10 Best Growth Stocks to Buy for the Long Term

After a tough 2022, growth stocks have had the upper hand so far this year: The Morningstar US Growth Index outperformed the Morningstar US Value Index by more than 18 full percentage points through mid-May 2023.

Can the growth stock rally last? Morningstar senior U.S. market strategist Dave Sekera expects volatility ahead. “Looking forward, we suspect that the market will be entering a stage where economic and monetary headwinds will slow additional gains over the first half of the year,” he says. It’s therefore best to adopt a long-term investing mindset when buying growth stocks today.

Our best growth stocks to buy for the long term share a few qualities:

• They land in the growth portion of the Morningstar Style Box.
• The stocks are from companies included on Morningstar’s list of the Best Companies to Own for 2023. Companies on this list have wide Morningstar Economic Moat Ratings that are stable or growing and predictable cash flows, and they are run by management teams that make smart capital-allocation decisions.
• They look undervalued, which means they’re trading below their fair value estimates.

10 Best Growth Stocks to Buy for the Long Term—May 2023

The 10 most undervalued growth stocks from Morningstar’s Best Companies to Own list as of May 19, 2023, were:

1. Tyler Technologies TYL
2. Ecolab ECL
3. Autodesk ADSK
4. Intuit INTU
5. Rockwell Automation ROK
6. ASML Holding ASML
7. Visa V
8. Microsoft MSFT
9. S&P Global SPGI
10. Mastercard MA

Here’s a little bit about each of these growth stocks for the long term. Data is as of May 19.

Tyler Technologies

• Price/Fair Value: 0.83
• Morningstar Uncertainty Rating: Medium
• Morningstar Moat Trend Rating: Stable
• Morningstar Style Box: Mid-Growth
• Morningstar Capital Allocation Rating: Standard
• Industry: Software—Application

Tyler Technologies is a midsize growth company that is the clear leader in a slow-moving and underserved niche market of government operational software, says Morningstar senior analyst Dan Romanoff. First-quarter results showed faster-than-expected software-as-a-service deals, and we think the demand environment remains healthy. The firm reiterated its 2023 guidance, and we see consistent growth and margin expansion over time, adds Romanoff. Tyler Technologies stock is 17% undervalued relative to our $475 fair value estimate.

Ecolab

• Price/Fair Value: 0.83
• Morningstar Uncertainty Rating: Medium
• Morningstar Moat Trend Rating: Stable
• Morningstar Style Box: Large Growth
• Morningstar Capital Allocation Rating: Exemplary
• Industry: Specialty Chemicals

Ecolab is the global leader in the cleaning and sanitation industry focusing on hospitality, food-service, and healthcare customers. We assign the company a wide economic moat, thanks to its high switching costs, explains Morningstar strategist Seth Goldstein. First-quarter results were good, as prices rose 13%, confirming our thesis that Ecolab’s pricing power can overcome cost inflation over time, he notes. We think the company is on track to enjoy profit growth and margin expansion in 2023 and 2024. Ecolab stock is 17% undervalued relative to our $210 fair value estimate.

Autodesk

• Price/Fair Value: 0.87
• Morningstar Uncertainty Rating: Medium
• Morningstar Moat Trend Rating: Stable
• Morningstar Style Box: Large Growth
• Morningstar Capital Allocation Rating: Exemplary
• Industry: Software—Application

Autodesk is considered the global industry standard computer-aided design software, says Morningstar analyst Julie Bhusal Sharma. Its complex products—which span the architecture, engineering, construction, and product design and manufacturing industries, among others—boast high switching costs. The company’s balance sheet is sound, and we think management has done an exceptional job with its internal investment strategy. Though recent results fell short of target because of persistent macroeconomic headwinds, we view the headwinds as transitory. Autodesk stock is 13% undervalued relative to our $230 fair value estimate.

Intuit

• Price/Fair Value: 0.89
• Morningstar Uncertainty Rating: Medium
• Morningstar Moat Trend Rating: Stable
• Morningstar Style Box: Large Growth
• Morningstar Capital Allocation Rating: Exemplary
• Industry: Software—Application

Large-cap Intuit is a giant when it comes to U.S. small-business accounting (QuickBooks) and do-it-yourself tax software (TurboTax). The company benefits from significant switching costs in both the small-business/self-employed segment and in its consumer segment, says Morningstar’s Bhusal Sharma. We also like the company’s internal innovation and synergistic acquisitions, which have earned the team an Exemplary capital allocation rating, she adds. Recent quarterly results and forecasts were solid, too. Intuit stock is 11% undervalued relative to our $503 fair value estimate.

Rockwell Automation

• Price/Fair Value: 0.91
• Morningstar Uncertainty Rating: Medium
• Morningstar Moat Trend Rating: Stable
• Morningstar Style Box: Mid-Growth
• Morningstar Capital Allocation Rating: Standard
• Industry: Specialty Industrial Machinery

Rockwell is a high-quality automation player based on not just on its quality but on its breadth of offerings and its strategic partnerships. The company is seeking a stronger foothold where technology meets traditional manufacturing, says Morningstar senior analyst Joshua Aguilar. Aguilar called the company’s recent quarterly results “great,” as the company posted soaring revenue growth, and we expect the company to remain a premium player in a growing industry. Rockwell Automation stock is 9% undervalued relative to our $310 fair value estimate.

ASML Holding

• Price/Fair Value: 0.91
• Morningstar Uncertainty Rating: Medium
• Morningstar Moat Trend Rating: Positive
• Morningstar Style Box: Large Growth
• Morningstar Capital Allocation Rating: Exemplary
• Industry: Semiconductor Equipment and Materials

As the predominant supplier of photolithography equipment for semiconductor manufacturers, large-cap ASML stands to benefit from the proliferation of extreme ultraviolet lithography and leading-edge chipmakers, says Morningstar strategist Abhinav Davuluri. We therefore think the company’s competitive advantages are growing, as our positive moat trend rating suggests. We think the management team maintains a sound balance sheet and delivers attractive distributions to shareholders—and its investments have been topnotch, too. First-quarter results were solid, thanks to strong lithography demand. ASML stock is 9% undervalued relative to our $760 fair value estimate.

Visa

• Price/Fair Value: 0.97
• Morningstar Uncertainty Rating: Medium
• Morningstar Moat Trend Rating: Stable
• Morningstar Style Box: Large Growth
• Morningstar Capital Allocation Rating: Standard
• Industry: Credit Services

The largest payment processor in the world, Visa is a longtime market leader that still enjoys strong growth prospects, thanks to the ongoing shift to electronic payments globally. In fact, Morningstar senior analyst Brett Horn calls Visa’s electronic payment structure “unassailable.” Quarterly results were solid, despite concerns about a potential macroeconomic downturn and the impact on consumer spending. The company has been enjoying a boost from the recovery in travel spending, adds Horn. Visa stock is about fairly valued, trading just 3% below our $241 fair value estimate.

Microsoft

• Price/Fair Value: 0.98
• Morningstar Uncertainty Rating: Medium
• Morningstar Moat Trend Rating: Stable
• Morningstar Style Box: Large Growth
• Morningstar Capital Allocation Rating: Exemplary
• Industry: Software—Infrastructure

Microsoft is the largest stock by market capitalization on our list. The company has successfully transitioned from a traditional perpetual license model to a subscription model. Microsoft is also a leader in the cloud, using its on-premises dominance to allow clients to move to the cloud at their own pace, says Romanoff. In the most recent quarter, Microsoft exhibited all-around strength, with superb results on both its top and bottom lines. We assign management an Exemplary capital allocation rating thanks in part to the company’s sound balance sheet and exceptional investments. Microsoft stock is just 2% undervalued to our $325 fair value estimate.

S&P Global

• Price/Fair Value: 0.99
• Morningstar Uncertainty Rating: Medium
• Morningstar Moat Trend Rating: Stable
• Morningstar Style Box: Large Growth
• Morningstar Capital Allocation Rating: Exemplary
• Industry: Financial Data and Stock Exchanges

S&P Global has carved out a wide economic moat from its data-driven benchmarks focused on credit markets, financial indexes, and commodities price reporting. In addition to its solid competitive position and pricing power, the company enjoys strong operating margins, says Morningstar analyst Rajiv Bhatia. Strategically sensible acquisitions and attractive distribution policies earn the firm’s management an Exemplary capital allocation rating. The firm’s global diversification helped offset weakness in its rating business last quarter, adds Bhatia. S&P Global stock is just barely undervalued, trading 1% below our $370 fair value estimate.

Mastercard

• Price/Fair Value: 0.99
• Morningstar Uncertainty Rating: Medium
• Morningstar Moat Trend Rating: Stable
• Morningstar Style Box: Large Growth
• Morningstar Capital Allocation Rating: Standard
• Industry: Credit Services

The second-largest payment processor in the world, Mastercard turned in solid first-quarter results in the face of macroeconomic uncertainty and, unlike rival Visa, achieved some margin improvement during the quarter, reports Morningstar’s Horn. Mastercard’s position in the global electronic payment infrastructure is unassailable, says Horn, and the company will benefit from the ongoing shift to electronic payments. Mastercard stock is about fairly valued, trading just 1% below our $389 fair value estimate.

What Are the Morningstar Style Box and Fair Value Estimate?

The Morningstar Style Box is a nine-square grid that provides a graphical representation of the investment style of stocks, bonds, or funds. Based on a series of inputs—including a company’s historical and long-term projected growth and its historical and forward-looking price multiples—a stock is classified as either a value stock, a growth stock, or a core stock. A stock is also classified as either small-cap, mid-cap, or large-cap based on its market capitalization.

The fair value estimate, meanwhile, represents what Morningstar analysts think a particular stock is worth. Fair value estimates are rooted in fundamentals and based on how much cash we think a company can generate in the future, not on fleeting metrics such as recent earnings or current stock price momentum. Learn more about how Morningstar values stocks in Morningstar’s Guide to Stock Investing.

How to Find More Growth Stocks to Buy

Of course, there are many other criteria investors can use to find growth stocks to buy for the long term. Here are some tools that investors can use to find more growth-stock ideas to research further:

• Investors can review Morningstar’s lists of large-cap growth stocks, mid-cap growth stocks, and small-cap growth stocks. The lists aren’t restricted by quality or valuation; rather, they’re complete lists of the growth stocks in Morningstar’s database.
• Investors can use the Morningstar Investor screener to more easily compare growth stocks to each other. One way would be to screen by Stock Style under the Criteria drop-down menu, choosing large growth, mid-growth, small growth, or some combination thereof. Then once you have your results, click on Data & Columns to select Financials data points in the Stocks area. These might be valuation metrics like price/earnings ratios or revenue growth, among others. Then click Update. Once back to the list of stocks, click on the data point that matters most to you to rank the list on that particular data point.
• Investors who’d rather invest in growth stocks through a managed product like an exchange-traded fund or a mutual fund can find ideas to research further in The Best Growth Funds.

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