2 growth stocks that are ONLY for long-term investors
Warren Buffett attributes the success of his Coca-Cola and American Express investments to the fact the companies have grown, not the dividends theyâve paid. In other words: growth stocks can be great.
The trouble is, a lot of businesses need time to increase their earnings. And I think some of the best growth stocks should only be considered by investors with a long-term focus.
Halma
Over the last 12 months, Halma (LSE:HLMA) shares have climbed 27%. Thatâs a great return, but I donât think investors should bet on something similar happening again in 2025.
The stock currently trades at a price-to-earnings (P/E) ratio of 36 (or 31 based on the firmâs adjusted figures). And the company isnât Nvidia â itâs not likely to double its profits in the next year.
I think, however, that its long-term prospects are enough to justify the current share price. Halmaâs strategy involves buying other businesses and integrating them into its network.
Typical acquisition targets occupy dominant positions in niche markets, making them difficult to disrupt. But it can also mean their scope for growth is limited and this is a risk given the high share price.Â
Halma can generate some growth by integrating subsidiaries into its ecosystem. Ultimately, though, the success of the business is going to come down to the firm finding enough companies to buy.
Management reported a strong acquisition pipeline in the firmâs latest trading update. I think the stock could turn out to be a great investment, but itâs not going to happen overnight.
Palantir
Palantir (NASDAQ:PLTR) is a very different case. I think thereâs a decent chance the firmâs profits may double in the next 12 months, but at a P/E ratio of 345, the stock will look expensive even if they do.
Historically, the company has relied heavily on government contracts. And with these continue to make up a big part of revenues, thereâs an ongoing risk of policy changes and budget shifts.Â
Recently, though, Palantir has shifted to targeting businesses to sell to, and the early signs are encouraging. It seems as though companies canât sign up fast enough when they see what Palantir can do.
Whether itâs bottled water or agricultural software, the firmâs analytics products appear to be able to generate impressive insights for their clients. And I think this is very promising.Â
Thereâs a lot of optimism about what artificial intelligence (AI) might mean for various businesses. But Palantir is one of the few companies that actually has a working AI product that produces real results.
Itâs going to be a long time before the firm is in a position to return cash to shareholders in a way that amounts to a good return on the current share price. I think, though, that patience could pay off here.
Long-term investing
Unless they fall sharply, neither Halma nor Palantir stock is going to look cheap in the next couple of years. And while anything can happen, I donât think investors should look for a return in that time.
Over the long term, however, both companies have outstanding growth prospects. There are risks in both cases, but I think either stock could turn out to be a great investment at todayâs prices.
The post 2 growth stocks that are ONLY for long-term investors appeared first on The Motley Fool UK.
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More reading
- I asked ChatGPT to name the best S&P 500 growth stock and it picked this AI powerhouse
- With no savings at 40, should an investor look at growth stocks or value shares?
- Do I need to know how Palantir’s tech works to consider buying the shares?
American Express is an advertising partner of Motley Fool Money. Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Halma Plc and Nvidia. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
