Best Growth Stocks to Buy for Dec. 23

Zacks highlights three Zacks Rank #1 buy candidates: Ciena Corporation (CIEN), Alarm.com Holdings (ALRM) and Great Lakes Dredge & Dock (GLDD), driven by upward revisions to current-year earnings estimates over the past 60 days (+18.1% for CIEN, +5.5% for ALRM and +6.9% for GLDD). Each name shows attractive valuation metrics versus peers—CIEN PEG 1.07 vs industry 5.12, ALRM PEG 1.66 vs industry 2.94, GLDD PEG 1.03 vs industry 3.06—and growth scores (CIEN A, GLDD A, ALRM B), supporting Zacks' buy rankings and signaling analyst-driven upside for investors. Investors should weigh these signal-driven picks against company-specific operational and market risks before positioning.

Analysis

Market structure: CIEN, ALRM and GLDD are beneficiaries of secular bandwidth, IoT subscription monetization, and infrastructure spending respectively; winners include optical equipment suppliers and RMR-focused IoT platforms, while legacy copper vendors and small regional dredgers without backlog will be pressured. CIEN’s improving estimates (+18% in 60 days) and PEG ~1.07 imply expanding pricing power vs peers; GLDD’s low PEG (1.03) signals market discounting of potential contract-led margin recovery. On cross-assets, stronger tech capex supports risk assets and call skew; GLDD is more rate-sensitive—Widening high-yield spreads would compress its financing optionality, while fuel/steel cost moves are direct margin levers.

Risk assessment: Tail risks include US/ally export controls on advanced optics (CIEN) or major project cancellations/appropriation delays for GLDD, each capable of a >30% hit to forward cash flow in a downside shock. Timeframes: expect earnings-driven volatility in days; execution and backlog updates drive performance over 1–6 months; secular demand for bandwidth and IoT RMR plays out over 2–5 years. Hidden dependencies: CIEN tied to hyperscaler RFP cadence, ALRM to channel integration rates, GLDD to federal/state funding cycles; catalysts include large RFP wins, multi-quarter RMR growth inflection, or federal contract awards.

Trade implications: Tactical longs—CIEN (2–3% portfolio) for 3–12 months to capture earnings multiple expansion if next two quarters beat consensus; GLDD (1–2%) as event-driven play toward infrastructure awards with strict -25% stop. Relative-value: pair long CIEN / short LITE (1:1 notional) to isolate optics-cycle upside vs commodity photonics exposure. Options: use 3-month call spreads on CIEN to cap premium (buy 3M ATM call, sell 3M+15% call) and buy LEAP calls on GLDD with 30–40% protective puts for funding-risk hedging.

Contrarian angles: Consensus likely understates project execution risk for GLDD—PEG parity with industry hides backlog concentration; a surprise contract loss would plunge shares, so size accordingly. CIEN’s outperformance may already be partly priced—PEG ~1.07 suggests limited upside absent large RFP wins; downside from export restrictions is underpriced. ALRM’s steady upgrades (5.5% EST lift) argue for buy-on-dip rather than momentum chase; a 10–15% pullback is a tactical entry threshold.

Key Decisions for Investors

• Establish a 2–3% long position in CIEN (tactical, 3–12 month horizon); target +25–40% total return if next two quarters beat consensus; place a protective stop-loss at -20% and trim 50% on a +25% run-up.
• Initiate a 1–2% event-driven long in GLDD with a 6–12 month horizon around federal/state contract announcements; add on confirmed backlog wins and set hard stop at -25% to limit leverage/appropriation risk.
• Execute a relative-value pair: long CIEN / short LITE sized 1:1 notional to capture network-equipment share shift; hold 3–9 months and rebalance after quarterly RFP disclosures.
• Use options to express asymmetry: buy CIEN 3-month ATM call / sell 3-month +15% call (call spread) sized to equal 1–2% portfolio exposure, and buy GLDD 9–12 month LEAP calls while hedging 30–40% of position size with puts until backlog is confirmed.