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Investing in Growth Remains Solid Strategy: 4 Picks
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With all the talk about volatility in the final months of the year and into 2021, some of us may be thinking that value investing is the only way to go. After all, when you’re in a big well-known stock of a company that has been around for donkeys’ years and extremely unlikely to go out of business any time soon, there’s a certain comfort in putting your money there.
But that is not necessarily the place that will earn you big returns. True, you may earn some regular income by way of dividends that you may be satisfied with, if you’re older and increasingly, risk averse.
Investing goes hand in hand with a certain amount of risk however, and there’s even a formula that says your earnings potential is directly proportional to the amount of risk you take. But does that mean you automatically jump into risky stocks? Of course not.
An investor’s goal is to take calculated risks based on a company’s offerings, its scope for differentiation, its ability to wrest market share or beat the competition, growth prospects of the industry in which it operates, all of which are melted down into its historical performance.
In general, if a company’s historical performance has been satisfactory, it will have cash on hand, and depending on the growth prospects, not more than a reasonable level of debt.
Analysts are also very likely to be upbeat on these stocks. So you will likely see both sales and earnings estimates moving up. In general, revenue estimates don’t rise as much as earnings estimates, as companies continue to focus on greater fall-through to the bottom line with cost efficiencies and other measures. But the sales growth projection is important for growth stocks because it indicates continuity in demand.
So if you really want to make big gains, you have to be prepared to jump into stocks opportunistically, when they look cheap, as they are likely to be in both a market correction and an environment of volatility. That’s what had me picking these solid growth stocks today-
This sleep innovation company provides customized mattresses while its marketing team builds long-term relationships for repeat purchases.
Zacks Rank #1
Growth Score A
Industry: Furniture (top 37%)
The 2020 sales growth estimate is currently 8.1%, the 2021 growth estimate is 4.7%.
The company’s reported earnings topped the Zacks Consensus Estimate by 77.2% in the September quarter on revenue that exceeded slightly.
The earnings estimates for 2020 and 2021 increased a respective $1.30 (47.1%) and 91 cents (27.9%) seven days ago.
The long-term earnings growth estimate increased 282.5% in the last 4 weeks.
Valuation: On a price to forward 12 months’ earnings (P/E) basis, SNBR trades at 16.16X, which is below its median value over the past year of 16.59X. So the shares are undervalued.
The company provides mattresses, adjustable bases, pillows and other sleep and relaxation products.
Zacks Rank #1
Growth Score A
Industry: Retail - Home Furnishings (top 3%)
The 2020 sales growth estimate is currently 15.6%, the 2021 growth estimate is 7.2%.
The company’s reported earnings topped the Zacks Consensus Estimate by 34.9% in the September quarter on revenue that exceeded by 5.5%.
The earnings estimates for 2020 and 2021 increased a respective 69 cents (11.8%) and 62 cents (9.0%) in the last seven days.
The long-term earnings growth estimate increased 23.8% in the last 4 weeks.
Valuation: On a forward P/E basis, TPX currently trades at a 12.99X multiple, which is below the median value of 15.67X. So the shares are undervalued.
Laboratory Corporation of America Holdings (LH - Free Report)
The company is a leading healthcare diagnostics company, providing comprehensive clinical laboratory services and end-to-end drug development support.
Zacks Rank #1
Growth Score A
Industry: Medical - Dental Supplies (top 40%)
The 2020 sales growth estimate is currently 14.7%, the 2021 growth estimate is 4.3%.
The company’s reported earnings topped the Zacks Consensus Estimate by 59.0% in the September quarter on revenue that exceeded by 4.7%.
The earnings estimate for 2020 increased 48 cents seven days ago and another $4.03 (27.3%) since then. The estimate for 2021 increased 54 cents seven days ago and another $3.18 (21.3%) since then.
The long-term earnings growth estimate increased 18.0% in the last 4 weeks.
Valuation: On a P/E basis, the shares are trading at a multiple of 11.57X, which is below the median value of 14.28X. So the shares are undervalued.
Gerdau is the largest long steel producer in Latin America.
Zacks Rank #1
Growth Score A
Industry: Steel – Producers (top 44%)
The 2020 sales growth estimate is currently -26.7% (the estimate hasn’t been updated after the last earnings report), the 2021 growth estimate is 14.6%.
The company’s reported earnings topped the Zacks Consensus Estimate by 820.0% in the September quarter on revenue that exceeded by 9.5%.
The earnings estimate for 2020 increased by 3 cents seven days ago and another 2 cents (10.0%) since then. The estimate for 2021 increased 6 cents seven days ago and another 2 cents (7.1%) since then.
The long-term earnings growth estimate increased 47.4% in the last 4 weeks.
Valuation: On a price to forward sales (P/S) basis, the company currently trades at a multiple of 0.94X, which is between its median of 0.77X and annual high of 0.98X. So there’s a chance of further upside.
Zacks’ Single Best Pick to Double
From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.
With users in 180 countries and soaring revenues, it’s set to thrive on remote working long after the pandemic ends. No wonder it recently offered a stunning $600 million stock buy-back plan.
The sky’s the limit for this emerging tech giant. And the earlier you get in, the greater your potential gain.
Image: Bigstock
Investing in Growth Remains Solid Strategy: 4 Picks
With all the talk about volatility in the final months of the year and into 2021, some of us may be thinking that value investing is the only way to go. After all, when you’re in a big well-known stock of a company that has been around for donkeys’ years and extremely unlikely to go out of business any time soon, there’s a certain comfort in putting your money there.
But that is not necessarily the place that will earn you big returns. True, you may earn some regular income by way of dividends that you may be satisfied with, if you’re older and increasingly, risk averse.
Investing goes hand in hand with a certain amount of risk however, and there’s even a formula that says your earnings potential is directly proportional to the amount of risk you take. But does that mean you automatically jump into risky stocks? Of course not.
An investor’s goal is to take calculated risks based on a company’s offerings, its scope for differentiation, its ability to wrest market share or beat the competition, growth prospects of the industry in which it operates, all of which are melted down into its historical performance.
In general, if a company’s historical performance has been satisfactory, it will have cash on hand, and depending on the growth prospects, not more than a reasonable level of debt.
Analysts are also very likely to be upbeat on these stocks. So you will likely see both sales and earnings estimates moving up. In general, revenue estimates don’t rise as much as earnings estimates, as companies continue to focus on greater fall-through to the bottom line with cost efficiencies and other measures. But the sales growth projection is important for growth stocks because it indicates continuity in demand.
So if you really want to make big gains, you have to be prepared to jump into stocks opportunistically, when they look cheap, as they are likely to be in both a market correction and an environment of volatility. That’s what had me picking these solid growth stocks today-
Sleep Number Corporation (SNBR - Free Report)
This sleep innovation company provides customized mattresses while its marketing team builds long-term relationships for repeat purchases.
Zacks Rank #1
Growth Score A
Industry: Furniture (top 37%)
The 2020 sales growth estimate is currently 8.1%, the 2021 growth estimate is 4.7%.
The company’s reported earnings topped the Zacks Consensus Estimate by 77.2% in the September quarter on revenue that exceeded slightly.
The earnings estimates for 2020 and 2021 increased a respective $1.30 (47.1%) and 91 cents (27.9%) seven days ago.
The long-term earnings growth estimate increased 282.5% in the last 4 weeks.
Valuation: On a price to forward 12 months’ earnings (P/E) basis, SNBR trades at 16.16X, which is below its median value over the past year of 16.59X. So the shares are undervalued.
Tempur Sealy International, Inc. (TPX - Free Report)
The company provides mattresses, adjustable bases, pillows and other sleep and relaxation products.
Zacks Rank #1
Growth Score A
Industry: Retail - Home Furnishings (top 3%)
The 2020 sales growth estimate is currently 15.6%, the 2021 growth estimate is 7.2%.
The company’s reported earnings topped the Zacks Consensus Estimate by 34.9% in the September quarter on revenue that exceeded by 5.5%.
The earnings estimates for 2020 and 2021 increased a respective 69 cents (11.8%) and 62 cents (9.0%) in the last seven days.
The long-term earnings growth estimate increased 23.8% in the last 4 weeks.
Valuation: On a forward P/E basis, TPX currently trades at a 12.99X multiple, which is below the median value of 15.67X. So the shares are undervalued.
Laboratory Corporation of America Holdings (LH - Free Report)
The company is a leading healthcare diagnostics company, providing comprehensive clinical laboratory services and end-to-end drug development support.
Zacks Rank #1
Growth Score A
Industry: Medical - Dental Supplies (top 40%)
The 2020 sales growth estimate is currently 14.7%, the 2021 growth estimate is 4.3%.
The company’s reported earnings topped the Zacks Consensus Estimate by 59.0% in the September quarter on revenue that exceeded by 4.7%.
The earnings estimate for 2020 increased 48 cents seven days ago and another $4.03 (27.3%) since then. The estimate for 2021 increased 54 cents seven days ago and another $3.18 (21.3%) since then.
The long-term earnings growth estimate increased 18.0% in the last 4 weeks.
Valuation: On a P/E basis, the shares are trading at a multiple of 11.57X, which is below the median value of 14.28X. So the shares are undervalued.
Gerdau S.A. (GGB - Free Report)
Gerdau is the largest long steel producer in Latin America.
Zacks Rank #1
Growth Score A
Industry: Steel – Producers (top 44%)
The 2020 sales growth estimate is currently -26.7% (the estimate hasn’t been updated after the last earnings report), the 2021 growth estimate is 14.6%.
The company’s reported earnings topped the Zacks Consensus Estimate by 820.0% in the September quarter on revenue that exceeded by 9.5%.
The earnings estimate for 2020 increased by 3 cents seven days ago and another 2 cents (10.0%) since then. The estimate for 2021 increased 6 cents seven days ago and another 2 cents (7.1%) since then.
The long-term earnings growth estimate increased 47.4% in the last 4 weeks.
Valuation: On a price to forward sales (P/S) basis, the company currently trades at a multiple of 0.94X, which is between its median of 0.77X and annual high of 0.98X. So there’s a chance of further upside.
Zacks’ Single Best Pick to Double
From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.
With users in 180 countries and soaring revenues, it’s set to thrive on remote working long after the pandemic ends. No wonder it recently offered a stunning $600 million stock buy-back plan.
The sky’s the limit for this emerging tech giant. And the earlier you get in, the greater your potential gain.
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