3 Growth Stocks for Forward-Looking Investors

MarketsMotley Fool

Buying and holding high-quality growth stocks is a fantastic way to beat the market over the long term. But investors are often hesitant to buy growth stocks for a number of reasons, including the outsize volatility that tends to come with owning them, their seemingly high valuations, or doubt surrounding their ability to sustain growth.

To that end, we asked three top Motley Fool investors to each pick a growth stock that forward-looking investors can appreciate. Read on to learn why they chose Nike (NYSE: NKE), Cintas (NASDAQ: CTAS), and Activision Blizzard (NASDAQ: ATVI).

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This turnaround is already gaining momentum

Steve Symington (Nike): Despite a difficult retail environment and a rash of sporting-goods chain bankruptcies in North America over the past year and a half, Nike has been able to deliver one solid quarter after another by leaning on the relative strength of its thriving international and direct-to-consumer businesses.

But the athletic-footwear and sportswear giant could be firing on all cylinders soon. When Nike released its fiscal third-quarter 2018 results two weeks ago, management noted that they saw a "significant reversal of trend in North America" toward the end of the quarter. They further predicted that their largest geography should see relatively flat sales on a year-over-year basis in the current quarter, then return to growth in the first half of fiscal 2019.

Of course, shares are already up modestly so far this calendar year as the market begins to anticipate Nike's impending acceleration in growth. But I think forward-looking investors who buy now stand to be handsomely rewarded in the coming quarters once that growth becomes more evident.

You ain't seen nothin' yet

John Bromels (Cintas): Some growth stocks are pretty speculative investments, but not uniform renter Cintas. Its shares have more than quintupled over the past decade, and look ready to keep on growing as it benefits from current employment trends and a fractured domestic uniform-rental market.

Cintas not only rents work uniforms -- the bulk of its business -- but also provides a motley collection of other business services including floor mat rental, fire and safety services, and restroom restocking. Demand in all of these niches increases as labor participation increases, and employment is up, particularly in the manufacturing, warehousing, healthcare, hospitality, and transportation sectors, in which work uniforms are common.

Thanks to its size and industry-leading position, Cintas was able to capitalize on those trends in the second quarter of fiscal 2018. Year-over-year revenue was up 26.4%, while net income increased 12.9% year over year. The company seems to be absorbing competitor G&K Services, which it acquired in 2017. And the uniform-rental market is still highly fractured, which gives Cintas plenty of potential targets to acquire and continue its growth.

Forward-looking investors shouldn't be scared off by Cintas' past performance. The company's growth engine looks like it'll be chugging along for years to come.

Investing in the future of entertainment

Keith Noonan (Activision Blizzard): Video games are still a relatively young art form. The first commercial screening of a movie happened in 1895. The first arcade game was released in 1970. It's not a perfect comparison, but if you think about the staggering change, remarkable growth, and increased cultural significance that the movie business has seen with roughly 75 additional years in operation, it's not hard to imagine that video games still have a lot of untapped potential. The interactive nature of video games only adds to that potential.

If gaming continues to climb in popularity, and that seems like a sound bet, Activision Blizzard is in line to be one of the biggest beneficiaries. The company has a wealth of strong franchise properties, including Overwatch, Call of Duty, Candy Crush Saga, and World of Warcraft, and a stable of development teams with a stellar track record of high-quality output. With these assets, the company is on track to take advantage of trends that are shaping the industry. Growth for digital downloads and in-game purchases appears to be on track to continue, and the company still has big expansion opportunities in China and other emerging markets.

Activision Blizzard has growth avenues outside of traditional gaming as well. If esports takes off, the company is in position to be one of the biggest winners. The company published seven out of the 20 most watched games on Amazon's Twitch streaming platform in 2017, and early tracking suggests a solid debut for the company's professional Overwatch league. Activision is also looking to make film adaptations of its big gaming franchises and transition these properties into merchandizing juggernauts -- similarly to the way that Disney has built cross-medium sensations.

For those looking to invest in the future of entertainment, Activision Blizzard is a standout bet.

The bottom line

We can't absolutely guarantee that the future for these three promising growth stocks will play out as our theses suggest. But between Nike's recent turn for the better in North America, favorable employment and rental-industry trends for Cintas, and Activision's central role in the continued rise of the video gaming market, we believe they're each uniquely poised to keep on winning over the long term.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. John Bromels owns shares of Activision Blizzard, Amazon, Cintas, and Walt Disney. Keith Noonan owns shares of Activision Blizzard. Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Activision Blizzard, Amazon, Nike, and Walt Disney. The Motley Fool recommends Cintas. The Motley Fool has a disclosure policy.