Thanks to a big drop in sales in 2008 and early 2009, a wide
number of companies were able to post impressive revenue gains in
2010 and 2011, as demand for goods and services returned to normal
levels. But this might be the end of it: analysts expect sales
growth to be much more muted in 2012. In fact, only 23 companies in
the S&P 500 could be register sales increases of at least 20%
in the coming year. In addition, a number of these firms could only
hit this mark due to recent acquisitions, which underscores my
belief that deal-making will be
a prominent investing theme in 2012
So where can you find growth in the coming year? Here's a list of
the select few candidates that could actually post revenue growth
next year. Take a look...
For starters, it's impressive to see
on this list. These companies are already quite large, and robust
growth should be hard to come by at this stage of their businesses.
Kudos to their respective management teams for keeping their feet
firmly applied to the gas pedal.
You can also find a number of growth-through-acquisitions names on
this list. The only area that should see widespread organic growth
is in the energy sector, as a number of oil and gas drillers tap
into new shale formations across the United States. If natural-gas
prices somehow manage to break out of their dismal, ever-lower
trading range, then these projected revenue growth rates could
spike even higher.
Yet "buying growth" isn't a bad way to boost shareholder value.
of environmental services firm Nalco has been a clear hit with
of Ecolab now trading near an all-time high. Ecolab is a leading
provider of cleaning products and services, and though the deal
doesn't necessarily mark a deep strategic fit, it adds "another
business with a track record of generating high returns on invested
capital," according to Morningstar.
Ironically, Ecolab's chief rival, Diversey Inc., has just been
acquired by packaging firm
Sealed Air (NYSE:
, setting the stage for more than 50% sales gains for this firm as
well. But investors have not been as kind to this deal, partially
because of Sealed Air's tepid third-quarter results. Investors
appear to be frightened by the amount of debt Sealed Air took on to
complete the deal, as
now stands at four times pro-forma 2011
. Shares trade just above the
, at about $17.
Still, this sets up a chance for share-price gains when the company
starts to address the debt concerns. Management is committed to pay
down debt aggressively in 2012 and 2013, and "such deleveraging
should ultimately accrue to shareholder value," according to
Merrill Lynch, which sees shares rising from a recent $18 to $26.
A winning deal to the rescue?
A quick glance at the price chart for
tells you investors could care less about acquisition strategies if
the sector in question holds little appeal. Alpha acquired Massey
Energy in June 2011, capping off a series of deals that made the
company a leading exporter of coal. Sales rose from $444 million in
2004 to nearly $4 billion in 2010, and they should approach $9
billion next year (thanks in large part to the Massey purchase).
Still, investors are taking note of the fact that demand for coal
in the United States is unlikely to grow in coming years, due to
increasingly restrictive environmental regulations. Yet in other
parts of the world -- especially in China, which consumes a rising
amount of Alpha's coal -- demand shows no sign of letting up.
Alpha's timing was pretty bad. Coal prices slumped in the second
half of 2011, so management could have gotten a better price in its
purchase of Massey had it waited. That being said, the combined
entity now sports a very low-cost structure, and Alpha is on track
to generate more than $750 million in
free cash flow
in 2012 and again in 2013, assuming coal prices stay at current
As a result, the company is buying back stock ($600 million remains
on the current authorization that expires in 2014). A move to
, which was suspended in 2006, may come next. Trading at less than
three times projected 2012 EBITDA, this stock could have 50% to 75%
upside. Analysts at Sterne Agee say shares could nearly double --
to $35 -- which translates to a multiple of five on projected
2013 EBITDA of $2.2 billion.
Risks to Consider:
Any growth-through-acquisition companies entail a risk of
"acquisition indigestion." So it pays to see that a company is on
track to generate the sales and expense synergies that underpin any
Action to Take -->
It's getting harder to find solid growth stories in this challenged
global economic environment. The companies I mentioned here,
however, through either internal or external investments, have
managed to keep the needle rising higher. With a potential to more
than double in some cases, these stocks should be on every
-- David Sterman
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
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