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Warren Buffett attributes the success of his investments in Coca-Cola and American Express to the companies’ growth rather than their dividends, highlighting that growth stocks can be incredibly valuable.
However, many businesses require time to grow their earnings, which is why I believe some of the best growth stocks are suited for investors with a long-term perspective.
Halma
In the past year, shares of Halma (LSE:HLMA) have increased by 27%. While that’s an impressive gain, I wouldn’t count on a similar performance in 2025.
The stock currently has a price-to-earnings (P/E) ratio of 36 (or 31 when adjusted for the firm’s figures). Unlike Nvidia, it’s unlikely that Halma will see a doubling of profits next year.
That said, I believe its long-term outlook justifies the current share price. Halma’s strategy focuses on acquiring other businesses and incorporating them into its operational ecosystem.
The typical targets for acquisition dominate niche markets, making disruption challenging. However, this may also limit their growth potential, which is a concern given the high stock price.
Halma can achieve some growth by integrating its subsidiaries, but ultimately, its future success hinges on its ability to secure enough suitable acquisitions.
Management recently indicated a strong pipeline of potential acquisitions in its latest trading update. While I think this stock could be a great investment, it will require time to realize that potential.
Palantir
Palantir (NASDAQ:PLTR) represents a different situation. I believe there’s a reasonable chance the company’s profits could double within the next year, but with a P/E ratio of 345, the stock would still appear pricey, even with such growth.
Historically, Palantir has depended heavily on government contracts, which continue to represent a significant portion of its revenue, exposing the firm to risks from changes in policy and budget constraints.
Recently, Palantir has been pivoting towards targeting business clients, and early results are looking promising, as companies seem eager to engage with what Palantir offers.
From bottled water to agricultural software, the firm’s analytics products have been shown to deliver impressive insights for clients, which is very encouraging.
With the buzz surrounding artificial intelligence (AI) and its capabilities across various sectors, Palantir stands out as one of the few firms with a truly functional AI product that yields tangible results.
It will take time before the company can start distributing cash to shareholders in a meaningful way related to its current share price, but I believe a patient approach could pay off here.
Long-term investing
Unless there is a significant drop, neither Halma nor Palantir stocks are likely to appear inexpensive in the next couple of years. While unexpected changes can occur, I advise investors not to expect returns in that timeframe.
Nonetheless, both companies possess excellent long-term growth potential. Although there are risks associated with each, I believe either stock could prove to be a worthwhile investment at today’s prices.
