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13 Growth Stocks Trading for a Bargain
1/22/2013 1:00:00 PM
By: David Sterman
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 sector.
The drilling boom
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 Schlumberger (NYSE: SLB ) . 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: CAM ) , Rowan Cos. (NYSE: RDC ) and Ensco International (NYSE: ESV ) . 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 growthstock .
All eyes on Apple (Nasdaq:
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
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.
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 learn more.
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.