3 high-flying growth stocks ready to outpace the competition

High-flying growth stocks helped drive major indexes higher this quarter. THE S&P500 is on track for a 4% gain, and the tech sector Nasdaq expected to increase by around 7%. Analysts attribute these gains to high demand for artificial intelligence (AI) creating triple-digit growth for companies in this sector.

While consecutive record highs in markets have sparked concerns of fatigue, narrow market focus and expectations of easing monetary policy could allow many high-flying growth stocks to continue to outperform.

Return on equity (DEER), calculated by dividing a company’s net income by shareholders’ equity, helps identify companies generating higher returns. Companies that make more profits can return more to shareholders in the form of dividends or buybacks. This can potentially support further increases in stock prices.

Generally, companies whose ROE exceeds that of their competitors tend to experience faster share price growth. An ROE above 15% is generally considered satisfactory. However, traders can look for comparatively higher numbers rather than focusing on thresholds.

After a period of solid expansion in the equity markets, several high-flying growth stocks stand out for their strong ROE and their potential to outperform the competition. The next three, in particular, could be well positioned in this regard.

ABB (ABBNY)

Switzerland-based engineering and construction conglomerate ABB (OTCMKTS:ABBY) is one of the high-flying growth stocks to watch closely. The company is well known in North America for its robotic solutions.

ABB is well positioned in today’s market environment as pressure increases for businesses to automate and integrate AI to improve efficiency. The company is also expanding its electrification activities in North America and is poised to play a key role in the future energy transition.

In its recent first quarter results, ABB reported a 240% increase in free cash flow (FCF) through efficiency initiatives. Profit and operating margin recorded double-digit growth, with growth estimates for the current and upcoming quarters above 75%.

Even with the stock price up 27% year to date (YTD), ABB continues to post an impressive ROE of 28%.

​PulteGroup (PHM)

The home construction and financing company Pulte Group (NYSE:PHM) is a logical addition to the list of high-flying growth stocks. Although the U.S. housing market is under pressure from high interest rates, it is expected to see a rebound when the Federal Reserve finally eases rates, thereby lowering the cost of mortgages.

PulteGroup stands out for its ability to benefit from both sides of this equation. While building homes, it also offers financing to potential buyers. Despite unfavorable market conditions, the company also managed to generate 10% growth in revenue over the past year. PHM has an ROE of 27%, higher than the industry average of 23%.

Notably, Pulte has been stockpiling cash ($1.8 billion), positioning itself to capitalize on potentially lower rates early in the easing cycle. Profit and operating margins stood at 16% and 20%, with year-on-year profit growth of 32%.

PHM’s stock price is up 9% so far this year. Nonetheless, analysts expect it to continue toward an average price target of $129.15, representing a potential upside of 17%.

Bank of Chile (BCH)

Bank of Chile (NYSE:BCH) is the last pick among high-flying growth stocks because its growth is so fast that it has outperformed many of its peers. Banks are often known for their stability despite rapid expansion, and this Chilean bank has generated strong financial returns. The company provides banking and financial services throughout Latin America, particularly in Chile. Chile saw notable economic growth in 2024, prompting the central bank to lower interest rates.

Banco de Chile maintains a relatively low level of non-performing loans by prioritizing high-quality loans and often refinancing its competitors’ best-performing clients. It also holds the largest share of assets under management (AUM) in the country. This strategy of reducing funding expenses while steadily increasing revenues has proven to be effective, with the bank leading its market in terms of profitability.

Banco de Chile achieves an ROE of 21.2%, well above the average of American banks. Plus, it generously rewards shareholders with a 7.2% dividend yield. Analysts expect the stock price to rise further, with an average target of $24.07. This implies a potential appreciation of 6%.

As of the date of publication, Stavros Tousios did not hold (neither directly nor indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publishing Guidelines.