The recent market sell-off has opened the door for some good buying opportunities in growth stocks. Let’s look at four that investors can buy for the long term.
Amazon
Down just over 20% from its highs, Amazon (AMZN -3.92%) is trading at one of its lowest valuations in its history with a trailing price-to-earnings ratio (P/E) of around 34. That’s despite the strong growth the company has shown, with revenue increasing by 10% last year while its adjusted earnings per share (EPS) soared 91%.
The company’s cloud computing business, Amazon Web Services (AWS), has been its biggest growth driver, as the company helps customers create and deploy their own artificial intelligence (AI) models and apps on its platform through the help of its Bedrock and SageMaker services. The company has also developed its own custom AI chips to improve performance and lower costs.
The company is embracing AI throughout its business, which is helping improve efficiency and lower costs in its logistics and warehouse services, while driving sales on its e-commerce platform. Amazon is also seeing strong growth from its high-margin sponsored ad business.
With the company investing heavily in AI, Amazon looks poised to be a long-term AI winner.
Alphabet
Down about 25% off its highs, Alphabet (GOOGL -3.43%) (GOOG -3.21%) has seen bearish sentiment rise. Investors remain concerned that AI chatbots like ChatGPT will displace its dominance in search. This could be partly true, but Google Search remains better at things such as gathering real-time information, sourcing materials, and discovering new content.
And remember that Google Search traditionally serves ads on only about 20% its search queries, so it has a big opportunity to monetize more search and AI queries in the future. Its highest-revenue search queries tend to be for simple words or phrases like iPhone, “cheap flights,” or “car insurance,” not intricate questions you would ask a chatbot.
The current AI chatbot model with no ads, along with some premium offerings charging a monthly fee, is not a sustainable business model. Alphabet is the largest digital advertiser in the world, and as such has a huge advantage given that it already has this huge two-way network in place and strong ad targeting capabilities.
At the same time, the company is about a lot more than search. It also owns Prime Video, one of the world’s most watched streaming services; the third-largest cloud computing platform, and the leading robotaxi business in the U.S. with Waymo. It is also at the forefront of quantum computing with its Willow chip.
Trading at forward P/E of 17, the stock is too cheap for the collection of businesses it owns and the opportunities ahead of it.
Image source: Getty Images
Cava Group
With its stock nearly 50% off its highs, Cava Group (CAVA -10.51%) is a growth stock that has suddenly been discounted. But the Mediterranean fast-casual restaurant chain has one of the hottest concepts in the quick-service space and a huge expansion opportunity.
The popularity of Cava can be seen in its recent same-store sales (comps) results, which soared 21.2% last quarter as guest traffic climbed 15.6%. It marked the third straight quarter of double-digit comps for the company, as menu innovations — including its introduction of grilled steak — resonated with its customers. Management plans to continue with menu innovation as well as digital marketing and its loyalty program.
Cava’s biggest opportunity, though, is store expansion. At the end of last quarter, it had 367 locations in 28 states, making it about a tenth the size of Chipotle Mexican Grill in the U.S. It plans to open between 62 and 66 new locations in 2025, which would be between 17% to 18% unit growth.
With a long runway in front of it, Cava looks like a strong growth stock to own for the long run.
Dutch Bros
Similar to Cava, Dutch Bros (BROS -9.84%) is a restaurant stock that has a huge expansion opportunity. The coffeehouse operator currently has 982 locations, including 670 that are company-owned, in only 12 states. That compares to the over 17,000 locations that Starbucks has in the U.S. alone.
The company plans to open at least 160 new locations this year. That would equal a 16% increase, and it has a long runway for unit growth.
Dutch Bros locations have a very small format that tends to be a drive-thru or a walk-up window only, but its small stores still generate a hefty $2 million in sales per location. It also has a couple of strong potential comps drivers as well. The first is that the company only recently introduced mobile ordering, so this should be a nice driver moving ahead.
Perhaps the even bigger opportunity, though, is food. The company is currently testing new food options, which could help increase order size and drive more traffic to its locations. Currently, only about 2% of Dutch Bros sales come from food, compared to 19% for Starbucks, so this a huge opportunity.
The stock is now down more than 30% from its highs. However, the combination of comps growth and expansion gives Dutch Bros the potential to be a long-term winner.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Amazon, Chipotle Mexican Grill, and Starbucks. The Motley Fool recommends Cava Group and Dutch Bros and recommends the following options: short March 2025 $58 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.