Hunting for Growth Stocks: 10 Possible Names

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As always, these stocks should NOT be viewed as recommendations; rather they represent my market analysis based on the screening criteria chosen. You’ll need to do your own due diligence to determine whether any of these are attractive investment candidates for you.

The exercise left us with ten stocks to examine, and, fortunately, they come from five different economic sectors. The market is up about 3% over the past three months, and these stocks range from +5% to as high as 50%, but most are within 10% of the market’s move. One observation: The market doesn’t have a lot of confidence that growth is sustainable for several of these companies, as the P/E ratios for the Tech and Materials names are all below 11X.

I am not familiar with Gulfport (GPOR), an E&P company focused on offshore Louisiana and in the Permian Basin in Texas as well as Thailand, the Bakken Formation and the Alberta Oil Sands. Part of the recent excitement might be their acquisition in 2010 in the Niobara Formation in Colorado. Typically smaller E&P companies are more focused than this one appears to be. 

I purchased Franklin Resources (BEN) for both of my model portfolios in December and added recently to the position during the pullback in March. It’s loaded with cash and may become more aggressive on reducing share count. This is the largest publicly-traded investment manager and, I believe, stands poised to benefit from increasing interest in global investing. The company is very strong in fixed-income too, and concerns about the bond market have left the stock inexpensive in my view. I don’t know Waddell & Reed (WDR) as well, but they command a higher valuation due to their higher equity exposure. I expect this entire industry to do well with changing demographics and the recovering assets values.

While I am not familiar with Acacia Research Corp (ACTG), I find Nordson (NDSN) a very high-quality company. ACTG owns and licenses 171 patents across a wide variety of industries. The company has just 48 employees. Their growth has been a function of adding new patent portfolios. Inside ownership is almost 5%. NDSN is focused on equipment used to apply adhesives and coatings. The company recently brought in an outside CEO from Air Products & Chemicals. Earnings, margins and sales have all soared to new highs recently. Interestingly, ¾ of its sales are from outside the United States. Both of these seem worth investigating further.

The four Technology names are very similar in several ways. First, they all cater to the semiconductor industry. Rubicon (RBCN) is more specialized, as it makes sapphire wafers specifically for LEDs and opto-electronics, while the other three make equipment used in the manufacturing of semiconductors. Second, if you check the last column of the table above, none of these companies are expected to grow EPS in 2012. I don’t believe that to be anything beyond extreme caution by the analyst community, but clearly, if correct, it helps explain the low valuation. Finally, adjusting for cash, each of these trades at less than 10 P/E. I follow AMAT and own it in one of my models. It pays a nice dividend and has exposure to the solar industry too. The last 10 years have been bumpy, but the sales levels have finally returned to the highs of 2000.

The last name that made the cut is Cliffs Natural Resources (CLF), which makes iron ore pellets and mines metallurgical coal. The company got its start in 1847. The big driver here has been the growth in global steel production. Like the four technology companies, the very low P/E here suggests that investors believe the recent move has been cyclical. This one may be a good contrarian investment. 

Hopefully I have given you a few ideas to ponder. I like AMAT and BEN, obviously, and a few others merit further attention. Remember, screening is only a first step. Before investing, you should do your own investigation to identify risks and potential opportunities.

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