10 Best Growth Stocks to Buy for the Long Term

Growth stocks had the upper hand in 2023: The Morningstar US Growth Index outperformed the Morningstar US Value Index by more than 26 full percentage points for the year. And they have continued to generate solid returns in 2024.

What does this mean for growth stocks?

“While growth stocks started 2024 trading near fair value, they have run up to levels that we now consider to be overvalued,” says Morningstar’s senior US market strategist Dave Sekera. “In fact, since 2010 growth stocks have rarely ever traded at a higher valuation relative to our intrinsic valuations. As such, it has become increasingly hard to find undervalued growth stocks across our coverage. We prefer investing in higher-quality companies with wide economic moats.”

Our best growth stocks to buy for the long term share a few qualities:

• They land in the growth portion of the Morningstar Style Box.
• The stocks are from companies included on Morningstar’s list of the Best Companies to Own for 2024. Companies on this list have wide Morningstar Economic Moat Ratings and predictable cash flows, and they are run by management teams that make smart capital-allocation decisions.
• They look reasonably priced, which means they’re trading below or near Morningstar’s fair value estimates.

10 Best Growth Stocks to Buy for the Long Term

The 10 most undervalued growth stocks from Morningstar’s Best Companies to Own list as of Nov. 5, 2024, were:

1. Rentokil Initial RTO
2. Airbus EADSY
3. AstraZeneca AZN
4. Dassault Systèmes DASTY
5. GE Aerospace GE
6. Taiwan Semiconductor Manufacturing TSM
7. Coloplast CLPBY
8. CoStar Group CSGP
9. Tyler Technologies TYL
10. Amazon AMZN

Here’s a little bit about each of these growth stocks for the long term. Data is as of Nov. 5.

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Rentokil Initial

• Price/Fair Value: 0.66
• Morningstar Uncertainty Rating: Medium
• Morningstar Style Box: Mid Growth
• Morningstar Capital Allocation Rating: Exemplary
• Industry: Specialty Business Services

Rentokil Initial tops our list of best growth stocks to buy. The firm’s strategy is sharply focused on the attainment and maintenance of market share leadership in the highly localized pest-control and hygiene-service markets it competes in. Rentokil Initial has completed over 200 acquisitions since 2015, focusing on acquisition targets that build the geographic density of its customers. The late-2022 acquisition of Terminix Global Holdings was a transformative and moat-reinforcing deal and created a new US market share leader, says Morningstar senior analyst Grant Slade. The successful execution of its mergers-and-acquisitions strategy has delivered a durable cost advantage for its pest-control business. Rentokil Initial stock trades at a 34% discount to our fair value estimate of $39.50 per share.

Airbus

• Price/Fair Value: 0.84
• Morningstar Uncertainty Rating: Medium
• Morningstar Style Box: Large Growth
• Morningstar Capital Allocation Rating: Exemplary
• Industry: Aerospace and Defense

Airbus is trading 16% below our fair value estimate. The company primarily generates revenue by manufacturing commercial aircraft. It benefits immensely from being in a duopoly with Boeing BA in the market for aircraft with 130 seats and up; the companies act as a funnel through which practically all such commercial aircraft demand must flow, and we expect this duopoly to continue, says Morningstar analyst Nic Owens. Airbus is well-positioned to take advantage of increasing commercial air travel. Airbus does not have much competition in the high end of the narrow-body market, and we anticipate that its offerings will enable fleet growth and may replace many aging midsize aircraft. We think Airbus stock is worth $46 per share.

AstraZeneca

• Price/Fair Value: 0.85
• Morningstar Uncertainty Rating: Medium
• Morningstar Style Box: Large Growth
• Morningstar Capital Allocation Rating: Exemplary
• Industry: Drug Manufacturers—General

The only drugmaker on our list of best growth companies to buy for the long term, AstraZeneca maintains one of the strongest pipelines in the drug group. The company has several key products in development that hold blockbuster potential, argues Morningstar senior analyst Jay Lee. “As Astra’s next generation of drugs launch, we expect operating margins to improve based on the strong pricing power of the new drugs and the operating leverage the firm should attain as the new drugs reach critical mass,” he adds. AstraZeneca stock is trading 15% below our $78 fair value estimate.

Dassault Systèmes

• Price/Fair Value: 0.86
• Morningstar Uncertainty Rating: Medium
• Morningstar Style Box: Large Growth
• Morningstar Capital Allocation Rating: Standard
• Industry: Software—Application

Software application company Dassault Systèmes has a hold on the computer-assisted design software market for autos, aerospace and defense, and manufacturing. With 90% of all aircraft and 80% of all autos globally made via Dassault software, Morningstar analyst Julie Bhusal Sharma believes the company will stay well entrenched with engineering teams with help from the significant switching costs and network effect found in its midmarket CAD software, SolidWorks. Dassault has adapted well to new trends in its market exposures, such as electric vehicle design software, which has made us more confident in the longevity of its moat and its ability to achieve excess returns on invested capital. Dassault Systèmes stock is trading 14% below our fair value estimate of $40 per share.

GE Aerospace

• Price/Fair Value: 0.90
• Morningstar Uncertainty Rating: Medium
• Morningstar Style Box: Large Growth
• Morningstar Capital Allocation Rating: Exemplary
• Industry: Aerospace and Defense

Another big name in the aerospace and defense industry, GE Aerospace joins our list of best growth stocks to buy. GE Aerospace has emerged as a formidable turbine engine producer, powering about three of every four commercial airline flights. The jet engine business is split in two parts: designing and supplying new engines, and servicing existing engines with replacement and refurbished parts throughout their very long service lives. The firm earns about 75% of its commercial engine revenue from the latter. Our outlook for commercial aircraft entails a near doubling of the global fleet by 2042 through secular growth and replacement of older, less efficient aircraft, says Morningstar’s Owens. GE Aerospace stands to participate heavily in this upswing. Shares of GE Aerospace stock are trading 10% below our fair value estimate of $194.

Taiwan Semiconductor Manufacturing

• Price/Fair Value: 0.91
• Morningstar Uncertainty Rating: Medium
• Morningstar Style Box: Large Growth
• Morningstar Capital Allocation Rating: Exemplary
• Industry: Semiconductors

Taiwan Semiconductor is the world’s largest dedicated contract chip manufacturer, with an almost 60% market share. The firm’s disciplined approach to capital spending in 2024—and possibly in the next few years—reduces risks of oversupply and allows more flexibility in cutting-edge research to maintain its leadership, argues Morningstar analyst Phelix Lee. Taiwan Semiconductor stands to benefit from the growth of artificial intelligence, the Internet of Things, and high-performance computing applications, which may last decades. Taiwan Semiconductor stock trades 9% below our fair value estimate of $215 per share.

Coloplast

• Price/Fair Value: 0.92
• Morningstar Uncertainty Rating: Medium
• Morningstar Style Box: Large Growth
• Morningstar Capital Allocation Rating: Exemplary
• Industry: Medical Instruments and Supplies

Coloplast stock is 8% undervalued relative to our fair value estimate of $14.10 per share. Based in Denmark, Coloplast is a leader in global ostomy and continence care. The firm has a long record of consistent and meaningful innovation that has led to a dominant position in Europe and growth in the US, says Morningstar senior analyst Debbie Wang. Since 2008, the firm has done an admirable job of trimming its cost structure as it focused on profitable growth.

CoStar Group

• Price/Fair Value: 0.94
• Morningstar Uncertainty Rating: Medium
• Morningstar Style Box: Mid-Growth
• Morningstar Capital Allocation Rating: Exemplary
• Industry: Real Estate Services

CoStar Group, a leading provider of commercial real estate data and marketplace listing platforms, is another new addition to our list of best growth stocks to buy for the long term. The firm’s data offerings contain in-depth analytical information on over 5 million commercial real estate properties. CoStar Group also operates flagship brands that include CoStar Suite, which contributes about 37% of the firm’s revenue, and online marketplaces like Apartments.com. Morningstar analyst Suryansh Sharma argues that CoStar is uniquely positioned in the commercial real estate industry and should be able to maintain its impressive growth trajectory for many years to come. CoStar Group stock trades just below our fair value estimate of $80 per share.

Tyler Technologies

• Price/Fair Value: 0.96
• Morningstar Uncertainty Rating: Medium
• Morningstar Style Box: Mid-Growth
• Morningstar Capital Allocation Rating: Standard
• Industry: Software—Application

Tyler Technologies is the clear leader in the underserved niche market of government operational software, argues Morningstar senior analyst Dan Romanoff. We believe there is a decadelong runway for normalized top-line growth near 10% at Tyler, especially as demand for SaaS accelerates and the need to modernize local governments’ legacy enterprise resource planning systems intensifies. We see Tyler’s expanding portfolio as driving larger deals that encompass more solutions. It now has established enough of a reputation in the market that it is called upon in most relevant government system searches. Further, Tyler benefits from a fragmented market that includes no companies at anywhere near its size or scale that are focused on the local public institution market. Tyler Technologies stock trades just below our $630 fair value estimate.

Amazon

• Price/Fair Value: 1.00
• Morningstar Uncertainty Rating: Medium
• Morningstar Style Box: Large Growth
• Morningstar Capital Allocation Rating: Exemplary
• Industry: Internet Retail

Internet retail giant Amazon rounds out our list of best growth stocks to buy. It benefits from numerous competitive advantages and has emerged as the clear e-commerce leader given its size and scale, which yield an unmatched selection of low-priced goods for consumers, says Morningstar’s Romanoff. Through Amazon Web Services, or AWS, Amazon is also a clear leader in public cloud services. Additionally, the firm’s advertising business is already large and continues to scale as ads have made their way into Amazon’s streaming outlets. AWS and advertising growth should continue to outpace e-commerce growth and should be the main growth drivers over the next five years. Overall, we see strong revenue and free cash flow growth for years to come. Amazon trades right around our fair value estimate of $200 per share.

What Are the Morningstar Style Box and Fair Value Estimate?

The Morningstar Style Box is a nine-square grid that provides a graphical representation of the investment style of stocks, bonds, or funds. Based on a series of inputs—including a company’s historical and long-term projected growth and its historical and forward-looking price multiples—a stock is classified as either a value stock, a growth stock, or a core stock. A stock is also classified as either small-cap, mid-cap, or large-cap based on its market capitalization.

The fair value estimate, meanwhile, represents what Morningstar analysts think a particular stock is worth. Fair value estimates are rooted in fundamentals and based on how much cash we think a company can generate in the future, not on fleeting metrics such as recent earnings or current stock price momentum.

How to Find More Growth Stocks to Buy

Of course, there are many other criteria investors can use to find growth stocks to buy for the long term. Here are some tools that investors can use to find more growth-stock ideas to research further

• Investors can use the Morningstar Investor screener to more easily compare growth stocks with each other. One way would be to screen by Stock Style under the Criteria drop-down menu, choosing large growth, mid-growth, small growth, or some combination thereof. Then once you have your results, click on Data & Columns to select Financials data points in the Stocks area. These might be valuation metrics like price/earnings ratios or revenue growth, among others. Then click Update. Once back to the list of stocks, click on the data point that matters most to you to rank the list on that particular data point.
• Investors who’d rather invest in growth stocks through a managed product like an exchange-traded fund or a mutual fund can find ideas to research further in The Best Growth Funds.

More of the Best Stocks to Buy

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