September has historically been the worst month for stocks. With the S&P 500 down 7.5% with one trading day to go, you could say September is living up to its reputation. Well, almost. The index actually did worse in April and June, falling 9% and 8.8%, respectively. For September to claim its title, the S&P 500 would need to close the month below 3,582. After today’s rout, that would take a drop of about 1.6%. Certainly not out of the realm of possibility. Given this, you might be wondering why I’m writing about growth stocks to buy.
I have three reasons.
First, September is coming to an end and we are headed into a traditionally stronger period for stocks and the start of the Q3 earnings season. July, which marked the start of the Q2 earnings season, was by far the best month for stocks this year, with the S&P 500 up 9.2%.
Second, this week’s bond-buying initiative by the Bank of England showed investors that, even during periods of high inflation, central banks are ready, willing and able to come to the rescue to prevent a true financial crisis from materializing.
Finally, positive data on Biogen’s (NASDAQ:BIIB) Alzheimer’s drug showed the Street that transformative technological innovations can still occur.
Given these factors, investors might be more interested in growth stocks to buy. So, I’ve put together a list of seven sleeper growth stocks that are likely to surprise the Street by rallying sharply in the not-too-distant future.
| PWR | Quanta Services | $127.93 |
| BB | BlackBerry | $4.82 |
| AMSC | American Superconductor | $4.45 |
| STEM | Stem | $12.95 |
| VEOEY | Veolia Environnement | $18.73 |
| BROS | Dutch Bros | $32.42 |
| QSR | Restaurant Brands International | $54.39 |
Quanta Services (PWR)
Quanta Services (NYSE:PWR) develops, repairs and maintains electric grids globally and renewable energy systems. It also carries out engineering projects for companies involved in the production of natural gas and oil prices.
Given its array of businesses, Quanta is very well-positioned to benefit from multiple powerful trends. These include the proliferation of electric vehicles, which, as we’re seeing in California, will require an extensive strengthening and extension of electric grids. Additionally, the use of renewable energy is growing rapidly, while oil and natural gas exploration is, in general, increasing amid elevated prices.
In June, UBS analyst Steven Fisher upgraded PWR stock to “buy” from “neutral,” citing “confidence in [Quanta’s] EPS growth ahead from electric grid investment and renewed upside potential from [its fossil fuel business].” Fisher also predicted that the company would benefit from President Joe Biden’s plan to pause tariffs on solar panels imported from a number of Southeast Asian countries for two years.
PWR stock has an attractive forward price-earnings ratio of just 17.6. UBS’ target price of $156 is 22% above the current share price.
BlackBerry (BB)
Once a dominant smartphone brand, BlackBerry (NYSE:BB) is now in the business of providing companies and governments with intelligent security software and services.
The company reported its latest quarterly results this week. The stock sold off following the announcement despite earnings and revenue beats. More importantly, though, the report showed BlackBerry’s two major businesses are heating up.
Internet of Things revenue jumped 28% year over year in BlackBerry’s fiscal second quarter to $51 million, with gross margin of 82%. The unit includes BlackBerry’s highly secure QNX operating system, which is now deployed in over 200 million vehicles globally, according to CEO John Chen. QNX is gaining market share in connected vehicles and electric vehicles. For instance, Volkswagen (OTC:VLKAF) recently decided to deploy QNX in all of the vehicles that will utilize the German automaker’s new operating system.
Meanwhile, while cybersecurity revenue fell 8% from a year ago, the division’s billings rose 15% on a sequential basis to $102 million. And cybersecurity billings were up 6% year over year in the first half of the fiscal year.
The increased need for cybersecurity among companies and governments and the proliferation of connected cars should bolster BlackBerry’s financial results in the coming quarters and years. For those with speculative capital, consider putting BB on your list of growth stocks to buy.
American Superconductor (AMSC)
American Superconductor (NASDAQ:AMSC) specializes in the design and manufacturing of power systems, including electric utilities and renewable energy, and superconducting wire. It’s on today’s list of growth stocks to buy because it has budding “green shoots” in the defense and renewable energy sectors.
In January, the company announced it had provided the U.S. Navy with the first of four contracted protection systems. As the company explained it, the system is “essentially a network of cables coursing through the ship, with the electrical current in the cables calibrated to counteract the magnetic field fluctuations as it travels through the water, masking the ship’s magnetic signature and preventing it from activating undersea mines.”
On the renewable energy front, two major companies — one in South Korea and one in India — are utilizing American Superconductor’s electrical control systems in wind turbines. Meanwhile, firms across several sectors, including semiconductors, electrical utilities and miners, are buying the company’s products to regulate the flow of electricity.
American Superconductor’s backlog jumped 30% year over year in its most recently reported quarter, according to CEO Daniel McGahn, indicating the company is stealthily growing its business. McGahn also said during the latest earnings call that he expects the company to benefit from the recently passed Inflation Reduction Act, which includes significant tax breaks for clean energy.
Shares are down by nearly 60% year to date and trade with a price-to-sales ratio of just 1.2. But they aren’t likely to remain this undervalued for long.
Stem (STEM)
Stem’s (NYSE:STEM) software utilizes artificial intelligence to maximize the utility of electricity storage systems and batteries. It also offers solar energy monitoring systems.
The company has entered the EV charging market, marketing its Athena software as a solution for monitoring, managing and optimizing EV chargers. The company believes Athena opens up a multi-billion-dollar total addressable market. Given the rapid growth of the EV market, I’m inclined to agree with that assessment.
At the end of the second quarter, Stem had 2.1 gigawatts of assets under management, up from 1.2 gigawatts at the same point a year earlier. And the company’s backlog jumped an incredible 191% year over year in Q2 to $727 million.
On Sept. 22, Cowen analyst Thomas Boyes initiated coverage of STEM stock with an “outperform” rating. He wrote that the company “has taken an early lead in the energy storage space, leveraging its Athena software platform, and is well positioned to capture demand both in front of and behind the meter applications.”
Boyes’ $22 price target implies upside of nearly 70% from the current level.
Veolia Environnement (VEOEY)
Climate change and population gains are leading to droughts in many parts of the world, including Texas, California, Nevada, South America and Europe. And, of course, access to water is a perpetual problem in parts of the Middle East and Africa.
I strongly believe that, within the next few years, many countries will have to turn to desalination, despite the objections of some environmentalists and the high cost. Desalination, which involves removing the salt from saltwater, reportedly is twice as expensive as obtaining water from freshwater sources. Governments that have already embraced desalination, including California and Israel, will have to add desalination plants.
For investors, the best way to play the coming desalination boom is with Veolia Environnement (OTC:VEOEY). According to the company, “With a total treatment capacity of approximately 13 million m3 of water per day at more than 2,300 sites in 108 countries across the world, Veolia is the world leader in desalination. ”
Veolia already has a significant foothold in the Persian Gulf, whose oil-rich countries can afford to build many desalination plants. Specifically, Veolia has already built one plant in the United Arab Emirates and one in Kuwait.
Water is vital to life, and that makes Veolia Environnement vital as well.
Dutch Bros (BROS)
Apple (NASDAQ:AAPL), Chipotle (NYSE:CMG) and Tesla (NASDAQ:TSLA) owe a good deal of their success to the fact that they were able to win over young adults, thereby obtaining the “coolness” factor. There’s an excellent chance that Dutch Bros (NYSE:BROS), which sells coffee and other beverages exclusively in drive-through windows, is embarking on a similar path to riches.
A year ago, Grizzle reported, “Dutch Bros has successfully attracted a younger demographic, one with potentially more disposable income which can be spent on premium priced coffee-shop beverages.”
Apparently, millennials and Generation Z are attracted to the company’s proprietary high-energy coffee drink and whipped topping, as well as its healthy, non-coffee beverages. A millennial friend of mine also raves about what he views as the company’s very friendly servers.
In Q2, the company’s top line jumped 44% from a year ago to $186.4 million as it opened 31 new shops. Gross profit from company-operated shops came in at $31.2 million, up 6% from the same period a year earlier.
Restaurant Brands International (QSR)
Last up on today’s list of sleeper growth stocks to buy is Restaurant Brands International (NYSE:QSR). The owner and franchiser of Tim Hortons, Burger King, Popeyes Louisiana Kitchen and Firehouse Subs is a superb “trade down” name. In other words, if the economy goes south, the company is well-positioned to attract middle-class families who are switching from casual-dining fare to fast food.
Indeed, its restaurants are already popular. Popeyes has been crowned king of the chicken sandwich wars. And with McDonald’s (NYSE:MCD) abandoning its McPlant burger offering, Burger King has the vegan burger fast-food market nearly to itself in America. Personally, I’m a big fan of Burger King’s Impossible Burger.
Analysts, on average, expect earnings per share to climb 7.5% this year to $3.03 and 5.3% to $3.19 in 2023. Currently, shares are trading at a reasonable 17.1 times next year’s earnings estimates. Meanwhile, revenue is expected to increase 12% this year and just over 5% next year.
While those growth numbers aren’t flashy, QSR stock also throws off a 3.9% dividend yield.
On the date of publication, Larry Ramer owned shares of AMSC, BB and STEM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.