It was once the most hotly anticipated IPO of 2011, but Groupon is finding itself caught in a firestorm of negative investor sentiment. There have to be some better growth stocks out there! You don't need to find the next best thing if you can still get a piece of a once and future market king. With a few basic parameters, I found a bundle of stocks that are almost certain to outperform Groupon over the long run. Let's take a look at some, leaving no stone unturned as we seek out the best alternatives.
Like getting stocks at half price
My first goal was to find companies that have market caps within Groupon's expected IPO range. We're looking at a pretty hefty market cap of $12 billion here, so a lot of prime growth stocks slid beneath this bar with headroom to spare. No cash-bleeding companies expecting to book profit years down the line, either -- we want to see proof of success with positive net income, good gross margins, and rapid (if not Groupon-ly stratospheric) revenue growth. I also looked for reasonable betas, the mark of stocks less likely to overact like a teenager in a high school play. Some will be better than others, but all have a proven track record and are likely to outperform Groupon's dodgy business model.
|Omega Healthcare Investors (NYSE: OHI )||94%||20%||0.96||8%|
|Coinstar (Nasdaq: CSTR )||33%||26%||0.92||73%|
|Illumina (Nasdaq: ILMN )||66%||65%||0.37||41%|
|NVE (Nasdaq: NVEC )||69%||21%||0.70||44%|
|Yamana Gold (NYSE: AUY )||60%||105%||0.68||68%|
|EV Energy Partners (Nasdaq: EVEP )||65%||31%||0.92||249%|
|Balchem (Nasdaq: BCPC )||28%||25%||0.81||281%|
Sources: Screener.co and Google Finance.
Won't somebody think of the grandmas?
Omega hasn't seen much raw share-price growth, but its status as a REIT has meant big dividend yields that push its cumulative five-year growth (with reinvestment) to 46%. Omega's main business is nursing homes, vulnerable to political austerity and economic downturns. Although the demographics are in Omega's favor, politics may turn against it. However, the company's free cash flow is in much better shape than its net income, which is a good sign for dividend stability.
Gas up your gains
EV Energy's high P/E is backed by its own high yield. The company's stock price has been growing steadily, nearly doubling in the past year. Its top-line growth has been brisk, but profit's been erratic, and the company seems to have developed the bad habit of issuing shares to maintain dividend payments. Investors are betting that EV Energy can cash in on its Utica Shale natural gas holdings, so shouldn't that extra cash help build infrastructure? It's not as bad as Groupon management's leeching away the company's capital for personal gain, but it's a little worrisome.
Making money's in its genes
Formerly high-flying Illumina saw the wax in its wings melt after releasing terrible guidance for the rest of the year. Although genetic sequencing has tremendous potential, it's still a bit too costly for the mass market. Technology (including biotechnology) improves faster than most people think, but the future isn't here yet -- kind of like Groupon's profits. Will Illumina be able to drop its costs enough for wide adoption before Uncle Sam takes away its piggy bank? If so, this could be a discount opportunity.
NVE creates spintronics-based devices, which is a fancy word for electronics that use actual electrons to operate. Ain't science great? Very few users currently need such advanced technology, and NVE's revenue reflects that. With a P/E under 24, NVE's far more affordable than Groupon, but its recent third-quarter earnings dip spooked a few investors. If you think electrons are the wave (or rather, the particle) of the future, now might be a great time to pick up shares.
More than a red box
Coinstar gets mentioned every time Netflix stumbles. That's a good thing and a bad thing -- good because the company stands to gain from disgruntled DVD subscribers and bad because for all its convenience, Redbox has nowhere near the variety of the Red Envelope. Coinstar also has nearly 19,000 coin-counting kiosks, but these generate far less revenue than DVD rentals. The company reinvented itself once. Can it do so again if DVDs go the way of Betamax?
The gold-plated bubble
Your interest in Yamana Gold is probably tied to your interest in the yellow stuff it digs up. As long as gold prices remain high, Yamana can keep making more money. Of course, if the gold bubble is inflating, then there's a very real risk of a very hard fall. At least Yamana, unlike Groupon, has something people are always looking to buy. No need for discounts on these rocks.
I can smell the chemicals
Balchem, one of our Motley Fool Stock Advisor picks, is part of an elite group of high-performing companies that have grown annual earnings by 20% while maintaining 15% return on equity for three years. By offering nutritional supplements for both animals and humans, Balchem covers a much broader spectrum of the food chain. It also produces antibacterial solutions, preservatives, pharmaceutical additives, and a generally broad range of specialty chemicals that make our lives healthier. The world needs Balchem's products much more than another Groupon for pedicures, and with decades of history, Balchem's a much better buy.
Foolish final thought
All of these companies have proved themselves in the past few years. Some, like Balchem, should continue to shine over the long run. There's more to success than hype and promise -- a valuable business niche with barriers to easy entry will help to ensure that your chosen stocks keep growing. If you're still eager to add a recent IPO to your portfolio, why not take a look at The Motley Fool's free report on the hottest IPO of 2011?