If you look out into the middle of the decade, then you can make
the case for increasingly robust economic growth that could fuel
heady top- and bottom-line gains in a number of sectors.
But we're not there yet.
Recent economic signs point to an eventual economic brightening,
though there are enough boulders in the U.S.economy 's path that
could derail an economic expansion.
So perhaps it's wiser to focus on companies that are poised for
solid growth in 2013. Out of all the of the companies in the
S&P 500, 91 (or 18%) are expected to boost sales by at least
10% this year. And of those firms, 72 are expected to boost
per-share profits by at least 15% in the coming year.
A cluster of them reside in sectors that have already received a
great deal of investor attention recently, so they can't be seen as
solid values in the context of projected 2013 results any more.
Housingstocks , for example, fit into this category.
Instead, value investors may prefer to focus on stocks that have
solid growth prospects, but sport forward price-to-earnings (P/E
)multiples below the S&P 500 average of 15. Fewer than 20
companies in the S&P 500 sport these above-cited growth
prospects, while trading for less than 15 times projected profits.
Notably, roughly half of these stocks operate in the energy
The drilling boom
We've spent alot of time at StreetAuthority looking at the
revolutionary developments in the U.S. shale regions. The nation's
new-found troves of natural gas are completely changing the
nation's energy picture. But investors should understand that an
energy boom is underway worldwide, from the coasts of South America
and Africa to the Arctic Circle and the steppes of Kazakhstan. The
spread of oil exploration beyond the traditional hubs of the Middle
East explains why energy producers and service-equipment providers
that have a global footprint are sporting solid growth metrics in
Global growth is in place for many energy stocks
Companies that toil in the energy sector have never garnered a
high P/E ratio. That's because growth has tended to be erratic,
with robust growth phases followed by industry downturns. Yet those
downturns have proven to be short-lived, so the argument for a
lowmultiple now seems less warranted. Take a look at the annual
sales growth rate for energy-service provider
. Though the company has made some acquisitions that have boosted
sales, organic growth has been quite solid as well.
Although the world is awash in oil and gas, much of it lies in
remote locations, which increases the demand for the services and
equipment offered by companies such as Schlumberger,
Cameron International (NYSE:
Rowan Cos. (NYSE:
Ensco International (NYSE:
. Investors may still think of this as a deeplycyclical industry ,
but the past decade, along with current growth drivers, implies
steady solid growth, not just in 2013, but beyond.
But the list of low-priced, solid-growth stocks doesn't include
just energy companies. A handful of other companies also make the
cut. Leading the way is a once-loved, but now controversial
All eyes on Apple (Nasdaq:
After Apple's 22% plunge in the past three months (wiping out a
seemingly unprecedented $125 billion in vanishedmarket value ),
investors are closely watching itsearnings report this Wednesday,
Jan. 23, for signs that growth is slowing. After boosting sales at
a stunning 44% annualized rate from fiscal (September) 2004 through
fiscal 2012, a slowdown was inevitable. The question is by how
much? Investors question whether growthwill slow into the
single-digits in coming years, or remain in the teens. If it's the
latter, then this stock could easily move back toward the $700
Roughly a month ago
, I laid down the case why Apple still has plenty of growth
Ifshares move sharply lower on the heels of conservativeguidance
, then you should be prepared to quickly assess the company's
still-impressive growth strategy. Chances are, any deep pullback
will eventually bring out the deep-value investors who have been on
the sidelines in recent months.
The SanDisk trade
On the same afternoon that Apple weighs in, memory device firm
will weigh in with results. Analysts at Merrill Lynch expect very
strong results. Yet it's the forward outlook that may make this a
very timely trade for investors who want to jump in before results
are released. Analysts at Merrill Lynch cite a looming increase in
gross margins (from 32% in 2012 to 46% in 2013) thanks to
improvements in the company's manufacturing processes.
And these analysts suspect that the rest ofWall Street may not
yet grasp this trend, which management is likely to discuss on the
conferencecall this Wednesday. The consensus 2013 earnings forecast
for Sandisk is around $3.50 a share, while Merrill Lynch suspects
that per-share profits will exceed $4.50. And they see earnings
power exceeding $6 a share in 2014.
Risks to Consider:
The energy service stocks discussed earlier are always
vulnerable to a sharp pullback in global oil prices. That's an
unlikely scenario at the moment, but could become a factor of major
global economies stumble anew in 2013.
Action to Take -->
These aren't the stocks in the S&P 500 that have the most
robust 2013 growth prospects, nor are they necessarily poised for
market-beatingupside . But their reasonable valuations and clear
operating momentum means they will likely move up in a risingmarket
, yet hold their own in a more challenging market.
-- David Sterman
P.S. -- It's finally here... our Top 10 Stocks for 2013. Since
we first began publishing this annual report in 2003, our picks
have beaten the market 7 out of the past 9 years... including
average annual gains of up to 38.7% in a single year. Go here to
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.