10 Best Growth Stocks to Buy for the Long Term

The stocks of these high-quality growth companies look undervalued today.

Margaret Giles 21 November, 2023 | 4:19AM
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Growth stocks have had the upper hand so far this year: The Morningstar US Growth Index outperformed the Morningstar US Value Index by more than 20 full percentage points through mid-November 2023.

Can the growth stock rally last?

“Growth stocks have led the market higher thus far this year and as a category are now trading at fair value,” observes Morningstar’s senior U.S. market strategist Dave Sekera. “However, some opportunities remain within growth that are undervalued and provide long-term investors with a significant margin of safety.” It’s therefore best to adopt a long-term investing mindset when buying growth stocks today.

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 2023. 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 undervalued, which means they’re trading below their 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. 10, 2023, were:

  1. Coloplast CLPBY
  2. Rentokil Initial RTO
  3. Experian EXPGY
  4. Waters WAT
  5. AstraZeneca AZN
  6. Rockwell Automation ROK
  7. Autodesk ADSK
  8. ABB ABBNY
  9. ASML Holding ASML
  10. Diageo DEO

Here’s a little bit about each of these growth stocks for the long term. Data is as of Nov. 10, 2023.

Coloplast

  • Price/Fair Value: 0.72
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Style Box: Large Growth
  • Morningstar Capital Allocation Rating: Exemplary
  • Industry: Medical Instruments and Supplies

Coloplast tops our list of the best growth stocks to buy. Coloplast stock is 28% undervalued relative to our fair value estimate of $14.10. 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. Share prices fell when Coloplast management reduced its fiscal 2024 outlook owing to a smaller expected operating margin, but Morningstar’s fair value estimate remains intact. Senior analyst Debbie Wang expects the firm’s operating margin to return to its historical benchmark of 30% level in fiscal year 2026.

Rentokil Initial

  • Price/Fair Value: 0.76
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Style Box: Mid-Growth
  • Morningstar Capital Allocation Rating: Exemplary
  • Industry: Specialty Business Services

Rentokil is the world’s largest commercial pest-control business, boasting leading market shares in the vast majority of the 87 countries in which it operates. This has been achieved in large part via vigorous tuck-in acquisition activity aimed at reaping the cost benefits, says Morningstar senior analyst Grant Slade. Though investors were disappointed in Rentokil Initial’s weak third-quarter revenue growth, we think the reaction is overdone. Rentokil Initial’s stock is 24% undervalued relative to our $36 fair value estimate.

Experian

  • Price/Fair Value: 0.78
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Style Box: Large Growth
  • Morningstar Capital Allocation Rating: Standard
  • Industry: Consulting Services

One of the leading consumer credit bureaus in the United States, Experian faces headwinds from a weakening macroeconomic backdrop and tighter lending. This large-growth company continues to focus on geographic diversification and pursuing both organic and inorganic opportunities. We expect revenue growth in the mid- to high-single-digit range and meaningful margin expansion over the next five years, says Morningstar analyst Rajiv Bhatia. This large-growth stock to buy is 22% undervalued relative to our $42 fair value estimate.

Waters

  • Price/Fair Value: 0.79
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Style Box: Mid-Growth
  • Morningstar Capital Allocation Rating: Exemplary
  • Industry: Diagnostics and Research

Waters specializes in liquid chromatography and mass spectrometry products, which are used primarily by pharmaceutical companies to analyze a molecule’s structure during the drug discovery, development, and production processes. Weakness in China and currency challenges have reduced management’s 2023 expectations, observes Morningstar senior analyst Julie Utterback. Despite near-term headwinds, our long-term views for Waters and the life science industry remain intact. This mid-cap growth stock trades 21% below our $323 fair value estimate.

AstraZeneca

  • Price/Fair Value: 0.81
  • 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 the best growth stocks to buy for the long term, AstraZeneca maintains one of the strongest pipelines in the drug group, and the company has several key products in development that hold blockbuster potential, argues Morningstar director Damien Conover. As high-margin specialty drugs continue to represent a larger proportion of sales, profit margins should expand over the next five years, too, he adds. AstraZeneca stock is trading 19% below our $78 fair value estimate.

Rockwell Automation

  • Price/Fair Value: 0.82
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Style Box: Mid-Growth
  • Morningstar Capital Allocation Rating: Standard
  • Industry: Specialty Industrial Machinery

Rockwell Automation is a high-quality automation player based not just on its quality but on its breadth of offerings and its strategic partnerships. The mid-growth company is seeking a stronger foothold where technology meets traditional manufacturing, says Morningstar director Joshua Aguilar. The firm reported solid 18% organic sales growth for the fiscal year. Rockwell’s stock price has recently declined likely in response to an impairment charge of $157.5 million related to Rockwell’s Sensia digital oilfield venture with Schlumberger SLB. Rockwell Automation stock is 18% undervalued relative to our $315 fair value estimate.

Autodesk

  • Price/Fair Value: 0.85
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Style Box: Mid-Growth
  • Morningstar Capital Allocation Rating: Exemplary
  • Industry: Software—Application

Autodesk is considered the global industry standard computer-aided design software, says Morningstar analyst Julie Bhusal Sharma. Its complex products—which span the architecture, engineering, construction, and product design and manufacturing industries, among others—boast high switching costs. The company’s balance sheet is sound, and we think management has done an exceptional job with its internal investment strategy. This mid-cap growth stock is 15% undervalued relative to our $247 fair value estimate.

ABB

  • Price/Fair Value: 0.87
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Style Box: Large Growth
  • Morningstar Capital Allocation Rating: Standard
  • Industry: Electrical Equipment and Parts

ABB is a supplier of electrical equipment and automation products, which include electrical equipment, industrial robots, and equipment used for industrial automation. The firm enjoys a number-one or -two market position in two thirds of its product segments, says Morningstar analyst Matthew Donen. ABB is well positioned to benefit from the secular trends of automation, electrification, and reshoring production, which will support long-term structural growth, he adds. ABB stock is 13% undervalued relative to our fair value estimate of $41.

ASML Holding

  • Price/Fair Value: 0.87
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Style Box: Large Growth
  • Morningstar Capital Allocation Rating: Exemplary
  • Industry: Semiconductor Equipment and Materials

As the predominant supplier of photolithography equipment for semiconductor manufacturers, large-cap ASML stands to benefit from the proliferation of extreme ultraviolet lithography at leading-edge chipmakers, says Morningstar analyst William Kerwin. Third-quarter results were solid, even though the demand backdrop for many of its chipmaking customers remains weak. We expect ASML’s impressive backlog of orders will allow it to post strong growth through 2023 and 2024. We project revenue to rise at a compound annual rate of 14% through 2027, he adds. This undervalued growth stock trades 13% below our $750 fair value estimate.

Diageo

  • Price/Fair Value: 0.88
  • Morningstar Uncertainty Rating: Low
  • Morningstar Style Box: Large Growth
  • Morningstar Capital Allocation Rating: Standard
  • Industry: Beverages—Wineries and Distilleries

Diageo rounds out our list of the best growth stocks to buy for the long term. The firm, which was created following the merger of Grand Metropolitan and Guinness, has continued to use mergers and acquisitions to become a global leader in the spirits industry. Diageo’s broad presence across categories with both global strategic and local niche brands mitigates some of the risk to volume from shifting consumer tastes and preferences, says Morningstar director Philip Gorham. We expect North America, Diageo’s largest and most profitable market, to be one of the growth engines in the short and medium terms, with around 4% organic growth, he adds. Diageo stock is 12% undervalued relative to our $160 fair value estimate.

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. Learn more about how Morningstar values stocks in Morningstar’s Guide to Stock Investing.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
AstraZeneca PLC ADR76.90 USD-0.18Rating
Coloplast A/S ADR12.56 USD1.62Rating
Experian PLC ADR46.89 USD-0.91Rating
Rentokil Initial PLC ADR27.30 USD-0.58Rating
Waters Corp355.95 USD-1.26Rating

About Author

Margaret Giles  Margaret Giles is a journalist for Morningstar.com, based in Chicago

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