As we approach the end of 2016, investors may be looking for ways to rebalance their portfolios for the coming year. If you're looking for some growth stock candidates to consider investing in, here are three potential companies to look at: IPG Photonics (NASDAQ:IPGP), Brookfield Asset Management (NYSE:BAM), and Netflix (NASDAQ:NFLX).
Drill down on a red-hot laser stock
Dan Caplinger (IPG Photonics): The laser industry has been a hotbed of growth activity lately, with lasers finding their way into many new applications. IPG Photonics has taken full advantage of those growth opportunities, with a vertically integrated model that involves the company building many of its own components in order to maintain competitive advantages against its peers. In its most recent quarter, IPG posted record revenue, and the company's high-power fiber lasers and its materials processing business are doing extraordinarily well.
What makes IPG Photonics particularly interesting right now is that throughout much of the world, economic conditions are far from ideal for potential customers looking to use lasers more extensively in their own businesses. With applications ranging from cutting and welding to communications and networking, IPG has a strong position in what will only become an even more important industry over the long haul. In fact, it's likely because of growth sluggishness in certain parts of the world that IPG Photonics trades at just 18 times forward earnings estimates, which is attractively inexpensive for a growth stock. As long as lasers keep gaining in popularity, IPG Photonics should be able to produce long-term growth for shareholders.
Boring investment, exciting growth
Matt DiLallo (Brookfield Asset Management): Sometimes the most boring investments turn out to be the greatest growth stocks. That certainly has been the case of alternative asset manager Brookfield Asset Management. Over the past two decades the property, power, private equity, and infrastructure company has delivered an 18% compound annual return. However, it appears poised for even stronger returns in the next five years, with its base case for growth implying a 22% annual increase in the intrinsic value of its stock.
Three factors are driving Brookfield's forecast for future growth. First, the company believes it can achieve 17% compound annual growth in the fees it collects from assets under management. Propelling that growth is the expected addition of two more series of flagship funds and the expectation that it can nearly double the enterprise value of its four listed partnerships via acquisitions and embedded organic growth initiatives. Second, the company estimates that it can increase the carried interest it earns from managing its private equity and hedge funds by a similar 17% compound annual rate. Finally, Brookfield invests a substantial portion of its balance sheet into its funds and listed partnerships. It expects that capital to earn 13.5% compound annual returns at the midpoint as its investments hit their target objectives.
Add it up, and the company sees these rising earnings streams and asset values pushing the intrinsic value of its stock up to $92 per share by 2021:
Any propretiery analysis like this, even from professionals such as Brookfield, should be taken with a grain of salt. However, the above case points to some pretty enticing growth for a rather unexciting business no matter how you slice it.
Streaming is here to stay
Evan Niu, CFA (Netflix): It may seem odd to advocate buying any stock near all-time highs, but that's exactly what I'm going to do. Netflix shares soared following its third-quarter earnings release a couple weeks ago, which were driven by strong subscriber gains that came in above the company's expectations. Fourth-quarter guidance also called for another 5.2 million global subscriber additions. The strong subscriber numbers are a testament to the quality of Netflix's original programming strategy, and Netflix specifically attributed the strength to Stranger Things and Narcos season 2.
Netflix is still very much in growth mode. Revenue jumped 32% to $2.3 billion, but operating leverage allowed the bottom line to soar by 75% to $51.5 million. The company will continue investing heavily in original content to drive member growth, and it just raised a cool $1 billion in debt to help fund those content investments. Netflix says it plans on releasing over 1,000 hours of original content in 2017, up from 600 hours in 2016.
There should be little doubt that streaming internet TV is here to stay, and Netflix has fashioned itself into a clear market leader.
Dan Caplinger has no position in any stocks mentioned. Evan Niu, CFA owns shares of Netflix. Matt DiLallo owns shares of Brookfield Asset Management. Matt DiLallo has the following options: long January 2018 $85 calls on Netflix, short January 2018 $85 puts on Netflix, and short June 2017 $105 calls on Netflix. The Motley Fool owns shares of and recommends IPG Photonics and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.