Refining the Growth Strategy
The growth factor in investing refers to companies that grow their revenue and earnings at rates significantly above the market. These companies are usually small and young, operate in high-growth and less mature industries, and often lack the financial stability and resilience of their more mature counterparts. As a result, the growth factor becomes highly attractive and outperforms during secular bull markets.
Weak Profitability: A Weakness of Most Growth Stocks
One of the weaknesses of most growth stocks is weak profitability, which makes them more susceptible to economic downturns. The solution to this is to incorporate a profitability criterion as well – growth stocks with strong profitability will navigate economic slowdowns better and hold up well even during recessions.
The Importance of Profitability in Modern Financial Research
Modern financial research has shown that the Fama-French 5-Factor Model introduced a profitability factor, which can explain stock returns. According to the authors, stocks of companies with high profitability tend to outperform those with low profitability.
Smart Contrarian Bets
Legendary Warren Buffett has advised to be greedy when others are fearful. The US stock market is still more than 10% below its all-time high as market participants are still digesting the tariffs situation as well as new economic data, which is quite disappointing. The Philadelphia Fed manufacturing index decreased to -26.4 in April, well below expectations and the lowest reading since April 2023.
The Signs of a Slowing Economy
Business surveys have been grim – Hamilton Lane reported that at least 62% of CEOs see a recession on the horizon, while the 6-month Capex expectations fell to the lowest level since the pandemic. The stock market is a forward-looking animal, meaning that its prices reflect the state of the economy 6-12 months from now. Given that the average recession in the US has historically lasted for about 3-4 quarters, and assuming that revised Q1 2025 data will be later recognized as the beginning of the recession, odds are that the US economy will already return to growth in calendar 2026.
The Opportunity to Invest
To sum up, the fact that the US economy is in a slowdown and a state of uncertainty is pretty much obvious at this point. The key takeaway for readers is that stock prices are forward-looking and reflect the investors’ outlook for several quarters ahead. Once it becomes completely clear that calendar 2026 will be past the current tariff turmoil, the US stock market will very likely return to growth.
Coterra Energy Inc. (NYSE:CTRA) – A Most Profitable Growth Stock
Coterra Energy Inc. (NYSE:CTRA) is an energy company engaged in the exploration, development, and production of oil, natural gas, and natural gas liquids. The company operates in three key regions: the Permian Basin in West Texas and Southeast New Mexico, the Marcellus Shale in Northeastern Pennsylvania, and the Anadarko Basin in Oklahoma.
Key Highlights of CTRA
• Net Profit in the latest fiscal year: $1.25 billion
• Revenue CAGR last 5 years: 49.40%
• Number of Hedge Fund Holders: 48
Our Methodology
To compile our list of most profitable growth stocks, we used a screener to identify stocks with at least 30% revenue CAGR in the last 5 years and a net profit margin of at least 20%. Then we included in the article the top 13 stocks with the highest net profit generated in the most recent fiscal year, ranked in ascending order.
Ranking the Stocks
We also included the number of hedge funds that own each stock, as per Insider Monkey’s Q4 2024 database. The reason we are interested in the stocks that hedge funds pile into is that our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds.
Coterra Energy Inc. (NYSE:CTRA) – A Profitable Growth Stock
Coterra Energy Inc. (NYSE:CTRA) delivered exceptional fourth quarter results, with production levels exceeding guidance for both oil and natural gas while maintaining capital expenditures near the low end of guidance. The company returned 89% of its free cash flow in 2024 through dividends and share repurchases, demonstrating strong shareholder returns.
Conclusion
Coterra Energy Inc. (NYSE:CTRA) is an energy company that has demonstrated significant operational improvements, particularly in the Marcellus and Permian regions. With projected oil volume growth of at least 5%, it is one of the most profitable growth stocks to consider. However, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame.
