2 obvious growth stocks to buy while the market is down

The Nasdaq Composite the index is down 13.3% so far this year. You can bet there are several top stocks in that index that are being unjustifiably punished in this broader market downturn that is set to deliver big returns over the next five years. But which of those stocks should you buy today?

It takes a strong business to steadily grow revenue, but an even better one to do so while expanding operating margin. Earning a higher margin for every dollar of sales helps profits grow faster than revenue. Since stocks track a company’s long-term value over time, a company’s ability to earn higher margins from its operations can have a big impact on shareholder returns. If you buy stocks in companies that show improvement in both of these numbers, you’re on your way to building wealth through stocks.

Here are two growth stocks that meet these criteria that I would consider buying today.

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nvidia (NVDA -3.31% ) it was one of the best-performing stocks of the last 10 years. The company was very successful in expanding its PC graphics cards to accelerated computing applications. Areas like autonomous vehicles, robotics, data science, and anything involving artificial intelligence require immense processing power that only a graphics processing unit (GPU) can adequately handle. This has been right up there with Nvidia as they have been the leading provider of desktop computer graphics for many years.

High-performance processors command higher selling prices and that means higher margins. Over the past three years, Nvidia’s revenue has nearly doubled, while operating margin has improved by about 10 percentage points to 37.3%. The margin improvement pushed Nvidia’s earnings per share up 190% and pushed the stock higher.

NVDA Operating Margin (TTM) Chart

NVDA Operating Margin (TTM) Data by YCharts

Now that Nvidia is starting to offer software solutions in addition to chip hardware, the margins should continue to rise. The prospect of further earnings makes the stock even more attractive after falling 38% from its recent highs.

2. apple

The 5G upgrade cycle is in full swing and Apple (AAPL -2.78% ) you are reaping the rewards. For the December quarter, Apple reported record iPhone revenue. While one analyst found evidence of weak demand for the cheaper iPhone SE that launched in March, overall demand for the iPhone remains strong.

The stock is down 3.8% year-to-date, outpacing the Nasdaq’s 13.3% loss. Apple’s outperformance during this market correction could make the stock the market leader in the next bull run.

Investors must love the growth in the installed base of devices, which rose from 1.65 billion a year ago to 1.8 billion in early 2022. Record levels in the number of active devices are driving demand for services, such as apps and subscriptions. Even after growing 24% year over year in the December quarter, services revenue still represents less than 20% of Apple’s business.

The good thing about this is that services generate a higher margin than hardware sales. As Apple’s revenue has accelerated during the pandemic, so has its operating profit margin, which has risen about five percentage points to 31% over the past four quarters.

AAPL Operating Margin (TTM) Chart

AAPL Operating Margin (TTM) Data by YCharts

Strong demand for the iPhone 13 is a catalyst for growing demand in Apple’s higher-margin services business. A healthy update cycle could boost Apple’s installed base to another record this time next year. As services revenue continues to grow, so should Apple’s profitability.

Invest with a long-term mindset

No matter what happens to the stock market in the short term, owning companies that are growing and becoming more profitable should make you money in the long run.

This article represents the opinion of the writer, who may disagree with the Motley Fool premium advice service’s “official” recommendation position. We are motley! Questioning an investment thesis, even one of your own, helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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