The recent rally in both the S&P 500 and Nasdaq Composite indices has taken them to new all-time highs. Many stocks have also coasted on the wave of optimism to hit new highs, in line with improving investor sentiment over the reduced pace of inflation. Many companies are also seeing their revenue and earnings rise, thus helping to justify higher valuations and providing fuel for the rally.
There has never been a better time to search for good growth stocks to own for the long term. With interest rates poised to decline, consumer sentiment should improve and generate optimism that things will get better. Picking stocks with strong market positions, great track records, and astute management will enable you to generate explosive returns over time.
There are three stocks with these attributes that could even be positioned to soar for the remainder of the year. Here's why we think this trio of stocks should do well.
Image source: Getty Images.
1. Chipotle Mexican Grill
Chipotle Mexican Grill(NYSE: CMG) owns and operates around 3,400 restaurants in the U.S. and Europe, serving a wide variety of delicious Mexican-inspired offerings. The company has logged consistent growth over the past three years, with 2023 being no different.
2023 saw revenue rise 14% year over year to $9.9 billion, with comparable restaurant sales increasing by 7.9% year over year. Chipotle also managed to increase its overall operating margin from 13.4% to 15.8% and restaurant operating margin to 26.2%, up from 23.9%. The Mexican-themed restaurant chain continued to expand its reach, with the record opening of 271 new restaurants for the year.
Chipotle has demonstrated steady growth, with revenue rising from $7.5 billion in 2021 to $9.9 billion in 2023. Net profit climbed from $653 million to $1.2 billion over the same period, even as the number of shares fell by close to 3%, allowing earnings per share to soar 94% from $22.90 to $44.34. The business also generated increasing free cash flow for all three years, rising from $840 million in 2021 to $1.2 billion in 2023.
2024 promises to be an interesting year for Chipotle, as it targets to open between 285 and 315 new restaurants. Management also projects full-year, mid-single-digit year-over-year comparable restaurant sales growth.
Last year, Chipotle inked its first-ever development agreement with franchise operator Alshaya Group to open restaurants in the Middle East as part of its efforts to internationalize the business. Investors can look forward to the company opening new restaurants in Dubai and Kuwait that will contribute to its top line.
Chairman and CEO Brian Niccol remains confident that Chipotle can achieve its long-term goal of opening 7,000 restaurants in the U.S. while continuing to improve its margins.
2. Caterpillar
Caterpillar(NYSE: CAT) is a manufacturer of construction and mining equipment, as well as diesel and gas engines, turbines, and locomotives serving three key sectors: construction, resource, and energy & transportation. The company's share price recently hit a record high after it reported a solid set of earnings for 2023.
Revenue rose 12.8% year over year to $67.1 billion, while operating income surged by 64% year over year to $13 billion. Net income climbed 54.1% year over year to $10.3 billion. It was Caterpillar's best year in its 98-year history, with the equipment company declaring a quarterly dividend of $1.30 per share, capping a consecutive, three-decade increase in its dividend.
Sales climbed from $51 billion in 2021 to the current $67.1 billion for 2023, with net income jumping from $6.5 billion to $10.3 billion over the same period, showcasing Caterpillar's consistent growth in both its top and bottom lines. Diluted earnings per share nearly doubled from 2021 to 2023, going from $11.83 to $20.12. The company also generated consistent free cash flow in all three years, going from $4.7 billion in 2021 to $9.8 billion in 2023.
2024 should see an operating margin at the top end of Caterpillar's projected range, with an increase in prices to exceed manufacturing costs. The company's strong pricing power showcases its ability to maintain sales volume while upping its prices to keep ahead of inflation. Services revenue is also expected to grow, as Caterpillar targets $28 billion of such revenue by 2026. Investors should note, however, that Caterpillar's revenue and earnings can be cyclical. The heavy equipment manufacturer tends to do well when the economy is on an upswing because of higher demand for construction and infrastructure development. When a downturn arrives, demand may fall sharply as its customers cut back on spending and delay their projects. Despite this cyclicality, Caterpillar remains a solid stock to own as its revenue and earnings have trended higher over time, thus showcasing its dominant position and pricing power.
3. Ulta Beauty
Ulta Beauty(NASDAQ: ULTA) is the largest specialty beauty retailer for cosmetics, fragrances, skincare products, and hair care services in the U.S., with 1,385 retail stores across 50 states as of March 14.
The company's recently ended fiscal 2023 saw the retailer report a 9.8% year-over-year rise in revenue to $11.2 billion. Operating income edged up 2.4% year over year to $1.7 billion, while net income increased by 4% year over year to $1.3 billion. Ulta Beauty also generated a positive free cash flow of $1 billion for the fiscal year.
Fiscal 2023 caps off a successful year of growth, where the retailer opened a total of 30 new stores. Ulta Beauty boasts a track record of rising sales and profitability over the past three fiscal years. Sales rose from $6.2 billion in fiscal 2020 to $10.2 billion for fiscal 2022, with net income surging from $176 million to $1.2 billion over the same period. The cosmetics specialist also generated consistent positive free cash flow averaging $905 million for all three fiscal years.
These numbers attest to the strength of Ulta Beauty's franchise and showcase its growing membership base. Its loyalty program saw the number of members rise from 32 million in fiscal 2018 to 40 million in fiscal 2022, with close to 95% of sales made by its members. Euromonitor estimated back in 2022 that the U.S. beauty products market is worth $104 billion, implying that Ulta Beauty still has room for significant future growth in this large but fragmented market.
For fiscal 2024, Ulta Beauty expects comparable sales to continue growing by 4% to 5%, with plans to open another 60 to 65 net new stores. Investors can look forward to continued growth for Ulta Beauty as it caters to a wide assortment of customers with a variety of price points through its omnichannel offerings.
Should you invest $1,000 in Caterpillar right now?
Before you buy stock in Caterpillar, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Caterpillar wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
Royston Yang has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill and Ulta Beauty. The Motley Fool has a disclosure policy.
