I've never been able to understand people who complain when the Postal Service increases the price of a first-class stamp. Just think for a second what a single stamp buys you. Let's say I wanted to send a letter from my home in Washington, D.C., to someone in Holden, Mass. I drop the letter in a blue mailbox in D.C. and then someone comes and picks it up and delivers it to a local post office. The letter is then picked up by someone else who drives it to the airport where it is flown 450 miles to Boston. Yet another person then drives it approximately 50 miles to a post office in Holden where a final carrier takes the letter and delivers it straight to the address on the envelope. Door-to-door service in two or three days for a mere $0.39. Is there a better value out there nowadays?
There may well be an equally attractive value in the world of investing. Imagine that you are given 11 unique stock recommendations from 11 analysts, each of whom looks at hundreds of stocks a year. Consider also that each recommendation is accompanied by a 3,000-word report explaining the rationale behind the particular selection, and that each write-up has been vetted and analyzed in advance by a nine-person research team. Oh yeah, and we throw in a bonus fund recommendation, too.
Tomorrow's great success stories
The investing product in question exists. It is called Stocks 2006, and you can get it for approximately the same price you'd pay for an average ticket to an NFL game. If you are interested in identifying great companies with outstanding growth prospects, this year's report has some great ideas for you.
As one of the writers for this year's report, I recommended an energy services company that was able to grow its net income by more than 268% during the most recent quarter while retaining a reasonable valuation. Another analyst, who is one of our most prolific writers, selected a high-flying retailer that is currently available at a very attractive price. Ultimately, you will find the several of tomorrow's great success stories in Stocks 2006.
Don't believe me? Let's take a look at the recent past. Now, I could point to the fact that our report has handily beaten the market from 2002 through 2004. I could also emphasize the returns of such past selections as Quality Systems, which is up 667% since it was selected back in 2003, or ValueClick, which is up 592% since it was selected back in 2002.
To be fair, I would also note that we underperformed the market slightly in 2005, and that Elan (NYSE:ELN), a 2001 selection, is down almost 80%. (However, the Irish biotech has staged a remarkable rally since its precipitous decline in the spring of 2005.)
Companies with 20%-plus growth rates
But I don't want to focus on overall returns or highlight a few extreme winners or losers. No, the real value of the report lies in its ability to identify great companies early on in their growth cycles. Companies such as Cheesecake Factory (NASDAQ:CAKE), Chico's (NYSE:CHS), and Wright Medical (NASDAQ:WMGI) represent the types of companies our analysts look for each year. The following chart illustrates the future five-year annualized growth rates for these companies. To gain some additional perspective on how impressive their growth rates are, the comparable figures for such blue-chip stalwarts as Johnson & Johnson (NYSE:JNJ) and ExxonMobil (NYSE:XOM) have been included.
| CAKE | CHS | WMGI | JNJ | XOM | |
|---|---|---|---|---|---|
| 20.7 | 25.4 | 21 | 11 | 5.2 |
Back to the future
Last year, I chose to invest in only one of the companies presented in Stocks 2005, a small manufacturer of ceramic products and components named Ceradyne (NASDAQ:CRDN). That particular selection is up almost 60% since I purchased it last February.
All too often investors emphasize past performance when evaluating possible investment opportunities. The value of a stock, however, very much depends on future cash flows. That's why looking at future growth rates is so important. In the case of Ceradyne, analysts estimate EPS growth of 20% per year over the next five years. For those investors who wish to examine those numbers on their own, Yahoo! Finance provides a growth estimates table under the Analysts Estimates tab.
As a writer and editor of this year's report and a satisfied customer of last year's edition, I believe that Stocks 2006 is perhaps the best place to look for tomorrow's great growth companies. And the price is right, too. For more information on the report, click here.
Growth rates are provided by Capital IQ.
John Reeves, who credits the comedian Jimmy Tingle with the amusing insight about the Post Office, owns shares in Ceradyne and Johnson & Johnson. Quality Systems is a Motley Fool Stock Advisor pick. The Fool has a disclosure policy.
