You’ve likely heard a lot about the “Magnificent Seven” stocks lately. These companies included in this group are: Tesla (NASDAQ:TSLA), Meta (NASDAQ:META), Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), and Nvidia (NASDAQ:NVDA). This group of Big Tech elite companies have been trouncing the broader market over the past year with their strong returns.
But there are still great opportunities to find stocks that can outperform these heavyweights. Don’t get me wrong – the Magnificent Seven should form the core of most growth stock portfolios. However, by digging deeper, smaller yet rapidly-growing companies in high-potential sectors could supercharge your investment returns.
My aim isn’t to uncover “the next Amazon” or predict which small caps will reach trillion-dollar valuations. Instead, I look for quality businesses with vast addressable markets, durable competitive advantages, and the ability to compound earnings substantially over long periods. The seven stocks revealed here check all those boxes.
FTAI Aviation (FTAI)
FTAI Aviation’s (NASDAQ:FTAI) performance has been nothing short of remarkable lately. This high-flyer has skyrocketed 143% over the past 12 months, with momentum only accelerating as of late. Just take a look at the company’s five-year return – up a whopping 348%!
Now, stocks posting triple-digit gains tend to make me cautious, wondering whether their share price is getting detached from financial realities. However, one glance at FTAI Aviation’s financial statements shows this is no house of cards.
FTAI owns and manages commercial aircraft engines, focusing on the widely-used CFM56 models. The company also invests in other aviation assets and aerospace products, churning out strong cash flows with room for earnings growth. Revenue in Q3 2023 hit $291.1 million, a 26.4% year-over-year increase. Meanwhile, net income landed at $41.3 million, representing fat profit margins of 14.2%. To put it bluntly, this is a much more profitable enterprise than 85% of its business services peers.
Even better, the good times look set to continue. Consensus estimates call for 50% annual earnings per share growth over the next two years, with the stock trading at a forward price-earnings ratio of 26-times 2024 estimates. It’s not exactly cheap, but you’re paying up for quality. And at 4.5-times expected 2024 revenue, I don’t think the company’s valuation is outrageous by any means.
Super Micro Computer (SMCI)
Super Micro Computer (NASDAQ:SMCI) has been an absolute superstar, too. Shares have gone vertical over the past few weeks, riding the mounting hype around artificial intelligence. There’s no denying Super Micro has made all the right moves to capitalize on this mega trend. However, with the company’s stock price detached from its fundamentals, we could see significant downside if AI mania cools off.
Let’s take a sober look at the numbers. SMCI stock currently changes hands at roughly 30-times forward earnings and 2.2-times expected FY2024 sales. That’s pretty rich for a company projected to grow revenue at a 20% annual clip moving forward. Still, profits should expand even faster, given what was reported in Super Micro’s blowout Q4 report. The company trounced earnings per share estimates by 8.3% and beat the revenue consensus by 12.5%. Indeed, those are strong results by any measure. Plus, it should be noted that semiconductor companies trade at much steeper premiums. This valuation isn’t out of the ordinary in its industry.
If AI hype continues gaining momentum, SMCI stock has ample room to grow into its lofty valuation. But with this stock seemingly priced to perfection, one slight disappointment could spell trouble. Consider me cautiously optimistic here. I like what Super Micro is building.
For an under-the-radar pick, allow me to highlight SurgePays (NASDAQ:SURG). This tiny company has somehow flown completely beneath Wall Street’s radar, meaning hardly any analysts provide coverage on the company. But once you peek under the hood, I think you’ll agree that SurgePays has intriguing potential.
SurgePays offers a suite of financial and telecom products catering to underbanked and underserved groups across the United States. The company’s core product is a fintech platform empowering retail clerks to handle transactions like prepaid wireless plans, gift cards, and debit services at the point of sale. It’s a win-win arrangement – partner stores profit on each transaction while providing valuable services to customers. SurgePays also utilizes federal subsidies to supply tablet devices and cellular broadband to income-eligible households.
Right now, SurgePays sports a market cap equal to annual revenue. Shares trade at just 4.7-times forward earnings, despite just $5.5 million of debt against $12.7 million of cash in the coffers. This year, SurgePays acquired ClearLine Mobile in a $15 million deal funded by a recent equity offering. Growth is the name of the game, and I applaud the recent move to scoop up a fast-growing target while SURG stock itself remains attractively-priced.
Synopsys (NASDAQ:SNPS) has been an absolute star player in the broader semiconductor space. As a leading electronic design automation (EDA) outfit, Synopsys provides mission-critical tools and services that chipmakers rely on to design and manufacture advanced semiconductors. With the industry running on all cylinders, it’s no surprise SNPS stock has lit up the scoreboard.
In Q3, Synopsys grew revenue to over $1.6 billion, a 24.5% year-over-year surge. Meanwhile, its net margins approached 22%, powering 83% profit growth over the same period last year. This level of expansion is tremendously impressive. Due to this tremendous performance, SNPS shares have tacked on 55% over the past 52 weeks.
As a long-term partner enabling Nvidia’s innovations, Synopsys has also benefited handsomely from the GPU giant’s success. The bottom line is that Synopsys is significantly more profitable than 95% of industry peers. At 42-times forward earnings, the valuation gives me minimal pause, considering the quality of this business. So long as AI and next-gen chips drive multi-year growth runways, I expect SNPS stock to continue compounding at an enviable clip.
TransDigm Group (TDG)
TransDigm Group (NYSE:TDG) is a leading designer and producer of highly-engineered aircraft components and systems. Through its 48 subsidiaries, TransDigm boasts an impressive portfolio serving both commercial and military aircraft manufacturers.
I love seeing the profit engine firing on all cylinders here. TransDigm reported a 22.4% net margin last quarter, handily besting more than 90% of aerospace and defense peers. Zooming out further, the company’s three-year annualized earnings per share growth rate comes in at nearly 40% (excluding non-recurring items). And if we just look at the past year, earnings per share growth excluding these items came in hot at a blistering 63.5%.
Revenue rose 21% in 2023, supported by 27% growth in the high-margin aftermarket commercial segment. TransDigm continues to benefit from the ongoing recovery in global air travel. Shares trade at 35-times forward earnings, which I’m perfectly comfortable paying for durable earnings growth in the high single-digits. Additionally, the company’s 4Q report was superb, with TransDigm beating estimates across the board on revenue, EBITDA, and EPS. Plus, management announced a special $2 billion dividend on top of upbeat 2024 guidance. Sign me up!
Axon Enterprise (AXON)
Axon Enterprise (NASDAQ:AXON) is undoubtedly pricy by traditional valuation standards. Shares trade hands at 67-times forward earnings and 12.4-times expected 2023 sales. But I believe the TASER maker’s entrenched position supplying non-lethal weapons to global law enforcement agencies warrants a premium.
Expected to deliver 30%+ revenue growth this year alongside 76% bottom line expansion, Axon is firing on all cylinders. The company continues rolling out innovative technologies like body cameras, records management software, drone solutions, and training to become the premier public safety tech provider.
With elections nearing, we could see rising tensions on the streets. Axon would likely benefit from a tough-on-crime stance from future administrations. The recent Fusus acquisition and new body camera line for commercial markets should also boost the company’s total addressable market ( ) by more than $20 billion. So, while this stock’s sticker price gives me a moment’s pause, I remain firmly bullish on Axon’s long-term outlook.
When I look at e-commerce and fintech growth exposure overseas, MercadoLibre (NASDAQ:MELI) remains high on my buy list. Dubbed the “Amazon of Latin America,” MercadoLibre operates online marketplaces spanning 18 countries and serving more than 148 million users.
Despite torrid growth, MercadoLibre’s balance sheet has surprisingly little debt with a 0.6-times net debt to adjusted EBITDA ratio. This financial strength provides ample dry powder for continued growth. Consensus estimates call for 35% annualized earnings per share growth over the next decade, which would result in a profitability boost of 13x from 2023 to 2032.
So, while shares trade at a meaty 77-times forward earnings today, I believe that the multiple on MELI stock could actually prove conservative given MercadoLibre’s vast runway. As Latin America’s middle class expands, the adoption of e-commerce and digital payments should accelerate. With market leadership secured, MercadoLibre remains my top pick to capitalize on this multi-year tailwind.
On the date of publication, Omor Ibne Ehsan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.