While many companies are continuing to post strong third-quarter
earnings numbers, much of the earnings season talk has centered on
concerns about the "top line" -- that is, revenue growth. The
consensus seems to be that while corporations have done a great job
of cutting costs and squeezing every dollar out of every sale,
demand for their products hasn't picked up as much as investors
Generally that may be true -- but it doesn't mean there aren't
plenty of exceptions. Whether because of conditions within their
specific industries, an ability to tap into areas of the world that
do have strong demand, or a good ol' fashioned ability to market
and sell their products, a number of firms have been producing very
good top-line growth in a challenging climate.
With that in mind, I thought I'd see which companies that have
been riding impressive sales waves also get approval from my Guru
Strategies, fundamental-based approaches that are each based on the
strategy of a different investing great. Here are some of the best
of the bunch.
Neogen Corporation (
: Neogen makes a variety of products involved in food and animal
safety, such as rapid diagnostic test kits to detect foodborne
bacteria and other harmful substances, and veterinary instruments,
pharmaceuticals, and nutritional supplements for animals.
The $782-million-market-cap Michigan-based firm has been growing
revenues at a 17.7% clip over the long term. (I use an average of
the three-, four-, and five-year growth rates to determine
long-term growth rates for both sales and earnings.) Demand has
really increased more recently -- sales grew at a 34% clip in the
most recent quarter, and a 26% pace in the quarter before that (vs.
the respective year-ago quarters).
Neogen's strong sales growth is one reason it gets high marks
from the strategy I base on the writings of Martin Zweig. The Zweig
approach looks at earnings from a variety of angles, making sure
that they are not only growing, but also accelerating. And, Zweig
found that cost-cutting or one-time measures could only boost
earnings for so long; eventually, a company has to grow sales in
order to grow earnings, so this strategy looks for companies that
are also growing revenues at a an accelerating rate. Neogen's last
two quarters of sales growth meet that criteria, and the firm has
also shown accelerating earnings per share growth: EPS grew at
31.6% in the most recent quarter, up from an average of 29.6% in
the three quarters before that (all figures vs. the year-ago
quarters), which was up from the long-term rate of 21.4%.
Another reason the Zweig-based model likes Neogen: The firm has
no long-term debt.
Catalyst Health Solutions Inc. (
: This Maryland-based pharmacy benefits manager ($1.7 billion
market cap) grew sales at a 37% pace in what for most businesses
was a rough 2008. It then upped them another 14% last year, and
another 21% through the first half of this year.
Catalyst gets approval from two of my models. My Peter
Lynch-inspired strategy likes the firm's 26.5% long-term EPS growth
rate and 0.86 P/E/Growth ratio. It also likes the Catalyst's
financials, including the firm's impressive 52% equity/assets ratio
and 8.4% return on assets rate. My James O'Shaughnessy-based growth
model, meanwhile, likes Catalyst's 0.52 price/sales ratio and 62
relative strength. That combination indicates Wall Street has been
embracing the stock, but that it also remains cheap.
Infosys Technologies (
: This global information/technology giant ($38 billion market cap)
may be based in India, but it gets about two-thirds of its revenue
from North America. It's been growing revenues at a 20.9% clip over
the long term, and sales growth has been even better in recent
quarters -- in the third quarter, sales grew 29.6% (vs. the
Infosys has more than just strong revenue growth going for it.
The firm has upped earnings per share in each year of the past
decade, has no long-term debt, and has averaged a 31.9% return on
equity over the past ten years -- all of which are reasons that it
gets approval from my Warren Buffett-inspired Guru Strategy.
Coach, Inc. (
: Surprised? Luxury goods stocks were pounded during the financial
crisis, with conventional wisdom being that if consumers were going
to buy anything, they'd buy bargain-priced goods -- not the
expensive bags and clothing and accessories a firm like Coach
Well, Coach has bounced back pretty nicely. After managing to
slightly increase revenues in its 2009 fiscal year (which covered
July 1, 2008 through June 30, 2009 -- the very heart of the
financial crisis), Coach upped revenue by 12% in its 2010 fiscal
year, finishing with a particularly impressive 22% gain for the
April-June quarter. Then in the first quarter of its fiscal 2011,
it upped revenue by 20%.
Coach ($15 billion market cap) is another favorite of my
Buffett-based model. A few reasons: The firm has upped EPS in all
but one year of the past decade; it's conservatively financed, with
just $24.2 million in debt and $717.6 million in annual earnings;
and it has averaged a 37.3% return on equity over the past decade,
a sign of the "durable competitive advantage" Buffett is known to
seek in his investments.
Research in Motion Limited (
: This Ontario, Canada-based tech titan designs and manufactures
the BlackBerry smartphone, and makes software and the operating
system used by the BlackBerry.
RIM has an exceptional 65% long-term revenue growth rate. It's
tough to sustain such a high rate forever, but the firm has
continued to post some solid sales increases in the past year. Over
the past four quarters, its sales have increased (from earliest to
most recent) 41%, 18%, 24%, and 31% (vs. the respective year-ago
RIM's strong performance has earned it strong interest from the
strategy I base on the writings of hedge fund guru Joel Greenblatt.
Greenblatt used a remarkably simple two-variable approach to find
winning stocks, looking at return on capital and earnings yield.
Research in Motion has an earnings yield of 15.0%, which ranks
100th out of the thousands of stocks in my database, while its
return on capital of 71.7% ranks 84th. Those scores make the stock
the 24th-most attractive in the market right now, according to this
Author long NEOG, CHSI, RIMM, and INFY
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