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A growing company is one that expands by investing all or a substantial part of what it earns or raises into its business. It stands to reason that such a company sees opportunities to invest that money for profit.
These opportunities could be tied to the industry in which it operates, like Apple (AAPL - Free Report) or Amazon (AMZN - Free Report) , or any of the other tech leaders. These companies were able to add value to all aspects of life by increasing the efficiency of the way we do things. The industry in which they operated allowed them to multiply their gains many times over. And despite their size, their prospects don’t appear to have diminished in any way.
But, of course, not all stocks belong to the technology sector. Does that mean that they won’t enjoy the advantages that come from a growth industry? Not at all.
Our analysis of historical data shows that in most cases, around 50% of a stock’s performance is tied to the industry in which it operates. The rest could be attributed to unique offerings or competitive edge or other factors.
All these factors together would translate into strong earnings growth over time. Investors would benefit by getting in early and holding on to the shares as they appreciated over the years.
A growth stock is never easy to pick because you don’t really know for sure if the company’s unique offering or idea will actually generate the kind of growth you’re looking for. All you can do is guess at what you think makes sense. Or consult the experts, i.e. the brokers, since they’ve been around to see the markets evolve.
These broker opinions reach us through earnings estimates and estimate revisions. The estimates are averaged in the Zacks Consensus Estimate and also drive a stock’s Zacks Rank.
Further, a company’s ability to meet or exceed the Zacks Consensus is seen from its history of surprises. When a company generates positive surprises more often than not, it is likely to do so in the future as well. This usually happens when management is in the habit of providing conservative guidance and estimates are built on top of those.
But in uncertain times like the present, when we have a raging pandemic on our hands, a vaccine that looks several months away and elections around the corner, one needs to be that much more careful when selecting growth stocks.
One additional measure is to check the financial leverage. A certain amount of debt may not be a bad thing, especially when it’s obtained at reasonable rates. But a high debt load always increases the risk of the investment and increases costs. So it may be a good idea to keep debt low.
The other thing is the valuation. I know that growth stocks will appreciate over time. But it doesn’t hurt to err on the side of caution.
With these goals in mind, I’ve put together a list of stocks that might be worth considering-
Best Buy multinational specialty retailer of consumer electronics, home office products, entertainment software, communication, food preparation, wellness, heath, security, appliances and related services.
Revenue growth expected to be 3.8% and 2.3% in 2020 and 2021
Earnings growth expected to be 17.3% and 2.8% in 2020 and 2021
It has topped the Zacks Consensus Estimate in each of the last four quarters at an average rate of 33.5% (there was a spike in this year because of the pandemic)
Valuation: On the basis of price to forward 12 months’ earnings (P/E), the shares are trading at 14.84X, which is closer to its median value of 14.16X than the high of 18.83X over the past year. So there should be upside from these levels.
A leading automotive retailer, Sonic sells new and used cars and light trucks, replacement parts, and aftermarket automotive products as well as maintenance and repair services.
Zacks Rank #1
Growth Score A
Value Score A
Industry: Automotive - Retail and Whole Sales (top 1% of 250+ Zacks-classified industries)
Revenue growth expected to be -6.0% and 14.0% in 2020 and 2021
Earnings growth expected to be 29.8% and 21.5% in 2020 and 2021
It has topped the Zacks Consensus Estimate in each of the last four quarters at an average rate of 57.8% (there was a spike in this year because of the pandemic)
Valuation: The shares are trading at a P/E multiple of 9.98X, which is below its median value of 11.44X over the past year. So the shares are undervalued.
AutoNation is the largest automotive retailer in the United States, operating 325 new vehicle franchises. Its stores also offer vehicle parts, extended service contracts, vehicle protection products and other aftermarket products.
Zacks Rank #1
Growth Score A
Value Score A
Industry: Automotive - Retail and Whole Sales (top 1% of 250+ Zacks-classified industries)
Revenue growth expected to be -6.5% and 4.9% in 2020 and 2021
Earnings growth expected to be 20.0% and 11.6% in 2020 and 2021
It has topped the Zacks Consensus Estimate in each of the last four quarters at an average rate of 85.5% (there was a spike in this year because of the pandemic)
Valuation: The shares are trading at a P/E multiple of 8.85X, which is below its median value of 10.21X over the past year. So the shares are undervalued.
The company is a developer and supplier of critical subsystems for the semiconductor capital equipment, flat panel, solar and medical device industries.
Revenue growth expected to be 24.3% and 5.7% in 2020 and 2021
Earnings growth expected to be 165.9% and 3.3% in 2020 and 2021
It has topped the Zacks Consensus Estimate in each of the last four quarters at an average rate of 39.2% (there was a spike in the last quarter because of the pandemic)
Valuation: The shares are trading at a P/E multiple of 8.64X, which is below its median value of 14.92X over the past year. So the shares are undervalued.
The company is one of the largest providers of semiconductor packaging and test services to chip manufacturers, fabless semiconductor companies and contract foundries
Zacks Rank #2
Growth Score A
Value Score A
Industry: Electronics - Semiconductors (top 36% of 250+ Zacks-classified industries)
Revenue growth expected to be 18.5% and 4.7% in 2020 and 2021
Earnings growth expected to be 78.6% and 5.0% in 2020 and 2021
It has topped the Zacks Consensus Estimate in each of the last four quarters at an average rate of 416.2% (there was a spike in the last two quarters because of the pandemic)
Valuation: The shares are trading at a P/E multiple of 10.91X, which is below its median value of 14.83X over the past year. So the shares are undervalued.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Image: Bigstock
How to Select Growth Stocks In Uncertain Times
A growing company is one that expands by investing all or a substantial part of what it earns or raises into its business. It stands to reason that such a company sees opportunities to invest that money for profit.
These opportunities could be tied to the industry in which it operates, like Apple (AAPL - Free Report) or Amazon (AMZN - Free Report) , or any of the other tech leaders. These companies were able to add value to all aspects of life by increasing the efficiency of the way we do things. The industry in which they operated allowed them to multiply their gains many times over. And despite their size, their prospects don’t appear to have diminished in any way.
But, of course, not all stocks belong to the technology sector. Does that mean that they won’t enjoy the advantages that come from a growth industry? Not at all.
Our analysis of historical data shows that in most cases, around 50% of a stock’s performance is tied to the industry in which it operates. The rest could be attributed to unique offerings or competitive edge or other factors.
All these factors together would translate into strong earnings growth over time. Investors would benefit by getting in early and holding on to the shares as they appreciated over the years.
A growth stock is never easy to pick because you don’t really know for sure if the company’s unique offering or idea will actually generate the kind of growth you’re looking for. All you can do is guess at what you think makes sense. Or consult the experts, i.e. the brokers, since they’ve been around to see the markets evolve.
These broker opinions reach us through earnings estimates and estimate revisions. The estimates are averaged in the Zacks Consensus Estimate and also drive a stock’s Zacks Rank.
Further, a company’s ability to meet or exceed the Zacks Consensus is seen from its history of surprises. When a company generates positive surprises more often than not, it is likely to do so in the future as well. This usually happens when management is in the habit of providing conservative guidance and estimates are built on top of those.
But in uncertain times like the present, when we have a raging pandemic on our hands, a vaccine that looks several months away and elections around the corner, one needs to be that much more careful when selecting growth stocks.
One additional measure is to check the financial leverage. A certain amount of debt may not be a bad thing, especially when it’s obtained at reasonable rates. But a high debt load always increases the risk of the investment and increases costs. So it may be a good idea to keep debt low.
The other thing is the valuation. I know that growth stocks will appreciate over time. But it doesn’t hurt to err on the side of caution.
With these goals in mind, I’ve put together a list of stocks that might be worth considering-
Best Buy Co., Inc. (BBY - Free Report)
Best Buy multinational specialty retailer of consumer electronics, home office products, entertainment software, communication, food preparation, wellness, heath, security, appliances and related services.
Zacks Rank #2
Growth Score A
Value Score B
Industry: Retail - Consumer Electronics (top 12% of 250+ Zacks-classified industries)
Revenue growth expected to be 3.8% and 2.3% in 2020 and 2021
Earnings growth expected to be 17.3% and 2.8% in 2020 and 2021
It has topped the Zacks Consensus Estimate in each of the last four quarters at an average rate of 33.5% (there was a spike in this year because of the pandemic)
Valuation: On the basis of price to forward 12 months’ earnings (P/E), the shares are trading at 14.84X, which is closer to its median value of 14.16X than the high of 18.83X over the past year. So there should be upside from these levels.
Sonic Automotive, Inc. (SAH - Free Report)
A leading automotive retailer, Sonic sells new and used cars and light trucks, replacement parts, and aftermarket automotive products as well as maintenance and repair services.
Zacks Rank #1
Growth Score A
Value Score A
Industry: Automotive - Retail and Whole Sales (top 1% of 250+ Zacks-classified industries)
Revenue growth expected to be -6.0% and 14.0% in 2020 and 2021
Earnings growth expected to be 29.8% and 21.5% in 2020 and 2021
It has topped the Zacks Consensus Estimate in each of the last four quarters at an average rate of 57.8% (there was a spike in this year because of the pandemic)
Valuation: The shares are trading at a P/E multiple of 9.98X, which is below its median value of 11.44X over the past year. So the shares are undervalued.
AutoNation, Inc. (AN - Free Report)
AutoNation is the largest automotive retailer in the United States, operating 325 new vehicle franchises. Its stores also offer vehicle parts, extended service contracts, vehicle protection products and other aftermarket products.
Zacks Rank #1
Growth Score A
Value Score A
Industry: Automotive - Retail and Whole Sales (top 1% of 250+ Zacks-classified industries)
Revenue growth expected to be -6.5% and 4.9% in 2020 and 2021
Earnings growth expected to be 20.0% and 11.6% in 2020 and 2021
It has topped the Zacks Consensus Estimate in each of the last four quarters at an average rate of 85.5% (there was a spike in this year because of the pandemic)
Valuation: The shares are trading at a P/E multiple of 8.85X, which is below its median value of 10.21X over the past year. So the shares are undervalued.
Ultra Clean Holdings, Inc. (UCTT - Free Report)
The company is a developer and supplier of critical subsystems for the semiconductor capital equipment, flat panel, solar and medical device industries.
Zacks Rank #1
Growth Score B
Value Score A
Industry: Electronics - Manufacturing Machinery (top 14% of 250+ Zacks-classified industries)
Revenue growth expected to be 24.3% and 5.7% in 2020 and 2021
Earnings growth expected to be 165.9% and 3.3% in 2020 and 2021
It has topped the Zacks Consensus Estimate in each of the last four quarters at an average rate of 39.2% (there was a spike in the last quarter because of the pandemic)
Valuation: The shares are trading at a P/E multiple of 8.64X, which is below its median value of 14.92X over the past year. So the shares are undervalued.
Amkor Technology, Inc. (AMKR - Free Report)
The company is one of the largest providers of semiconductor packaging and test services to chip manufacturers, fabless semiconductor companies and contract foundries
Zacks Rank #2
Growth Score A
Value Score A
Industry: Electronics - Semiconductors (top 36% of 250+ Zacks-classified industries)
Revenue growth expected to be 18.5% and 4.7% in 2020 and 2021
Earnings growth expected to be 78.6% and 5.0% in 2020 and 2021
It has topped the Zacks Consensus Estimate in each of the last four quarters at an average rate of 416.2% (there was a spike in the last two quarters because of the pandemic)
Valuation: The shares are trading at a P/E multiple of 10.91X, which is below its median value of 14.83X over the past year. So the shares are undervalued.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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