Forecasts for the global economy remain disjointed. While some analysts believe the markets are in store for a rebound, others only see doom and gloom. To be sure, there is no clear answer.
Considering the uncertainties and the potential for "doom and gloom," we wanted to explore growth stock ideas that could be used as a hedge against an economic slowdown.
To create the list below, we started with a universe of about 150 growth stocks. By this we mean all of the stocks mentioned below have seen their earnings per share grow by more than 20% over the last five years.
In addition, Wall Street analysts project rapid earnings growth over the next five years for these stocks.
The DuPont equation
Next, we collected data on profitability sources. One of analysts' favorite profitability tools is DuPont analysis -- it's a way to look at changes in return on equity (ROE) profitability (i.e., net income/equity) by attributing those changes to certain sources. Some of the sources are more sustainable than others, thereby giving an analysis of strength in increasing profitability.
DuPont analysis breaks up a company's ROE into three components: net margin, asset turnover, and leverage. Companies with increasing net margin, increasing asset turnover, and decreasing leverage are viewed favorably.
Companies passing all requirements are thus experiencing increasing profits due to operations and not to increased use of leverage.
Do you think these companies have strong enough profitability to withstand whatever the market has in store?
List sorted by change in ROE. (Click here to access free, interactive tools to analyze these ideas.)
1. Constant Contact
2. OYO Geospace
4. Questcor Pharmaceuticals
5. Rackspace Hosting
6. DXP Enterprises
9. OSI Systems
10. Standard Motor Products
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Rebecca Lipman does not own any of the shares mentioned above. ROE data sourced from Google Finance. All other data sourced from Finviz.