None of these three stocks are conventionally cheap, but they all have huge growth potential from megatrends already in place, making them attractive stocks for investors to buy for the long term. Here's why electronic design automation (EDA) company Synopsys(NASDAQ: SNPS), design and product management software company PTC(NASDAQ: PTC), and advanced composite materials company Hexcel(NYSE: HXL) are stocks worth taking long-term positions on.
An AI growth stock to buy
Synopsys makes EDA software engineers use to design and test silicon chips, which naturally includes AI-driven semiconductors. In fact, management describes Synopsys as "an AI company" that's "in the early stages of the AI transition."
While there is no end to companies looking to jump on the AI bandwagon, there is a strong case for AI applications being the catalyst for long-term growth at Synopsys. While the company's traditional end-market customers are in semiconductors and electronics, the growth of AI applications is leading to a surge in AI chip design. Not only is that good news for demand coming from Synopsys's traditional customers, but it also broadens the growth opportunity to encompass areas like automotives, aerospace, healthcare, and software.
That kind of logic is also behind its $35 billion acquisition of engineering simulation software company Ansys(NASDAQ: ANSS), set to close in the first half of 2025. The two have long been partners, as Ansys's data from its simulation and optimization software is complementary to EDA software companies.
However, Ansys tends to have a broader customer base, with high-tech customers only responsible for 31% of its annual contract value (ACV) -- aerospace, automotive, and industrial equipment together make up almost 50% of Ansys ACV.
Image source: Getty Images.
Still, as the growth of AI creates more demand for chips across many different industries, many of Ansys's non-high-tech customers are likely to grow into Synopsys customers. Trading on almost 48 times expected free cash flow (FCF) in 2025, Synopsys is not a superficially cheap stock, but Wall Street analysts expect mid-teens earnings growth and 30% annual growth in FCF.
In addition, Synopsys's acquisition of Ansys will open up new markets and create an integrated EDA and simulation software company positioned to benefit from AI-related spending over the next decade.
Buy the dip in this growth stock
Speaking of Ansys, computer-aided design (CAD) and product lifecycle management (PLM) company PTC is also a company partner. Ansys has technical relationships with CAD companies like PTC to facilitate data transfer between the simulation/analysis and CAD.
The megatrend behind PTC's growth is the increasing adoption of digital technology in manufacturing. The so-called "digital thread" runs across a product's entire cycle, from its initial design using CAD through manufacturing using product lifecycle management (PLM), servicing using service lifecycle management (SLM) software, and ultimately disposal.
At all stages in the process, digital information is gathered that can be fed back into the "digital loop" and used to improve the overall process iteratively.
For example, if a digital twin (PLM) modeling a manufacturing process concludes that it's optimal to redesign the product (CAD), or data from a SLM suggests service costs will be minimized if a product is manufactured differently, etc.
The long-term potential for PTC is significant, and the company's latest results were possibly misinterpreted by the market, creating an excellent buying opportunity in a company growing FCF at a mid-teens rate and trading on 24 times Wall Street estimates for FCF in 2025.
Image source: Getty Images.
Hexcel is the future of commercial aerospace
The investment case for the advanced composites company has been around for a while. Its composites offer weight and strength advantages over conventional materials. With each generation of commercial airplanes developed, there's a trend to use more composite content. Not only do composites make planes more efficient, but they also help owners achieve their emissions goals.
As such, Hexcel's megatrend is the increasing adoption of composites and growth in airplane production -- Airbus and Boeing and their suppliers are significant customers.
Having the leading airplane manufacturers as customers is great for the long term (both have hundreds of billions of dollars worth of backlogs). Still, it's not so great when both companies disappoint with airplane deliveries, as in 2024.
That said, the bad news from 2024 is in the price. Thinking of the long term, it's only a matter of time before these airplanes are delivered. If you can be patient and accept some turbulence along the way, Hexcel is an excellent stock for long-term investors.
Don’t miss this second chance at a potentially lucrative opportunity
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Synopsys. The Motley Fool recommends Ansys, Hexcel, and PTC. The Motley Fool has a disclosure policy.
