In 2024, growth stocks notably outshone their value counterparts, as the Morningstar US Growth Index surpassed the Morningstar US Value Index by approximately 10 percentage points. However, growth stocks have started to appear overvalued, and recent declines have stifled this upward trajectory, with overall growth stocks declining nearly 10% in 2025.
According to Morningstar’s senior US market strategist Dave Sekera, their 2025 US Market Outlook advises a reduced focus on growth stocks, which are currently trading at a substantial premium compared to their fair value. He notes that this high valuation last occurred in early 2021, preceding the collapse of the disruptive technology bubble. Following the DeepSeek scare in January, AI stocks plummeted over 20%, dragging down the growth sector. Presently, growth stocks are nearing fair value, whereas value stocks remain significantly discounted.
The top growth stocks recommended for long-term investment exhibit a few key characteristics:
- They fit within the growth segment of the Morningstar Style Box.
- These stocks belong to companies listed among the Best Companies to Own for 2025, which are noted for their wide Morningstar Economic Moat Ratings, consistent cash flows, and effective management.
- They appear reasonably priced, trading at or below Morningstar’s fair value estimates.
Top 10 Growth Stocks for Long-Term Investment
As of March 13, 2025, the ten most undervalued growth stocks from the Morningstar Best Companies to Own list include:
- Rentokil Initial RTO
- Taiwan Semiconductor Manufacturing TSM
- Manhattan Associates MANH
- Coloplast COLO B
- ServiceNow NOW
- Tyler Technologies TYL
- Autodesk ADSK
- Equifax EFX
- Experian EXPGY
- Copart CPRT
This section briefly reviews each of these promising long-term growth stocks based on data as of March 13, 2025.
Overview of Selected Growth Stocks
Rentokil Initial: Trading at 53% of its fair value, Rentokil’s strategy revolves around maintaining market leadership in pest control. The firm continually invests in acquisitions to enhance its service coverage. Currently, its stock is priced at a 47% discount from the fair value of $40.30 per share.
Taiwan Semiconductor Manufacturing: Holding a dominant 60% share in the chip manufacturing space, this company trades at 63% of its fair value. Its disciplined approach to capital expenditure positions it well for sustained leadership, particularly with the rise of AI and IoT.
Manhattan Associates: With software for supply chain management, the company’s stock is 29% undervalued relative to its fair value. Its leadership position is fueled by strategic investments in cloud software solutions.
Coloplast: This Danish company excels in ostomy and continence care, trading at 74% of its fair value. It’s recognized for its consistent innovation and is currently focused on expanding its geographical reach.
ServiceNow: This software provider focuses on enterprise solutions and currents trades at 82% of its fair value. ServiceNow’s outstanding customer retention and rapid organic growth underscore its future potential.
Tyler Technologies: Trading at 85% of fair value, Tyler is a leader in government software solutions, addressing the needs of various local entities. Its market reputation and expansion strategy suggest strong future growth.
Autodesk: Considered the top name in CAD software, Autodesk trades at 85% of its fair value. Its transition towards recurring revenue has positioned it for greater profitability, driven by its strong relationship with higher education institutions.
Equifax: This credit bureau is focused on growth through expanded services and features. Trading at 88% of its fair value, Equifax’s established record presents substantial competitive barriers for new market entrants.
Experian: Like Equifax, Experian focuses on adjacent product growth while facing challenges in emerging markets. It currently trades at 91% of fair value.
Copart: The largest online auction operator for salvage vehicles, Copart has seen powerful growth. Its stock trades just below fair value, with operations driven by strong quality services to increase volume.
Morningstar Style Box and Fair Value Explained
The Morningstar Style Box effectively categorizes stocks, bonds, or funds within a nine-square grid based on growth potential and market capitalization. Meanwhile, fair value estimates reflect Morningstar analysts’ assessments of a stock’s worth based on anticipated cash generation, rather than short-term market metrics.
Locating Additional Growth Stock Opportunities
Investors can utilize several strategies and tools to discover more growth stock investments:
- Utilize the Morningstar Investor screener to compare stocks by style, filtering for large, mid, or small growth options.
- For those preferring managed products, there are numerous options to explore within The Best Growth Funds.
The author(s) do not hold shares in any securities mentioned in this article. For more details on Morningstar’s editorial policies, please visit the link.
