Depending on your investment style, either growth stocks or
value stocks likely hold greater appeal. But sometimes you don't
have to choose. On rare occasion, a stock can represent the best of
both worlds. These GARP (Growth at a Reasonable Price) stocks tend
to offer downside support thanks to their low valuations, and solid
upside thanks to their growth prospects.
With that in mind, I went looking for stocks that sport low
ratios yet are expected to post solid
growth in 2011.To narrow the list down to a manageable number, the
companies must sport a
of at least $200 million. In the table below, you'll find 10 stocks
that made the grade.
Company Name (Ticker)
EPS Growth Next Year
|Advance American (
|Aspen Insurance (
|Career Education (Nasdaq:
|Thompson Creek Metals
|Mercury Computer Systems
|China Fire & Security
|Michael Baker (
|Deer Consumer Products
Advance America (
Advance America offers cash advances to credit-constrained
consumers, and often sees business spike when the
is in a funk. The company's shares remain out of vogue, despite the
fact that quarterly profit trends are quite robust -- second
surged +37% from a year ago, when legal expenses are excluded.
The top-line growth, however, is not as impressive because many
states are starting to crack down on the "payday loan" business.
Advance America recently had to close 92 stores, half of them in
Virginia, to comply with new laws. But the company still operates
nearly 2,500 retail stores. The store closures, and expenses
associated with that effort, are crimping per share profits this
year, which will likely lag the year-ago take by about -20%.
Yet the remaining store base looks quite healthy. With a reduction
in expected store-closure expenses next year,
earnings per share (
is expected to climb back up +25% to around $0.88. As more
low-income consumers find it difficult to obtain new credit cards,
demand -- and profits -- may keep rising into 2012. Value investors
should note that the stock trades for around five times 2010
projected profits and four times next year's earnings, while income
investors may find Advance America's 6.5%
Thompson Creek Metals (
One of the charms of mining stocks is that you can value a company
on the basis of its earnings strength or simply on the value of its
untapped mineral reserves. On both counts, Thompson Creek looks
quite attractive. The company is ramping up production at a rapid
pace, leading to an earnings surge, and a recent acquisition has
boosted the value of its holdings to around $16 a share on a
net asset value
) basis -- some +60% above the current share price.
Thompson Creek has historically focused on molybdenum, a metal that
is used to bolster high-strength steel. A pair of molybdenum mines
are just ramping up, setting the stage for a triple-digit jump in
this year, and another +40% gain in 2011 to $1.40. Shares trade for
just seven times that forecast. A recent acquisition of a large
gold and copper mine expected to come online in 2012 or 2013 should
bolster growth prospects even further.
Well below its
and a very low P/E ratio. What's not to love?
ShengdaTech (Nasdaq: SDTH)
It's hard to attract investor interest when you operate halfway
around the world. China's ShengdaTech has the added burden of
producing a fairly obscure industrial material: nano-precipitated
calcium carbonate (NPCC). Obscure as it may be to most of us, NPCC
is seeing rising demand in the construction of tires, plastics,
inks and adhesives. The nano-sized particles help to smooth out the
finish on these manufactured goods while also strengthening any
material they adhere to. It's far cheaper than traditional
solutions such as titanium oxide and silicon dioxide.
ShengdaTech has a proprietary production process that produces high
yields at low prices. The company continues to add to capacity and
often finds a buyer for that higher output as soon as it is
Thanks to capacity expansions, sales should rise around +25% both
this year and next. Analysts think EPS could rise +30% next year to
about $0.65. Of course, demand isn't limitless, and longer-term
growth rates will likely moderate. Management insists that
ShengdaTech is capable of robust long-term growth, as its R&D
labs are trying to identify a range of new applications for its
NPCC. Nevertheless, with shares trading for around seven times next
year's profits, even a growth rate in the low to mid-teens would
make these shares very attractive.
Action to Take -->
These stocks are cheap in large part due to investor apathy or
ignorance. They toil outside the Wall Street spotlight, yet are
developing solid profit growth prospects.
ShengdaTech may stay cheap for a while longer, at least until the
broader universe of Chinese stocks starts to move back into favor.
Advance America is learning to live with a slightly smaller retail
footprint, but is getting a lot more profit out of its existing
stores. Thompson Creek Metals is only now emerging as a key mineral
Investors can feel comfortable owning any of these three
undiscovered names, as long as they have the patience to wait for
the stocks to be discovered.
-- David Sterman
David Sterman started his career in equity research at Smith
Barney, culminating in a position as Senior Analyst covering
European banks. David has also served as Director of Research at
Individual Investor and a Managing Editor at TheStreet.com. Read
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
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