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If you’ve heard the term “growth stocks” before, there’s a good chance that it was referring to large technology companies such as Apple, Microsoft, Amazon, Tesla or Alphabet (formerly Google). These are the five most heavily weighted components of the Standard & Poor’s 500 index, so they have an outsized influence on the overall movement of the stock market.
However, not all growth stocks are technology stocks. Growth stocks can be in the health care sector, the financial sector or any other sector. What defines them is, well, growth. Here's a deeper look at what that actually means.
What is a growth stock?
Growth stocks are shares of companies whose revenue or net income is growing faster than the market average.
Investors buy them in the hope that their share prices will increase quickly, in line with their fast-growing revenue or net income.
Growth stocks are often contrasted with income stocks, which investors buy for their consistent dividend payments, and value stocks, which investors buy in the hope that their prices will rebound from a recent setback.
» Learn more about the differences between growth and value investing.
Best-performing growth stocks
Below is a list of the top 25 U.S.-headquartered growth stocks, ordered by performance this year. To compile this list, we take into account the growth rates of revenue, earnings, cash flow and book value (assets minus liabilities) over the past year and prior year, as well as price-to-earnings ratios and dividend yield over the past year.
Price performance this year
Revenue growth last quarter vs. same quarter last year
Exelixis (NASDAQ: EXEL)
United Therapeutics (NASDAQ: UTHR)
Enphase Energy (NASDAQ: ENPH)
Incyte (NASDAQ: INCY)
Palomar Holdings (NASDAQ: PLMR)
Qualys (NASDAQ: QLYS)
Agiliti (NYSE: AGTI)
Teledyne Technologies (NYSE: TDY)
NV5 Global (NASDAQ: NVEE)
Synopsys (NASDAQ: SNPS)
Monarch Casino & Resort (NASDAQ: MCRI)
STAAR Surgical (NASDAQ: STAA)
TELUS International (NYSE: TIXT)
Chipotle Mexican Grill (NYSE: CMG)
Callaway Golf (NYSE: ELY)
Paylocity Holding (NASDAQ: PCTY)
ASGN (NYSE: ASGN)
CorVel (NASDAQ: CRVL)
Deckers Outdoor (NYSE: DECK)
Lululemon Athletica (NASDAQ: LULU)
Doximity (NYSE: DOCS)
Onto Innovation (NYSE: ONTO)
Novanta (NASDAQ: NOVT)
Medpace Holdings (NASDAQ: MEDP)
Maravai LifeSciences Holdings (NASDAQ: MRVI)
Should you buy growth stocks?
That depends on you and your investing goals. The stocks above may be beating the market right now, but that doesn’t mean that you should go all-in on them. Past performance does not predict future performance, and picking individual stocks can be a risky business.
Many investors instead buy index mutual funds and exchange-traded funds, which bundle hundreds or thousands of stocks into a single investment. Index funds, by definition, don’t beat the market — they move with the market.
The S&P 500 index, which contains roughly 500 of the largest publicly traded companies in the U.S., has returned an average of about 10% per year since 1926. That makes it a powerful tool for compounding wealth over the long term.
However, it’s worth emphasizing that 10% is the average annual return of the index. In some years, the index does much better than that, but in other years, it does much worse.
During downturns, skilled stock pickers can theoretically outperform the market indexes by investing some of their money in individual companies that buck the negative trend, like the ones shown above. But be careful: Studies have shown that individual investors usually underperform the market indexes.
Other investors harness the power of index funds and individual stocks with the “90/10 rule.” They invest no more than 10% of their portfolios in individual stocks and keep the rest in low-cost index funds.
The author owned Alphabet stock at the time of publication.