It’s perhaps the only downside to an eight-year bull market that’s still hitting new highs with no end in sight: How do you find growth in an environment like this? You could wait for one of those healthy pullbacks, but this market is so strong that they are usually pretty tame and short lived (like our recent “tech wreck”).
Another possibility is to use a screen that finds the growth regardless of what the market does. Fortunately, that’s exactly what the Zacks #1 Rank Growth Stocks screen is all about. It finds stocks that have a minimum historical growth rate of at least 20% and, more importantly, a projected growth rate of 20%. On top of all that, it only picks Strong Buys.
Below are three stocks that passed this screen’s criteria.
Momo (MOMO - Free Report)
Momo (MOMO - Free Report) may be one of the youngest stocks on this screen with less than two years of reported quarters, but its gaining a lot of attention from the market. That’s what happens when you announce triple-digit gains on the top and bottom lines in a quarterly report. The company also has a daily average volume of around 10M shares. As the leading mobile social networking platform in China, a lot of people consider MOMO to be that country’s Facebook. Given that China has the highest population in the whole world (approximately 1.3 billion), it’s easy to see why this stock has such growth potential.
Late last month, MOMO reported first-quarter earnings of 40 cents per share, or 43% better than the Zacks Consensus Estimate at 28 cents. The result also blew past last year’s 3 cents. It’s four-quarter average surprise is now up to 27.7% after three straight positive surprises and a match. Revenues soared 421% from last year to $265.2 million, which was ahead of the company’s outlook between $238 million and $243 million. The live video service continued its momentum with revenues of $212.6 million. For the second quarter, MOMO sees net revenues between $283 million and $288 million, which would account for year-over-year growth of 186% to 191%.
MOMO still doesn’t have many covering analysts, but the ones it does have are raising their expectations. The Zacks Consensus Estimate for this year has climbed 15.7% in just the past month to $1.40 per share. Earnings are expected to soar another 47% next year to $2.06 per share, which has gained 18.4% in the past 30 days.
Lam Research Corp. (LRCX - Free Report)
Over the past several years, Lam Research Corp. (LRCX - Free Report) has been significantly expanding its market share in the wafer fabrication equipment market, which is smart since that space is in the top 1% of the Zacks Industry Rank. Semiconductor Equipment – Wafer Fabrication has the third spot out of 256 industries, which puts LRCX on some of the most fertile ground in the market. The company’s fiscal third quarter report from April and its Price, Consensus and EPS graph (below) both show how this company has been growing for years now, but it’s the earnings estimate revisions for next fiscal year that really explain why LRCX deserves a spot on the Zacks #1 Rank Growth Stocks list.
As Kevin Cook put it in a Bull of the Day article on LRCX last week, the company delivered the “earnings trifecta” in its fiscal third quarter, which means it beat on both the top and bottom lines while increasing its guidance. It earned $2.80 per share in the quarter, which beat the Zacks Consensus Estimate by 10.2% and soared year over year by nearly 131%. But the graph below shows the really impressive datapoint for LRCX, as it hasn’t missed estimates in 19 quarters. So if it beats when reporting again on July 26, it will mark five straight years of overperformance. Revenues of $2.15 billion also got past our expectations while jumping nearly 64% from last year. Results were driven by strong successes in device architecture, process flow and advanced packaging technology inflections. Shares are up nearly 22% since the report.
Earnings estimates have been on the rise thanks to an encouraging outlook. This fiscal year ends this month, and analysts are expecting $9.88 per share. Over the past two months, the Zacks Consensus Estimate has improved 7.2% as eight of ten analysts revised higher. But this screen is really interested in where a company is going, and earnings estimates for next fiscal year suggest it’s going UP. The Zacks Consensus Estimate for the fiscal year ending June 2018 is expected to climb nearly 9% from this year to $10.76. Analysts have boosted that number by approximately 26.7% over the past 60 days, so LRCX doesn’t seem to be slowing down anytime soon.
KLA-Tencor Corp. (KLAC - Free Report)
Let’s stick with this highly-ranked industry for one more stock summary. KLA-Tencor Corp. (KLAC - Free Report) doesn’t have as many covering analysts as LRCX, but the overall trajectory of earnings estimates and share price is the same. KLAC is one of the leading suppliers of inspection and metrology products and services, and it too has an impressive history of beating quarterly earnings expectations. The company has eclipsed the Zacks Consensus Estimate for 11 straight quarters. Going further back, it has beaten in 17 of the last 18 quarters, so the wind is at its back heading into the next report on July 27.
The company’s new products have been met with strong customer acceptance, leading to a positive surprise of 5.2% in its fiscal third quarter report. The result of $1.62 per share not only beat the Zacks Consensus Estimate of $1.54, but also improved by nearly 44% from the previous year. Over the past four quarters, KLAC has an average beat of nearly 11.6%. Revenues jumped 28.4% from last year to $913.8 million. Its comprehensive product line, cost reduction initiatives and strong balance sheet will continue to generate growth, especially in a space that’s in the top 1% of the Zacks Industry Rank.
Strong results and a solid guidance has given earnings estimates for KLAC a boost over the past two months. The Zacks Consensus Estimate for the fiscal year that ends this month is $5.88 per share, or 3% better than 60 days ago as all five estimates moved higher. But this screen is most interested in next fiscal year’s earnings, which are expected to jump 12.6% to $6.62 per share. Over the past two months, that consensus has improved 5.2% as four of five analysts boosted their expectations.
Zacks' 2017 IPO Watch List
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