The S&P 500 and Nasdaq Composite continue to reach all-time highs, thanks to strong performances from top growth stocks. But Tesla (NASDAQ: TSLA) has been noticeably absent from the rally. In fact, it’s one of the 10 worst-performing S&P 500 components so far this year.
Instead of buying the dip on Tesla, investors may be better off considering PTC (NASDAQ: PTC), Archer Aviation (NYSE: ACHR), and Toyota (NYSE: TM). Here’s what makes these three growth stocks worth buying now.
An industrial software stock whose best days are ahead of it
Lee Samaha (PTC): The industrial software company’s management recently downgraded its guidance for growth in its key metric. While that’s never great news, it must be put into perspective. Here’s a business expecting to grow its annual run rate (ARR) of active subscription software, cloud, SaaS, and support contracts at a double-digit rate, rather than the mid-teens growth previously expected.
That’s not bad for a company in what management describes as a “sluggish” sales environment. It’s also a testimony to how powerful the underlying secular trend toward digitalization in manufacturing is. PTC’s software solutions products can be digitally designed using computer-aided design (CAD). Meanwhile, its product lifecycle management (PLM) software assists in creating a digital thread for the product, enabling continuous analysis of digital data to enhance outcomes.
For example, if the service lifecycle management (SLM) software indicates that a product can be better serviced by a change in design (using CAD) or by being manufactured differently (PLM), then these changes can be collaborated upon and carried out digitally and physically.
The benefits of digital continuous improvement processes are significant. They can help reduce a product’s time to market, improve quality control, and increase production efficiency.
The benefits are numerous, and that’s why PTC’s ARR growth is likely to continue growing at an impressive clip, with the growth rate increasing in a better economic environment. Wall Street analysts expect PTC’s free cash flow (FCF) to hit $1 billion in 2026, putting the company at 21 times its 2026 FCF. That’s an excellent valuation for a growth stock.
Growth investors will want to land Archer Aviation in their portfolios
Scott Levine (Archer Aviation): If Archer Aviation hits the mark, passengers won’t be relying solely on car services to get them to airports. The company is attempting to disrupt the urban transportation landscape, allowing passengers to hitch a ride on its electric vertical take off and landing (eVTOL) aircraft to shuttle them to the airport, making this an ideal consideration for growth investors.
This air taxi service (as the company calls it) may seem unlikely to appear soon, but the company is full throttle ahead with its mission — and Archer’s air taxis may be seen in the wild blue yonder sooner rather than later. While the company expects to start operations over the next few years, it plans on growing operations to scale in 2029.
Offering a novel transportation service doesn’t happen overnight. One of the reasons why is the extensive FAA certification process that the company must complete for its aircraft, Midnight. In late May, Archer announced that the FAA has issued the final airworthiness criteria for Archer’s Midnight aircraft for public inspection. This is an important milestone for the company, taking it a significant step closer to receiving FAA certification.
Another noteworthy item for the company is its progress in developing a manufacturing facility in Georgia, where it is partnering with Stellantis to produce the Midnight aircraft. When operational, Archer expects the facility to produce 650 aircraft annually. Archer expects construction of the facility to be completed by the end of the year.
Besides industry leaders like Stellantis, the company has also received support from leaders like United Airlines, which plans on purchasing up to $1.5 billion worth of aircraft — an important validation of the company’s vision of reimagining air travel. United plans on providing air taxi service to customers in Chicago using Archer aircraft starting in 2025.
Take advantage of the sell-off in this top automaker
Daniel Foelber (Toyota): Toyota is down 14.5% in the last three months, but that’s just a minor cooldown after it soared 84% from the beginning of 2023 to the end of March 2024.
Like other value-oriented automakers, Toyota has long traded to the S&P 500 at a discount. Its price-to-earnings ratio is just 8.2, compared to a 10-year median of 10. Since Toyota hasn’t enjoyed a valuation expansion, its earnings are what has driven the stock to new heights. For example, earnings have more than doubled over the last five years, while the stock is up 74%. An inexpensive valuation paired with earnings growth is a recipe for success, and there’s reason to believe Toyota can continue taking market share in the years to come.
Toyota isn’t a growth stock in the traditional sense. But it generated all-time-high sales and earnings in fiscal 2023. The results, paired with its runway, indicate Toyota is shifting into a new gear that is disrupting the industry.
Instead of entering the EV market full throttle, Toyota has leaned into hybrid vehicles. This strategy has been a resounding success, as Toyota has achieved growth without dismantling its proven business model.
In late May, Toyota, Subaru, and Mazda announced a lineup of new combustion engines compatible with alternative fuels. Available in hybrid form in conjunction with a battery or a stand-alone option, the development combines these companies’ internal combustion engine prowess with the need to produce more environmentally friendly options to comply with increasingly strict regulations and carbon reduction goals.
It would be a game changer if Toyota could produce a low-cost, clean vehicle that utilizes existing infrastructure, embraces low-carbon fuels, and saves the company the untold cost of abandoning internal combustion engines and shifting to electric motors.
Toyota’s innovation, paired with its dirt cheap valuation and 1.9% dividend yield, make it a solid buy-the-dip candidate.
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Daniel Foelber has no position in any of the stocks mentioned. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends PTC and Stellantis. The Motley Fool has a disclosure policy.
Instead of Buying the Dip on Tesla, Consider These 3 Growth Stocks was originally published by The Motley Fool
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