3 Overlooked Growth Stocks for 2019

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As last year came to a close, investors in growth stocks had a fourth quarter they'd rather forget. While we entered bear territory -- in which the overall market is down at least 20% from its peak -- highfliers were hit even harder. At various points, Netflix, Amazon, and Apple were all down more than 30% from their yearly highs.

But when asked to find overlooked growth stocks for 2019 and beyond, our contributors had three different names to single out. Read below to see why salesforce.com (NYSE: CRM), Arcos Dorados (NYSE: ARCO), and Zuora (NYSE: ZUO) made their list.

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Sensational growth but with actual results

Nicholas Rossolillo (Salesforce.com): Salesforce founder and co-CEO Marc Benioff's talk over the years on his company's future prospects often seems to border on overenthusiastic hype. It isn't. As the provider of customer-centric software and related services for businesses has expanded, annual revenue growth has never dipped below the double digits.

What's so impressive about that feat is that even though the company is now valued at a market cap of $98 billion, it's barely slowed down. Take this year as an example. Through the first three quarters of 2018, revenues, operating profit, and adjusted earnings per share are up 26%, 64%, and 92%, respectively. Benioff and company think there are many more years of similar performance left in the tank as the pace of digital transformation across the globe continues unabated.

To be fair, Salesforce has gotten where it is in no small part due to strategic acquisitions. Back in 2016, the company bought its way into e-commerce management with the $2.8 billion purchase of Demandware; and in early 2018, data-integration services were added via MuleSoft for another $6.5 billion. It has made numerous smaller acquisitions along the way, too. For most companies out there, operations could get messy and disjointed with so many new moving parts.

That hasn't happened at Salesforce, though. Instead, an integrated software platform and ecosystem of developers has emerged to help enterprises with all of their customer relationship management needs. The company's various offerings have helped woo new customers, too, and once they're on the Salesforce platform, they gradually expand their use of the multitude of tools available. Under the guidance of a new owner, all those acquisitions have flourished. Year to date, the marketing and commerce segment (which includes Demandware) grew 39%, and "platform and other" (which includes MuleSoft) is up 47%.

In short, Benioff and the crew at Salesforce have established a track record of delivering on their ambitious expansion efforts. For investors looking for a high-octane investment who don't mind plenty of volatility, this stock is worth a look.

Turn gold into green with Arcos Dorados

Jamal Carnette, CFA (Arcos Dorados Holdings): Arcos Dorados, translated as "Golden Arches" in English, is the exclusive franchisee for McDonald's in approximately two dozen countries spanning Latin America and the Caribbean. Buying this stock is a bet on the continued growth of those emerging-market economies. Throughout the recent U.S. market downturn, Arcos Dorados has remained resilient, rising 14% in November alone and 27% over the last three months.

There are certainly risks in investing in emerging-market economies, most notably macroeconomic. In some markets, Arcos Dorados must contend with poorer consumers, single-industry economics, and currency risks. Nowhere are these challenges more acute than in Venezuela, which is in the throes of a hyperinflationary spiral in which the prices of goods often double daily. Due to weaker macroeconomic conditions in many of its key markets, Arcos Dorados' shares are down approximately 30% year-to-date, including the recent rally.

Despite tough economic conditions, the company is doing well. It reported 8.3% constant-currency (inflation-adjusted) revenue growth last quarter, with the heavily watched systemwide-comparable sales increasing 7.4% (ex-Venezuela, which is approximately 6% of restaurants). This means established stores are succeeding at drawing more eaters and/or making them spend more money per visit, a trend that is highly likely to continue considering the growth of the middle class in these countries. If you're looking for a company with higher-risk and higher-return characteristics, put Arcos Dorados on your watchlist.

An SaaS company that's getting no respect right now

Brian Stoffel (Zuora): I first bought shares of newly IPO'd Zuora in August. Since then, shares are down more than 40% -- and yet the business is doing very well. For those who aren't familiar, Zuora is a software-as-a-service (SaaS) company that sells the tools that help other companies become subscription based.

The primary tool offered up is Zuora Billing, which helps companies navigate the complicated accounting of changing business models. Over time, companies that use the software come to rely heavily upon it, creating high switching costs. Just as important, existing customers often add more products over time -- like Zuora Collect or Zuora RevPro. These add-ons not only contribute more sales, but they are accomplished without a sales force -- the customers are already in the Zuora ecosystem -- and make switching costs even higher.

Last quarter, investors worried that growth rates were slowing. But after a careful investigation, I decided to buy more shares. Here's why, from an article I wrote at the time:

The main culprit was that ultra-low-margin service revenue, which comes from onboarding new clients, fell off due to timing of when new contracts were signed. This is not a long-term signal I'm worried about.

As it is, the company has increased the number of clients with $100,000 annual contracts from 292 at the end of 2016 to 504 today. And the company's dollar-based retention rate currently sits at 115% -- which means existing customers are not just staying with Zuora (a rate of at least 100%), but they are adding more solutions over time (a rate of more than 100%).

Given its current market cap of less than $2 billion, I believe this company has lots of room to grow in 2019 and beyond.

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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. Brian Stoffel owns shares of Amazon, Netflix, and Zuora. Jamal Carnette, CFA owns shares of Amazon and Apple. Nicholas Rossolillo owns shares of Apple and Salesforce.com. The Motley Fool owns shares of and recommends Amazon, Apple, Netflix, and Salesforce.com. The Motley Fool owns shares of Zuora and has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.