Around 13 months ago, in a masterstroke of market timing or dumb luck, I somehow managed to buy several excellent US growth stocks at bargain-bin prices.
At that time (3 November 2022), political pundits were warning of a ‘red wave’ of Republican wins in the upcoming US mid-term elections. I wasn’t so sure, so my wife and I snapped up six discounted growth stocks for our new portfolio.
Two big, beautiful growth stocks
At that time, I felt that ‘big and beautiful’ was safest when it came to 2022’s beaten-down growth stocks. Hence, we ended up buying into six of the 12 biggest mega-cap companies in America.
Here are the two best performers from our November 2022 market raid, listed by (paper) capital gain:
1. Microsoft
Since the global financial crisis of 2007-09, Microsoft Corp (NASDAQ: MSFT) stock has been a terrific performer. As I write, it trades at $368.04, valuing Bill Gates’ software Goliath at over $2.7trn.
However, on 4 November 2022, this stock closed at $221.39, close to its 2022 low. It’s since shot up by 66.2%, making it our best buy from 13 months ago. In addition, this growth stock is up 43% over one year and a mighty 246.9% over five years (excluding dividends).
Though I’m delighted to have bought into Microsoft at a discounted price, its shares don’t look terribly cheap to me today. They trade on 35.6 times earnings and offer a tiny dividend yield of 0.8% a year. Hence, though I’ll hold on tight to our current holding, I won’t be adding more stock at these lofty levels.
2. Amazon
The second-best performer of our US mega-caps is online retailer and cloud-computing colossus Amazon.com Inc (NASDAQ: AMZN).
On 4 November 2022, this growth stock closed at $90.98, around $9 above its 2022 low. As I write, it trades at $148.05, valuing this business at over $1.5trn. That’s a gain of 62.7% in 13 months, which is pretty sweet.
What’s more, Amazon shares are up 61.7% over one year, plus they have beaten the S&P 500 index over five years, leaping by 86.2%. (But they don’t pay any dividends and never have.)
Likewise, I’m not rushing to buy this growth stock at current prices. After all, it trades on a hefty multiple of 77.3 times earnings, delivering a tiny earnings yield of 1.3%. On the other hand, Amazon stock has always traded on mighty multiples, so this is nothing new to me.
Now for the bad news
The returns above are very welcome, but my wife and I haven’t actually made as much as it first appears. Four factors have lowered our returns.
First, we must pay 0.5% stamp duty on purchases — an unavoidable expense. Second, the bid-offer spread when trading shares also takes a tiny bit of our profit. Third, dealing charges can add up, especially on larger trades.
Fourth, and worst of all, the British pound has fallen in value against the US dollar since we bought these growth stocks. As a result, our actual recorded gains are 50.9% for Microsoft and 44.5% for Amazon.
Summing up, almost all of the reduction in our returns came from the weaker pound. Never mind, as I’m still delighted to have bought these two growth stocks at knockdown prices!
