Growth stocks: 1 I’m buying in November and 1 I’m staying well away from

When it comes to growth stocks, durability is key. Earnings growth is all about the future, so investors need to be confident nothingâs going to go wrong between now and then.

Artificial intelligence (AI) is creating huge opportunities, but itâs also threatening a number of established businesses. With that in mind, Iâm looking to be careful with my investing.

Brown & Brown

Shares in insurance broker Brown & Brown (NYSE:BRO) fell 6% on Tuesday (28 October) after the firmâs earnings report. And looking at the results, I think I can see why.

Organic revenue growth of 3.5% was the weakest it’s been in some time. This was largely due to an unusually competitive insurance market, which the company canât do anything about.Â

While the past isnât a guarantee of the future, history tells us that these environments donât tend to last for too long. And Iâm looking to use this as an opportunity to buy the stock.

Iâm really impressed by Brown & Brown as a company. It combines economies of scale with the benefits of local expertise and it operates in a market thatâs undergoing consolidation.

I think that means thereâs significant scope for growth, both through higher margins and via acquisitions. And the firm is in the process of working through a deal worth almost $10bn.

A deal of that size inevitably brings integration risk and theyâve paid a high multiple for it. But Iâm excited to have the opportunity to buy the stock at a price below $85.

Salesforce

Analysts have pretty optimistic views of Salesforce (NYSE:CRM) at the moment. But Iâm extremely wary about what AI means for the future of the companyâs business.

The firmâs Agentforce platform allows customers to build and deploy their own autonomous AI agents. And itâs saving Salesforce money in the form of 4,000 fewer customer support staff.

The trouble is, I think itâs also likely to stunt the companyâs growth. Specifically, I suspect AI is going to mean other businesses are in a position to build their own AI agents themselves.

Salesforceâs key competitive strength has been its switching costs. And I donât expect those to disappear, which should give the company the ability to generate growth by raising prices.

The firmâs ability to do this, though, is going to be limited if customers can do something similar at a lower cost elsewhere. And this is showing up in estimates of future earnings.

Analysts expect earnings per share to grow at 9% a year up to 2028. Thatâs not intrinsically terrible, but I donât think it justifies me buying the stock at a price-to-earnings (P/E) ratio of 37.

Opportunities and threats

As an investor, I want to own shares in companies that are going to be worth more in the future. And that means ones that are going to be able to grow their earnings for a long time.

I think Brown & Brown fits the bill and I currently hold it. A fragmented US middle market should bring growth opportunities in the future and makes short-term weakness a buying opportunity for me.

With Salesforce, the story is different. The rise of AI looks like a threat to its competitive position and growth prospects, which is why I think I have better opportunities elsewhere.

The post Growth stocks: 1 I’m buying in November and 1 I’m staying well away from appeared first on The Motley Fool UK.

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Stephen Wright has positions in Brown & Brown. The Motley Fool UK has recommended Salesforce. 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.