2022 has been terrible for growth stocks, with concerns of inflation weighing heavily. Indeed, the Nasdaq has fallen around 28% year to date and 20% over the past year.
Many parallels have also been drawn with the dot-com selloff in 2000, where the index fell 78% from March to October 2002. This has depressed investor sentiment further.
But although my portfolio has felt the pain of this, as a long-term investor I see many opportunities to buy quality growth stocks. In particular I am looking for profitability, as the valuations of these companies are well backed up by earnings.
Here are two companies I am buying right now.
A Warren Buffett stock
An investment into Apple (NASDAQ: AAPL) five years ago would have delivered a return of nearly 300%. But year to date, the tech giant has sunk over 22%, largely in line with the wider fall in the Nasdaq. Over the past year, the Apple share price has risen just 5%, far lower than in previous years.
This weak share price performance has led me to buy this growth stock, as I believe it remains a great long-term buy.
For instance, the company is a money-making machine. In FY2021, net sales increased 33% year-on-year to $365bn, while operating income was able to soar 64% to $109bn.
The performance in FY2022 has also improved even further. In the six months ending March 26, 2022, net sales have increased around 10% year-on-year to $221bn, while operating income increased another 16% year-on-year to $71bn. This has supported an increase of $90bn to the existing share repurchase programme, which should help boost metrics such as earnings per share.
There are macroeconomic uncertainties for the group, however. For instance, as interest rates increase, Apple’s interest payments may become more expensive. As Apple’s total debt pile totals around $120bn, this is an issue. At the same time, inflationary pressures may reduce consumers’ ability to buy Apple products.
However, with a historically low price-to-earnings ratio of around 22, I am willing to accept these risks. For this reason, I will continue to buy this stock at these current levels.
A growth stock increasing profits
Due to the current macroeconomic environment, many stocks have been reporting worrying trading updates. However, Salesforce (NYSE: CRM) has managed to defy this and upgrade its earnings expectations.
CEO Marc Benioff stated that “so far, we’re just not seeing any material impact from the broader economic world that all of you are in”. The company also increased its adjusted profit forecasts to $4.75 per share, up from previous forecasts of $4.63. This is a huge sign of confidence.
Unfortunately, there is the risk of a US recession in the near future. This means that economic activity slows down and this may lead to companies cutting their spending with the consumer relation management company.
However, in the past year, the Salesforce share price has dipped 26%, indicating that these risks may now have been priced in. Therefore, it is a growth stock I am very happy to own in my portfolio, as I believe it can deal with the macroeconomic uncertainties well.