase SI’s net income by more than 52% over the coming year, according to its most recent earnings report.
One could say that Silvergate Capital’s first-ever earnings miss happened at a perfectly wrong time: market jitters were taming bullish spirits. And the current uncertainty on its timeline to launch a new stablecoin dampens enthusiasm. However, the bank’s recent investments in human expertise show commitment to its partnership with Diem Networks.
Once the plunge slows and volatility cools down (perhaps in February), next month could be the best time to buy high-growth SI stock for outperforming capital gains in the next decade.
High-Growth Stocks: Nvidia Corporation (NVDA)NVDA) stock logo on a smartphone." width="300" height="169">
Source: Allmy / Shutterstock.com
Graphics chipmaker Nvidia is one semiconductor stock that could see a sustained strong revenue and earnings growth over the next decade as the metaverse takes form and Web 3.0 revolutionizes the internet.
Nvidia’s recent pivot from PC graphics cards to more complex artificial intelligence and autonomous driving chips makes it one of the important builders of tomorrow’s advanced computing and extremely digitized future.
The company generated a strong 40% compound annual growth rate in revenue and an even stronger 60% CAGR in net earnings per diluted share over the past five years. Wall Street projects a strong 60% revenue growth for NVDA stock in 2022. Given that the company managed to sustain a market-leading net income margin of nearly 34% over the past 12 months, sales growth could translate into bankable earnings and huge cash flows this year.
NVDA stock has declined more than 22% year-to-date. Any further weakness in NVDA stock during the current market sell-off could present very good entry points in February for lucrative long-term returns.
Nova Ltd. (NVMI)
After a 22% drop so far in January, Nova Ltd. is another high-growth stock with very high earnings margins investors could buy at cheaper valuations in February.
Nova is a semiconductor equipment manufacturer that provides key metrology solutions for process controls in semiconductor manufacturing plants.
NVMI stock has been one growth stock town over the past half-decade as it grew revenue at 22% per annum and increased its diluted earnings per share by nearly 68% per annum since 2016. Free cash flow is growing too while operating margins expanded from just 6.2% for 2016 to 26.8% over the past 12 months.
Although sales growth could “slow” to over 17% in 2022 (Wall Street projections), analysts remain confident that the company could grow its earnings by over 32% per annum over the next five years.
Nova’s income from continuing operations margin of 22.8% over the past year dwarfs the S&P 500’s 11.5% net margin to confirm NVMI stock as another high growth stock with high margins to consider buying in February.
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Luxury furniture retailer RH (formerly known as Restoration Hardware) is a well-established, financially strong specialty furniture company that has gifted its investors with potentially life-changing returns over the past five years, and has the potential to outperform over the next decade too.
RH is well positioned to broaden its total addressable market this year with the launch of its new digital platform, World of RH in 2022. The digital strategy could appeal to the new class of homeowners – digital-savvy millennials.
As RH continues to expand its business (which includes a growing hospitality portfolio, private charter jets, including contemporary art), revenue and earnings could sustain double-digit growth rates for the foreseeable future.
Analysts expect RH to grow its sales by 33% for 2022. The company’s net income margin of 18.3% could expand if Wall Street’s projection of a strong five-year earnings growth rate of 23.6% gets realized.
Although RH stock may not produce near 1,300% returns by 2027 as seen over the past five years (the business has matured a bit), the company still has some growth tricks up its sleeves under the leadership of Gary Friedman who closely studies the world’s most powerful consumers – the affluent American.
RH remains a high-growth stock with high margins investors could buy as the stock market corrects. February could offer good entry points for outperforming returns.
High-Growth Stocks: Universal Display (OLED)
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Universal Display is a key chemical supplier and IP license provider to the growing premium organic light-emitting diode (OLED) based display market. Its customer list includes industry heavyweights Samsung, LG Display, Konica Minolta, and many others.
The company’s double-digit revenue and earnings growth rates have been impressive lately. Sales have grown at a CAGR above 28% over the past five years and net earnings have grown even faster at rates above 40% during the same period.
Universal Display could continue to generate high revenue growth rates in the future as the global premium display market, specifically the organic light-emitting diode (OLED) market grows with increased customer demand and growing industry production capacity.
Big-name buyers like Apple (NASDAQ:AAPL) have become dominant customers lately as the Cupertino giant embraces LED premium displays for its high-end MacBooks, and iPhones, while television watchers, gadgets, smartphones, and wearables buyers clamor for OLEDs’ richer and lively color reproduction.
Analysts project another 22.4% year-over-year revenue growth for OLED in 2022. Even better, I like the company’s astronomical net profit margins which printed 35% of revenue over the past 12 months.
Much of OLED’s revenue is falling straight to its stockholders, and the company’s retained earnings balance has grown at about 65.6% per annum between 2016 and 2021. As this trend continues, OLED stock retains its place among high-growth stocks with high margins to buy in February during market weakness.
On the date of publication, Brian Paradza did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.