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These are exciting times to be investing in the stock market.
We have a new presidency that is expected to change the government’s stand on a large number of things including tech regulation, taxes, the China standoff, immigration and the environment, to name just a few, off the top of my head. That means much more than just the broader economy waking up after vaccination.
Then we have the vaccination itself, which should reach more people once the initial hiccups in distribution get ironed out, expected in the second half of the year. And once that happens, we will see a boom.
We have a really robust tech sector that should continue to expand despite whatever steps the government takes against monopolistic practices of the large-cap leaders. Semis particularly, but also cloud and security will be going through the roof, as the work from home trend continues.
Add to that the record-low interest rates and record-high investor liquidity from increased savings and government stimulus. When coupled with the pent-up desire to go out and socialize at restaurants, theaters, entertainment parks, you name it, (which also means increased spending on clothes, accessories, shoes, etc), it looks like a solid spending environment.
And then there are stocks. With the market outlook being so great there’s no way investors are going to pass up the opportunity to ride the wave.
Which brings us to the question of stock picking. And of trying to figure out the best way to maximize your gains. Of course, there’s no one magic formula to doing this. And a lot depends on your age, your investment goals, your risk appetite and the funds at your disposal. But given that you have a clear idea on all that, there are still thousands of stocks to choose from. So selecting the right one can be daunting task.
At Zacks, we can make this task a bit easier with our stock and industry ranking systems. Because we’ve seen historically that stocks with a #1 (Strong Buy) or #2 (Buy) ranking that operate in the first 50% of 250+ Zacks-classified industries tend to do better than others. When you consider that about half a stocks appreciation is related to the group that it’s in, this can be a great way to narrow down your choices.
But of course, it won’t be enough, because narrowing down in this way will still leave you with hundreds of names, some of which you won’t even be familiar with. At all.
That’s when your personal goals will come into play. So let’s assume that you are interested in stocks that have good growth potential, even if there’s a certain amount of risk involved. You’re not that old, or you’re satisfied with what you’ve done for retirement, and you basically want to see some growth with your available funds.
Of course that doesn’t mean you don’t play to win. It’s never a good idea to make losses and then make good those losses. Not making losses is always the best plan.
So what is the kind of thing you should be looking for? The Zacks Style Score for Growth is an indicator, but there are other things you should be looking at as well.
For growth seekers, the first thing to always keep in mind is revenue growth, the top line number. I know, at times, double- or triple-digit bottom line growth can look like something to die for. But let’s understand what growth stocks really are. These are companies that are investing what they earn, or at least a large chunk of it into their business because they have some technology/knowhow/product/platform or something that there’s big demand for.
The demand is so strong, in fact, that it makes sense to go after that potential, even if it means that they put everything they’re making or even borrow money to pursue it. So if the revenue growth isn’t there, there really isn’t growth.
Or it could be that the company is just starting out and hasn’t started selling the product, but the market potential is huge, as in the electric vehicle (EV) race where many new players are entering the market, joining established automakers that are also trying to make a mark. These will of course be riskier bets.
So assuming that you’re not pursuing riskier bets, it may be a good idea to check the track record of companies. Because the ones that have been growing revenue the last 5 years (for example) are obviously more reliable. If there has been a pickup in the last fiscal year, all the better.
Ditto for earnings.
Now, see what projections brokers have for the future. 2021 estimates are already out there and some are also providing 2022 estimates. Also check the long-term growth estimate.
By applying all these filters, I’m left with a handful of stocks that should be good growth picks. Here they are-
Taiwan Semiconductor Manufacturing Company Ltd. (TSM - Free Report)
TSM owns the world’s most advanced semiconductor processes selling foundry services to its fabless customers. Some of the world’s largest technology companies that design their own products use its services for fabrication.
It operates in the Semiconductor - Circuit Foundry industry (top 2%).
TSM has grown revenue at 9.9% over the last five years that accelerated in the last year to 31.4%. It is currently expected to grow revenue 21.3% in 2021 and 17.6% in 2022.
In the last 5 years, its earnings have grown 9.8%. It is expected to grow earnings 18.3% this year and 13.7% in the next. Its long-term growth is currently expected to be 25.6%.
The shares carry a Zacks Rank #2 and Growth Score B.
This is a manufacturer of suspension products primarily used in mountain bikes, side-by-side vehicles, on-road vehicles, off-road vehicles, all-terrain vehicles, snowmobiles, specialty vehicles and applications, and motorcycles.
It operates in the Automotive - Domestic industry (top 12%).
FOXF has grown revenue at 20.3% over the last five years that accelerated in the last year to 21.3%. It is currently expected to grow revenue 17.5% in 2021 (there are no estimates for 2022 yet).
In the last 5 years, its earnings have grown 26.19%. It is currently expected to grow earnings 19.0% this year. Brokers currently estimate its long-term growth at 13.2%.
The shares carry a Zacks Rank #2 and Growth Score B.
The company is known for its Mattresses by J.D. Power. It operates on the philosophy of customized sleeping solutions with a large number of satisfied and loyal customers.
It operates in the Furniture industry (top 13%).
SNBR has grown revenue at 8.7% over the last five years that accelerated in the last year to 10.9%. It is currently expected to grow revenue 4.7% in 2021 (there are no estimates for 2022 yet).
In the last 5 years, its earnings have grown 28.3%. It is currently expected to grow earnings 6.2% this year. Brokers currently estimate its long-term growth at 19.2%.
The shares carry a Zacks Rank #2 and Growth Score A.
This well-known home-builder from Texas makes single-family houses for entry-level and move-up buyers.
It operates in the Building Products - Home Builders industry (top 14%).
DHI has grown revenue at 13.2% over the last five years that accelerated in the last year to 15.45%. It is currently expected to grow revenue 26.3% in 2021 and 11.7% in 2022.
In the last 5 years, its earnings have grown 24.6%. It is expected to grow earnings 25.1% this year and 14.8% in the next. Brokers currently estimate its long-term growth at 12.8%.
The shares carry a Zacks Rank #2 and Growth Score A.
One of the largest used-car retailers in the United States, Americas CarMart operates its dealerships primarily in small cities and rural locations across the South-Central United States.
It operates in the Automotive - Retail and Whole Sales industry (top 17%).
CRMT has grown revenue at 7.3% over the last five years that accelerated in the last year to 11.3%. It is currently expected to grow revenue 13.9% in 2021 and 4.3% in 2022.
In the last 5 years, its earnings have grown 45.8%. It is expected to grow earnings 48.2% this year and 2.2% in the next. Brokers currently estimate that its long-term growth will be 11.6%.
The shares carry a Zacks Rank #2 and Growth Score F.
Biggest Tech Breakthrough in a Generation
Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.
A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.
Image: Bigstock
5 Growth Stocks with Tailwinds
These are exciting times to be investing in the stock market.
We have a new presidency that is expected to change the government’s stand on a large number of things including tech regulation, taxes, the China standoff, immigration and the environment, to name just a few, off the top of my head. That means much more than just the broader economy waking up after vaccination.
Then we have the vaccination itself, which should reach more people once the initial hiccups in distribution get ironed out, expected in the second half of the year. And once that happens, we will see a boom.
We have a really robust tech sector that should continue to expand despite whatever steps the government takes against monopolistic practices of the large-cap leaders. Semis particularly, but also cloud and security will be going through the roof, as the work from home trend continues.
Add to that the record-low interest rates and record-high investor liquidity from increased savings and government stimulus. When coupled with the pent-up desire to go out and socialize at restaurants, theaters, entertainment parks, you name it, (which also means increased spending on clothes, accessories, shoes, etc), it looks like a solid spending environment.
And then there are stocks. With the market outlook being so great there’s no way investors are going to pass up the opportunity to ride the wave.
Which brings us to the question of stock picking. And of trying to figure out the best way to maximize your gains. Of course, there’s no one magic formula to doing this. And a lot depends on your age, your investment goals, your risk appetite and the funds at your disposal. But given that you have a clear idea on all that, there are still thousands of stocks to choose from. So selecting the right one can be daunting task.
At Zacks, we can make this task a bit easier with our stock and industry ranking systems. Because we’ve seen historically that stocks with a #1 (Strong Buy) or #2 (Buy) ranking that operate in the first 50% of 250+ Zacks-classified industries tend to do better than others. When you consider that about half a stocks appreciation is related to the group that it’s in, this can be a great way to narrow down your choices.
But of course, it won’t be enough, because narrowing down in this way will still leave you with hundreds of names, some of which you won’t even be familiar with. At all.
That’s when your personal goals will come into play. So let’s assume that you are interested in stocks that have good growth potential, even if there’s a certain amount of risk involved. You’re not that old, or you’re satisfied with what you’ve done for retirement, and you basically want to see some growth with your available funds.
Of course that doesn’t mean you don’t play to win. It’s never a good idea to make losses and then make good those losses. Not making losses is always the best plan.
So what is the kind of thing you should be looking for? The Zacks Style Score for Growth is an indicator, but there are other things you should be looking at as well.
For growth seekers, the first thing to always keep in mind is revenue growth, the top line number. I know, at times, double- or triple-digit bottom line growth can look like something to die for. But let’s understand what growth stocks really are. These are companies that are investing what they earn, or at least a large chunk of it into their business because they have some technology/knowhow/product/platform or something that there’s big demand for.
The demand is so strong, in fact, that it makes sense to go after that potential, even if it means that they put everything they’re making or even borrow money to pursue it. So if the revenue growth isn’t there, there really isn’t growth.
Or it could be that the company is just starting out and hasn’t started selling the product, but the market potential is huge, as in the electric vehicle (EV) race where many new players are entering the market, joining established automakers that are also trying to make a mark. These will of course be riskier bets.
So assuming that you’re not pursuing riskier bets, it may be a good idea to check the track record of companies. Because the ones that have been growing revenue the last 5 years (for example) are obviously more reliable. If there has been a pickup in the last fiscal year, all the better.
Ditto for earnings.
Now, see what projections brokers have for the future. 2021 estimates are already out there and some are also providing 2022 estimates. Also check the long-term growth estimate.
By applying all these filters, I’m left with a handful of stocks that should be good growth picks. Here they are-
Taiwan Semiconductor Manufacturing Company Ltd. (TSM - Free Report)
TSM owns the world’s most advanced semiconductor processes selling foundry services to its fabless customers. Some of the world’s largest technology companies that design their own products use its services for fabrication.
It operates in the Semiconductor - Circuit Foundry industry (top 2%).
TSM has grown revenue at 9.9% over the last five years that accelerated in the last year to 31.4%. It is currently expected to grow revenue 21.3% in 2021 and 17.6% in 2022.
In the last 5 years, its earnings have grown 9.8%. It is expected to grow earnings 18.3% this year and 13.7% in the next. Its long-term growth is currently expected to be 25.6%.
The shares carry a Zacks Rank #2 and Growth Score B.
Fox Factory Holding Corp. (FOXF - Free Report)
This is a manufacturer of suspension products primarily used in mountain bikes, side-by-side vehicles, on-road vehicles, off-road vehicles, all-terrain vehicles, snowmobiles, specialty vehicles and applications, and motorcycles.
It operates in the Automotive - Domestic industry (top 12%).
FOXF has grown revenue at 20.3% over the last five years that accelerated in the last year to 21.3%. It is currently expected to grow revenue 17.5% in 2021 (there are no estimates for 2022 yet).
In the last 5 years, its earnings have grown 26.19%. It is currently expected to grow earnings 19.0% this year. Brokers currently estimate its long-term growth at 13.2%.
The shares carry a Zacks Rank #2 and Growth Score B.
Sleep Number Corp. (SNBR - Free Report)
The company is known for its Mattresses by J.D. Power. It operates on the philosophy of customized sleeping solutions with a large number of satisfied and loyal customers.
It operates in the Furniture industry (top 13%).
SNBR has grown revenue at 8.7% over the last five years that accelerated in the last year to 10.9%. It is currently expected to grow revenue 4.7% in 2021 (there are no estimates for 2022 yet).
In the last 5 years, its earnings have grown 28.3%. It is currently expected to grow earnings 6.2% this year. Brokers currently estimate its long-term growth at 19.2%.
The shares carry a Zacks Rank #2 and Growth Score A.
D.R. Horton, Inc. (DHI - Free Report)
This well-known home-builder from Texas makes single-family houses for entry-level and move-up buyers.
It operates in the Building Products - Home Builders industry (top 14%).
DHI has grown revenue at 13.2% over the last five years that accelerated in the last year to 15.45%. It is currently expected to grow revenue 26.3% in 2021 and 11.7% in 2022.
In the last 5 years, its earnings have grown 24.6%. It is expected to grow earnings 25.1% this year and 14.8% in the next. Brokers currently estimate its long-term growth at 12.8%.
The shares carry a Zacks Rank #2 and Growth Score A.
Americas CarMart, Inc. (CRMT - Free Report)
One of the largest used-car retailers in the United States, Americas CarMart operates its dealerships primarily in small cities and rural locations across the South-Central United States.
It operates in the Automotive - Retail and Whole Sales industry (top 17%).
CRMT has grown revenue at 7.3% over the last five years that accelerated in the last year to 11.3%. It is currently expected to grow revenue 13.9% in 2021 and 4.3% in 2022.
In the last 5 years, its earnings have grown 45.8%. It is expected to grow earnings 48.2% this year and 2.2% in the next. Brokers currently estimate that its long-term growth will be 11.6%.
The shares carry a Zacks Rank #2 and Growth Score F.
Biggest Tech Breakthrough in a Generation
Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.
A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.
See 8 breakthrough stocks now>>