Wall Street analysts, along with the financial media, will soon
scour the landscape and make bold predictions about which stocks
will have the biggest upside during the next 12 months.
Frankly, such bold calls hinge on the
state of the U.S.
economy . If the economy appears to be moving onto a higher plane
of growth, then investors will reward companies that deliver the
most robust growth. But if the economy slumps, then the more stable
blue chip companies will likely get rewarded. These are the
companies that manage steady (though unspectacular) growth during
any economic climate.
For a number of companies, the outlook remains bright. More
precisely, there are 37 stocks in the S&P 500 that are expected
to boost sales and profits at least 10% in 2013 and grow by at
least that much again in 2014, according to analysts' forecasts.
These forecasts appear to be made with an eye on the economy that
is still trying to get break-away speed." For now, the investment
community is assuming the U.S. economy could grow between 1.5% and
2.5% in 2013, and perhaps a bit more robustly in 2014.
Among the 37 stocks, some seemingly deep bargains can be
Noble Energy (NYSE:
Ensco Int'l (NYSE:
Rowan Cos. (NYSE:
are all expected to meet those growth criteria for 2013 and 2014,
and are valued at just seven times projected 2014 profits. But
these are highly cyclical businesses and, as such, they will never
get a robust price-to-earnings (P/E ) ratio anyway.
I've taken the liberty of scrubbing out energy-related cyclical
stocks and winnowed the group to just 29 stocks. Even if the
economy perks up in 2013, some may remain unconvinced that the U.S.
economy can keep growing into 2014, as so many headwinds remain in
place. This scenario could spell trouble for companies that didn't
show their mettle during the last slowdown. So I've eliminated any
company that saw sales fall more than 10% during the GreatRecession
. This narrowed the list down to 21 stocks...
Solid growth in 2013 and 2014
This doesn'tmean each stock in this list is a bargain.
Chipotle Mexican Grill (NYSE:
, for example, looked extremelyovervalued when I panned the stock
a month ago
and thoughshares have slumped since then, they still trade
for almost 20 times projected profits.
was on the cusp of slowing growth, though after a subsequent fall
as a result of a missed third-quarterearnings report, the P/E ratio
on projected 2014 results is now more reasonable at around 12.
The lesson for stocks like Chipotle and Google is that you need
to dig past the appearances of strong growth and identify whether a
company can meet or exceed the lofty expectations investors have
placed in front of it.
Even without a crystal ball, valuations still matter. So I've
kicked out any stocks that trade for more than 16 times projected
2014 profits. This is just too rich of amultiple for a slow
This leaves us with 12 stocks in the S&P 500 that are
poised for sustained robust growth and sport reasonable
After falling more than $75 since mid-September,
now looks like a solidGARP (growth at a reasonable price) stock.
It's even more of a bargain when you consider that Apple may have
finished the September quarter with more than $120 billion in net
cash in the bank. That's more than 20% of the company'smarket value
, meaning the company's cash-adjusted P/E ratio is likely closer to
is another favorite high-growth stock, especially after falling
roughly $70 since early October. Though Priceline.com rallied
my look at the company
two months ago, the recent pullback leads me to pound the
table again. That said, there's no hurry to own this stock ahead of
the Nov. 5 earnings release date, so this is a good time to simply
get up to speed on this greatbusiness model .
Lastly, I am taking a fresh look at energy drink maker
Monster Beverage (Nasdaq:
. Back in May, I
that this stock looked like it had peaked.
Now, below $50, this stock may be freshly appealing. Management
has finally sought to add more flavors (such as Cuba Lima, a
non-alcoholic version of a Cuba Libre; and Absolutely Zero, a diet
version of the company's top-selling drink) which should add to
retail shelf space andmarket share gains. Coupled with a geographic
expansion, Monster should be able to generate mid-teens sales
growth in 2013 (to about $2.5 billion) and at a similar growth rate
again in 2014.
One word of caution for this stock: The U.S. Food & Drug
Administration (FDA) is looking into reports that heavy consumption
of energy drinks has led to some deaths. In a just-published
morning note, Goldman Sachs' analysts wrote that they "do not
believe that these headlines will impact MNST's sales growth in the
U.S. nor do we believe the ultimate legal and regulatory outcome
will be a significantly onerous one." Still, monitor this issue in
coming days just to be sure that sellers have already been fully
shaken out of the stock. The end-result may simply be tighter
warning labels, and if so, this is becoming an appealing GARP stock
Risks to Consider:
A number of the companies in the table above won't be able to
boost sales and earnings per share by more than 10% in 2013 and
2014 if the economy deeply weakens.
Action to Take -->
This is a very worthy group of stocks for further research as we
head toward 2013. A not-too-hot and not-too-cold economic
environment may create the perfect investor backdrop for these
-- David Sterman
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.
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