Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 494

3 fortress growth stocks for volatile times

The economist and speculator John Maynard Keynes once famously quipped that “markets can stay irrational longer than you can stay solvent”. This same principle can hold true for companies just as it does for speculators. Today, inflation and its resulting capital market dynamics have created a less forgiving funding environment and one result has been a violent sell-off of growth stocks.

Source: Franklin Templeton, FactSet Data

Yet not all growth stocks require access to capital, and we believe that the market has erred by shunning growth companies indiscriminately. There are growing businesses that enjoy strong free cash flow and robust balance sheets, including three US-listed large-cap companies outlined below.

Tyler Technologies [NYSE:TYL] – Municipal service supports healthy recurring cash flow

Tyler Technologies, (Tyler) is an American company that provides software and technology solutions to the public sector, including local governments, schools, and courts. The company offers a range of products and services spanning financial management, property appraisal, tax assessment, court management, and school administration software.

Because its software offerings provide mission critical services, the company has earned a sticky customer base with a high degree of customer lock-in. This allows for strong revenue visibility, with recurring revenues at ~80%, up from ~55% in 2010. The switch from a perpetual license to the much more profitable cloud-based SaaS delivery model has primarily driven this trend. 

In addition to strong customer relationships, the company generates strong free cash flow while continuing to innovate within its market. Historical cash flow margins have averaged over 20%. The company has generated cumulative free cash flow of US$1.2 billion over the last 5 years, relative to ~$200 million in capex spend for growth. A debt-light balance sheet further insulates the company from the need to access the capital markets.

We believe Tyler will be able to maintain and even grow its competitive position by leveraging its strong relationships within the public sector channel to take additional share in what is a US$12-15 billion-dollar addressable market. Further stock market turbulence may also create attractive acquisition opportunities.

Synopsys Inc. [NASDAQ:SNPS] – Integrated into the future of computing

Synopsys Inc. provides technology solutions for the design, verification, and manufacturing of electronic systems and components. The company's products and services are used by companies in the semiconductor, computer, and electronic systems industries to design and test their products.

Decades of accumulated expertise in the development of cutting-edge semiconductor design, and electronic design automation technologies means the company’s businesses have both high barriers to entry and high customer switching costs.

The company’s strong business model results in robust operating cash flow. Full-year 2022 free-cash-flow margin was over 30% at ~US$1.6 billion. In addition, Synopsys commands a fortress balance sheet with $1.4 billion of cash against only US$600 million of long-term liabilities.

Source: Franklin Templeton, company filings

We see the company as positioned to benefit from the increasing growth for connected devices, the internet of things (IOT). And Synopsys can help the semiconductor industry deliver scalable solutions to the rapidly expanding enterprise and consumer demand for Artificial Intelligence (AI) – think ChatGPT – through custom chip designs.

Humana Inc. [NYSE:HUM] – Scaled healthcare delivery

Humana Inc. (Humana) is an American for-profit health insurance company based in Louisville, Kentucky. It is one of the largest health insurance companies in the United States and has operations in all 50 states. The company offers a range of health insurance plans, including Medicare Advantage and Medicaid plans, as well as individual and group health insurance plans. The company also operates health care centres and clinics and has a growing presence in the telehealth market.

We believe Humana has a sustainable competitive advantage in the fast-growing Medicare Advantage market, which caters for an older population cohort. Humana is the second largest Medicare Advantage plan provider, serving over 5 million beneficiaries. It has been growing this business at over 10% since 2017, well ahead of the overall market which itself is poised for continued growth as Medicare eligibility increases.

The company’s strong business position has underwritten attractive returns of capital to investors over recent years through a combination of share buybacks and dividends.

Source: Franklin Templeton, company filings

Our analysis indicates that the company’s Medicare business will continue to support robust free cash-flow over the medium term. This in combination with its balance sheet which boasts strong cash coverage ratios should hold the company in good stead to weather any future economic turbulence.

Free cash flow and growth can go hand in hand

With high-flying corporate failures dominating the headlines, it can be easy to forget that growth and healthy cash-flows are not mutually exclusive. Our experience as investors has demonstrated that strong business models can and do align with secular growth trends to create profitable businesses which can grow independent of the vicissitudes of capital markets and, to a degree, the economy.

 

Francyne Mu is a Portfolio Manager, Franklin Equity Group. Franklin Templeton is a sponsor of Firstlinks. This article is for information purposes only and does not constitute investment or financial product advice. It does not consider the individual circumstances, objectives, financial situation, or needs of any individual. The information provided should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the security transactions discussed here were, or will prove to be, profitable.

For more articles and papers from Franklin Templeton and specialist investment managers, please click here.

 

  •   1 February 2023
  • 1
  •      
  •   

RELATED ARTICLES

History says US market outperformance versus Australia will turn

5 key investment themes for the next decade

Should you buy and hold an Artificial Intelligence portfolio?

banner

Most viewed in recent weeks

Are you making these SMSF mistakes?

After four decades advising investors, there are a few common mistakes I've seen SMSF investors make. From holding too much cash and chasing yield to overtrading and trusting tips. Are these errors costing you?

Why have Australian living standards 'fallen' and how do we fix it?

For the last few years there has been much talk of a 'cost-of-living' crisis in Australia and of 'falling living standards'. Lately this has flared up again with the pickup in inflation resulting in a renewed fall in real wages.

Retirement spending is not one-size-fits-all

New data challenges the idea that Australians are underspending their super. The bigger issue may be helping retirees navigate complexity, make confident decisions and use their savings to support security, wellbeing and choice.

Will you run out of money in retirement?

Fear of running out has become a defining retirement anxiety. Why do some retirees die with substantial wealth while others deplete their nest egg? Evidence suggests the answer is more complicated than we think. 

Four options for an income investor’s next dollar

What if Australia’s golden age of dividends is ending? Rather than overhaul your portfolio, it may be worth considering where new capital can work harder. I discuss four income strategies and the trade-offs behind each.

The missing link in the CGT debate

A little-noticed consequence of Labor’s tax changes could have implications well beyond investors’ tax bills. The issue raises bigger questions about incentives, capital allocation and the drivers of long-term economic growth.

Latest Updates

SMSF strategies

Meg on SMSFs: What do we think about reversionary pensions these days?

Reversionary pensions have long been a staple of SMSF estate planning, but are they still the best option? Meg Heffron revisits a once-clear favourite and asks whether changing super rules have shifted the balance.

The ageing ‘crisis’ has not and will not happen

Rising age dependency is frequently treated as a warning sign for economies. But when actual workforce participation is examined, a strikingly different picture emerges about ageing, productivity and economic sustainability.

Retirement

How does the 4% rule stack up?

The 4% rule has long been retirement's gold standard. But after a difficult period for investors, fresh analysis suggests a more conservative approach may significantly improve the chances of making savings last.

Shares

Four charts that expose market concentration risk

Investors have recently been rewarded for backing market leaders, but history suggests this eventually comes at a cost. Now may be the time to review whether your portfolio is carrying unintended risks beneath the surface.

Investment strategies

The case for gearing beyond property

Most Australians gear into property but ignore shares. That may be a mistake. Used carefully, geared equity strategies can enhance long-term returns, reduce cash tied up in growth assets and support retirement income goals.

Economy

Australia's $1 trillion debt pile

The headlines exclaiming that Australian government debt has hit A$1 trillion and US government debt has hit $40 trillion has turned heads, but how serious are they really? Will Australia's mix of debt create challenges?

Economy

Has 100 years of growth made us any happier?

For decades, GDP has been the benchmark for economic success, but has it made us materially happier? If happiness does not rise in lockstep with prosperity, are we overlooking what constitutes a successful society?

Sponsors

Alliances

  • ASA-Logo-RGB-ActiveGreen-web.png

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.