3 Top Growth Stocks I’d Buy Right Now Without Any Hesitation

It’s been a tough year for stocks in general, and growth stocks in particular. As inflation rose and interest rates followed suit, the impact on growth stocks, with the bulk of their gains in the future, was particularly large.

Not all growth stocks are useless, however, and some market leaders are likely to be quite resilient to a recession. The following three stocks have some good defensive qualities that should hold up even in an adverse economic environment and should thrive over the longer term as well.

1. Microsoft

Even if a company is the second largest in the world by market capitalization, that doesn’t mean it’s done growing. After all, Microsoft (MSFT -1.73%) has been able to consistently grow by double digits in most quarters over the past decade, especially under CEO Satya Nadella, who took over in 2014.

MSFT Revenue (Quarterly Yearly Growth) data by YCharts.

Last quarter, Microsoft’s revenue growth slowed to “only” 10.9%, but this was due to major currency movements this year, which reduced revenue in its large international business in dollar terms. In constant currency terms, Microsoft’s growth was actually 16%.

Even better, it looks like Microsoft will be able to maintain good growth for years to come. After all, Microsoft has a number of exciting business segments that are growing at much higher rates. These include the Azure cloud platform, which grew 42% in constant currency; Microsoft’s ERP software package Dynamics 365, up 22%; and even non-cloud software segments like LinkedIn and Bing Search, which each rose 21%. As these businesses make up a larger part of the enterprise going forward, this should help put a floor under Microsoft’s growth.

Microsoft’s holistic offerings, in which it can offer bundled cloud infrastructure and data analytics software, resonate with customers. Just this week, Microsoft signed a high-profile 10-year cloud deal with the London Stock Exchange Group (LSE -2.81%). Interestingly, Microsoft ended up taking a strategic stake in LSEG as part of the deal.

Double digit growth combined with sky-high operating margins north of 40% is the hallmark of a truly great business. Twenty-five times this year’s earnings estimates (for the fiscal year ending June 30) doesn’t seem like a high price to pay for that kind of power, making Microsoft a stock investors can comfortably buy in this uncertain environment .

2. ASML Holdings

Next generation applications such as artificial intelligence, industrial automation, 5G communication and others depend on advanced semiconductors. Leading semiconductor production depends on Extreme Ultraviolent Lithography (EUV), and there is only one company with a monopoly on this technology: ASML Holdings (ASML -0.99%).

ASML initially sold hard this year, along with the semiconductor sector, which historically has been quite cyclical. Although semiconductors are experiencing a broad decline in demand, investment in future chip production does not appear to be quite as volatile.

This is because chip manufacturing plants take a long time to build. At its recent Investor Day, ASML’s CEO Peter Wennink made the point that ASML’s backlog is probably longer than any coming recession would be! ASML’s growth should therefore be smoother than more cyclical slides.

In fact, ASML has just raised its long-term 2025 targets compared to where they were last year and predicts strong continued growth through 2030. Get the increased targets for increased demand for AI servers, the Metaverse, and an accelerated green energy transition. Additionally, management will claim that the “relocation” of semiconductor production to countries outside of Taiwan is likely to increase semiconductor equipment investment by 10% relative to baseline demand.

While other types of equipment stocks may see a decline in 2023, this does not appear to be the case with ASML, whose capacity is still below rising demand. This is because EUV machines are essential to companies’ and countries’ long-term product roadmaps, competitiveness and national security.

If the company hits its 2030 targets, the stock is actually only trading around 10 times the earnings figure. Meanwhile, ASML has historically consistently beaten its previous forecasts. And as a highly profitable stock, ASML has the ability to continue to buy back shares and increase its dividend of 1% annually over that period.

3. T-Mobile

The telecommunications industry is not exactly known for its remarkable growth, but T-Mobile (TMUS -0.52%) should see a substantial acceleration in free cash flow next year. That’s because 2022 should be the peak of T-Mobile’s integration spending after its 2020 Sprint acquisition.

That merger gave T-Mobile a head start in mid-band 5G, putting T-Mobile’s network ahead of competitors. It’s a contrast from the 4G era, in which T-Mobile was a laggard network.

Things seem to be coming together well for T-Mobile, which beat expectations and raised guidance in each of the three reported quarters in 2022. The mobile giant posted industry-leading growth in postpaid net additions for accounts, customers and phones last quarter. Services revenue grew 6.9%, core adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) grew an even higher 26.3%, and free cash flow rose an even higher 32.5%.

Free cash flow is trending higher at T-Mobile as the company is just finishing the bulk of its mid-band Ultra Capacity 5G build-out, which now covers 260 million Americans, as well as decommissioning extra Sprint radio towers. For the sake of context, its competitors do not expect to reach these coverage numbers for two years.

With more people now purchasing 5G phones, T-Mobile is looking to keep growing even as its capital expenditures drop next year. This performance is why T-Mobile was confident enough to start its new stock buyback program in September, a few months earlier than it predicted at its March 2021 investor day.

In a tough year for tech stocks, T-Mobile actually rallied on the back of these strong results. But given its recession-proof business, accelerating free cash flow and buybacks, investors shouldn’t hesitate to pick up shares of this winning company for 2023 either.