It's hard to remember, but today's leading large-cap stocks were
once just fast-growing small businesses. Years of double-digit
annual sales growth turned these acorns into mighty oak trees.
And if you glance across the 600 stocks comprising the S&P's
SmallCap 600Index , then you'll come across tomorrow's stars as
well. Several dozen firms are in the midst of a long-term growth
spurt thatwill likely have them characterized as mid-cap stocks
before long. And well down the road, these stocks could be solid
citizens in the S&P 500 Large Cap Index. Here are four to keep
your eye on...
|DDD), along with
Stratasys (Nasdaq: SSYS)
, was one of the early pioneers of "rapid prototyping," which
allows designers to make a three-dimensional model of
virtually any small item. NASA even used a machine to create
spare parts in mid-flight if necessary. For many years, this
industry was more about hype than reality: 3D Systems' sales
hit $126 million in 2004 and by 2009, had actually shrank to
$113 million. Since then, you can see this company hitting
its stride as sales rose at least 40% in 2010 and 2011.
Thanks to acquisitions that augment organic growth, sales
likely rose more than 50% this year (to around $350 million)
and could approach $450 million by next year.
There's a counterintuitive way to trade a stock like this.
You want to buy high-growth stocks when they hit a temporary
rough patch. And this stock has risen from $15 to $50 in the
past year, thanks to scorching growth, but we've repeatedly
seen fast-moving stocks like this take a huge hit when a bad
quarter arrives (
Netflix (Nasdaq: NFLX)
Chipotle Mexican Grill (
being two recent notable examples.) 3D Systems' long-term
growth prospects are so robust, you need to track this stock
and be ready to pounce when the inevitable quarterly stumble
|AKRX) is a generic drug manufacturer capitalizing on the
broad range of patent-protected pharmaceuticals that are now
going offpatent . Akorn, which focuses on ophthalmology and
gels, saw its sales shoot up from $76 million in 2009 to a
projected $250 million in 2012. Thanks to a robust pipeline,
analysts see sales rising to $330 million in 2013 and more
than $400 million by 2014. Part of this growth is coming from
an aggressive expansion in the company's sales force.
Akorn hopes to grow faster than the rest of the industry
by establishing a low-cost beach head. The company's
manufacturing plant in India will be capable of producing 10
times more output than its U.S.facility -- and at lower cost.
It's already a reasonably profitable business, with gross
margins exceeding 55%. That should enableearnings per share (
) to power higher, from a projected 50 cents a share in 2012,
to more than 80 cents a share by 2014, and perhaps $1 a share
by 2015, once the plant in India is working closer to
Carrizo Oil & Gas
|CRZO) has been rapidly expanding its drilling program
across a number of the leading U.S. shale fields, which is
fueling explosive top-line growth. Sales are on track to
nearly double in 2012 (to about $400 million), and could
exceed $750 million by 2014.
Per-share profits are rising at a commensurate clip, from
a projected $1 in 2011 to more than $3 by 2013. So why has
this stock fallen from $70 in 2008 to $40 in the spring of
2011 to a recent $22? Because investors are less than
impressed by theprofit trajectory and instead want to see
Carrizo generate robustfree cash flow . The company has
plowed every cent back into its drilling expansion plans and
has never generated positive free cash flow in its history.
Management says Carrizo will start to generate positivecash
flow later in 2013, and if it can show spending discipline in
2014 and beyond, then the cash flow should rise sharply,
finally giving this stock a long-awaited lift.
|lot of exposure to consumer financeissues .
Financial Engines (Nasdaq: FNGN)
was launched in 1996 to help create a series of user-friendly
retirement plan websites, and now has more than $500 billion
in assets in tandem with 500 different financial
As more firms have signed on to help their clients use
Financial Engines' software and asset-management program,
growth has been remarkably steady. Sales have risen roughly
20% to 25% annually since 2005 and are on track to grow at
least 20% in 2012, 2013 and again in 2014, by which time they
should approach $275 million.
And this kind of sales growth over a largelyfixed cost
base is fueling profit gains. Goldman Sachs estimates
that EBITDA margins rose two percentage points in 2012
to 23.7% and could approach 25% in 2013. And robust growth
can be sustained for quite some time to come, Goldman's
analysts say. "Financial Engines is on the verge of
broadening itsoffering to includeIRA plans, amarket
significantly larger than 401Ks," theynote , adding that the
company should have an easy time simply working with existing
partners, rather than trying to market the new offerings
directly to consumers.
Risks to Consider:
Strong growth begets rising expectations, so these stocks would
be punished if there are any growth stumbles along the way.
Action to Take -->
When identifying companies capable of sustained growth, you need to
focus on those firms that are able to expand sales simply through
an expansion of their current efforts. Of this group, only 3D
Systems is pursuing acquisitions, but in this instance, these deals
only help to expand a robust pipeline of organic growth