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Webster’s Dictionary defines the word secular as “existing or continuing through ages or centuries” and this makes secular growth stocks, with the implications of above-market profit increases over the long term, the very best kind of investments.

The research team at Morgan Stanley recently scoured their U.S. coverage universe for companies they believe represent the best secular growth investing opportunities. The quantitative portion of the stock selection method uncovered companies generating positive year-over-year revenue growth in each of the past 12 quarters, both before and after the initial shock of the pandemic.

Each analyst identified companies “driven by forces such as sustainable competitive advantages, product cycles, market share gains, or pricing power” and where they projected future profit growth above the sector average.

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The resulting list of 40 stocks are detailed in the table below. The original report listed the stocks alphabetically, but I ranked them by PEG ratio – the price-to-earnings ratio divided by the expected earnings growth rate. The growth projections are so high I felt that the price to earnings ratios on their own would be misleading.

Horizon Therapeutics PLC is the most attractively valued stock by PEG ratio. Analyst David Risinger expects Horizon to shift their portfolio to what are called ‘orphan drugs’, treatments for rare diseases with research funded by an outside sponsor. Projected profit growth of 28 per cent annually to 2023 is based on current drugs already on the market. Tepezza, a treatment for thyroid eye disease, a rare auto-immune condition, is projected to be a notable revenue driver.

Paint peddler Sherwin-Williams Co. was, for me, the biggest surprise on the list. Vincent Andrews’s bull case involves a pandemic-related surge in home renovations. More importantly, the analyst expects demographic factors – more Americans reaching home buying age - to increase sales. Sherwin-Williams also has considerable pricing power to keep input costs in check, which protects profit margins.

Canada’s own Lululemon Athletica Inc. is also listed as a secular growth stock. Morgan Stanley analyst Kimberly Greenberger believes non-North American sales will increase by 30 per cent annually in the next three years, helping boost eCommerce sales by 20 per cent per year. Expansion into men’s apparel and accessories is also expected to drive profits. Another of Ms. Greenberger’s companies, Nike Inc., is also recommended because of their growing direct-to-consumer operation.

SBA Communications Corp. has the clearest non-COVID growth catalyst. The cell tower builder is already benefitting from the 30 per cent per year increase in wireless data traffic and now the rollout of 5G networks is creating further demand. The company is also well positioned for future technology trends like the Internet of Things and autonomous vehicles.

There are interesting characteristics for all of the stocks on the list. Investors should remember, however, that just because a company is growing doesn’t make it a great investment. It certainly helps, but the stock could still be overvalued and caution and research is still required.

Sales: Compound Annual Growth Rate 2019-2022eEPS: Compound Annual Growth Rate 2019-2022eP/2020e EPS2020e PE/Growth RatioTR YTDTR 1M
HZNP-QHorizon Therapeutics Plc41.4%45.0%19.30.492.10-5.61
VRTX-QVertex Pharmaceuticals20.5%31.6%
FB-QFacebook Inc21.7%27.4%
TSLA-QTesla Inc36.8%203.0%248.41.2579.8742.02 Inc23.7%55.1%84.21.573.376.63
BX-NThe Blackstone Group Inc15.3%14.8%23.61.613.9221.17
NKE-NNike Inc.9.6%34.1%53.11.634.8210.78
IQV-NIqvia Holdings Inc7.1%13.3%
GOOGL-QAlphabet Inc.15.8%16.0%
SHW-NSherwin-Williams Co.4.5%14.1%
ZI-QZoomInfo Technologies Inc31.4%53.5%150.32.2N/A16.40
STEP-QStepStone Group16.4%16.1%41.12.6N/A6.07
AAPL-QApple, Inc.8.9%11.7%
PLD-NPrologis, Inc.10.1%9.0%
WDAY-QWorkday Inc18.2%26.3%
PODD-QInsulet Corp.21.3%129.5%460.03.648.9918.10
MTCH-QMatch Group Inc18.1%15.3%57.93.8N/A16.77
TEAM-QAtlassian Corporation PLC24.7%13.5%157.14.689.4523.71
MA-NMasterCard Inc7.3%10.2%54.35.314.5417.33
V-NVisa Inc.5.1%7.3%39.75.512.5513.95
FIVE-QFive Below Inc18.3%15.1%85.55.722.0618.37
LULU-QLululemon Athletica Inc.13.4%13.8%88.46.460.8318.10
NOW-NServiceNow Inc27.9%34.2%114.06.486.5010.61
EL-NEstee Lauder Companies Inc5.5%6.1%45.87.619.609.83
VEEV-NVeeva Systems Inc22.7%20.2%103.57.793.661.63
EQIX-QEquinix Inc.8.2%14.1%110.27.820.13-6.13
DDOG-QDatadog, Inc.44.7%N/A540.410.1147.495.85
DOCU-QDocuSign Inc34.4%69.4%408.229.9193.758.01
COUP-QCoupa Software Inc29.6%41.4%743.736.7119.9730.09
ALNY-QAlnylam Pharmaceuticals Inc82.5%N/AN/AN/A12.423.65
BGNE-QBeiGene Ltd54.1%N/AN/AN/A36.94-24.08
BLI-QBerkeley Lights Inc.29.1%N/AN/AN/AN/A12.25
CHWY-NChewy Inc26.5%N/AN/AN/A145.6217.17
DKNG-QDraftKings Inc37.8%N/AN/AN/A377.5743.06
INCY-QIncyte Corp14.2%18.6%N/AN/A-5.78-2.57
NFLX-QNetflix Inc19.9%48.3%79.1N/A55.573.98
SBAC-QSBA Communications5.1%36.2%N/AN/A18.80-2.93
SPOT-NSpotify Technology SA18.0%N/AN/AN/A114.5738.55
TWLO-NTwilio Inc30.6%44.6%N/AN/A225.9517.18
RARE-QUltragenyx Pharmaceutical Inc60.1%N/AN/AN/A176.2423.50

Source: Morgan Stanley

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