In the late stages of July and into the early part of this month, previously high-flying growth stocks were repudiated in a big way. The good news is that the sell-off could prove to be a buying opportunity in select growth equities and related ETFs.
Investors looking to position in growth stocks for the long-term have plenty of ETFs to choose from. A new entrant in the group looks compelling: the VanEck Morningstar Wide Moat Growth ETF (MGRO ).
MGRO, which debuted in March, is the growth-focused descendant of the highly popular VanEck Morningstar Wide Moat ETF (MOAT ). MOAT is the gold standard among wide-moat ETFs. MGRO follows a similar methodology to MOAT. Its underlying index attempts to identify wide moat stocks trading at attractive valuations. MGRO’s point of emphasis is growth stocks with those traits, while MOAT is factor agnostic.
MGRO Relevant for Long-Term Investors
Growth stocks have established track records of performing well over the long-term and that’s something to consider regarding MGRO because the ETF is home to several of the names appearing on Morningstar’s list of the best growth names to own for the long haul. That group includes familiar names such as Microsoft (MSFT).
“We believe that Azure is the centerpiece of the new Microsoft; even though we estimate it is already an approximately $75 billion business, it grew at an impressive 30% rate in fiscal 2024,” noted Morningstar’s Margaret Giles. “Microsoft stock is currently 18% undervalued relative to our $490 fair value estimate, which we increased from $435 per share after the company delivered another good quarter.”
Another MGRO hold that made the Morningstar list, and another familiar one at that, is Amazon (AMZN). Amazon has one of the largest cloud computing businesses in the world — Amazon Web Services (AWS). Advertising revenue growth could be a significant long-term catalyst for the shares.
“AWS and advertising growth should continue to outpace e-commerce growth and should be the main growth drivers over the next five years. Overall, we see strong revenue and free cash flow growth for years to come. Amazon is trading 17% below our fair value estimate of $195 per share,” added Giles.
Design software firm Autodesk (ADSK), another MGRO holding, is appears on the list. That stock is MGRO’s fifth-largest holding commanding 4.54% of the ETF’s roster.
“The company has nurtured a long-standing network effect via relationships with higher-education programs that expose industry professionals to the software before they enter the workforce. Autodesk’s stock is 15% undervalued relative to our $275 fair value estimate,” concluded Giles.
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