Investments that have been successful over the long term almost assuredly share at least one thing in common -- growth. You'll find very few companies that have produced good returns for shareholders while being unable to increase their earnings.
Hansen Natural, for example, has been one of the best stocks over the past decade. That shouldn't be surprising when you consider that the company grew earnings at a compounded annual rate of around 37%. Over the same period, Laboratory Corp.'s stock has also had an impressive run, as the company managed to average annual earnings growth of almost 22%.
Does it seem too simple? Maybe keeping it simple is a good plan sometimes. After all, as Third Avenue's Marty Whitman has put it: "Based on my own personal experience -- both as an investor in recent years and an expert witness in years past -- rarely do more than three or four variables really count. Everything else is noise."
With that in mind, I've kept it simple and dug up five stocks that analysts expect will notch long-term earnings growth of 10% or better. I've also pulled up the CAPS rating for each stock to show what the 130,000-member Motley Fool CAPS community thinks of the companies' prospects.
|
Company |
Expected growth |
Forward P/E |
CAPS rating
|
|---|---|---|---|
|
Suntech Power |
28% |
15.1 |
**** |
|
Research In Motion |
22% |
14.8 |
** |
|
Transocean |
20% |
5.0 |
***** |
|
MasterCard |
16% |
13.3 |
** |
|
American Eagle Outfitters |
12% |
16.1 |
**** |
Source: Capital IQ (a division of Standard & Poor's), Yahoo! Finance, and CAPS.
Wall Street analysts aren't known for supernatural forecasting skills, so not all of these estimates may pan out. However, this list may be a good place to dig in for further research. I'll even get you started with some thoughts on Transocean.
Feeding the growth
For those not familiar with Transocean, the company is a contract off-shore driller -- a hired gun for oil and gas companies such as ExxonMobil
Past growth for Transocean has come in part by building its fleet of heavy-duty drill rigs and winning new customer contracts. However, the company grew much larger two years ago when it gobbled up competitor GlobalSantaFe for $17 billion.
Future growth, on the other hand, is expected to stem from the ever-increasing demand for oil and gas combined with the dwindling supply -- particularly in the easy-to-access on-shore supply.
Calling all bulls
When it comes to investing, too much unanimity tends to freak me out. The "hot" stock tip that everyone already knows about is often a stock tip that's either run its course or was never a good tip to begin with.
And that's what concerns me about Transocean. The stock gets a top rating of five stars on CAPS, with a total of 5,160 outperform ratings (including a vote from this Fool) trouncing just 101 underperforms. Nearly 99% of the CAPS All-Stars who have rated it have given it a thumbs-up, and every Wall Street player who has an opinion on the stock is positive. Meanwhile, the stock trades at a paltry price-to-earnings ratio of 5 on both trailing and forward earnings.
So what gives? Can Transocean really be that much of a no-brainer? I think the answer is a very solid "it depends." I'm very much on board with the long-term expectations for energy and the need for offshore drilling, but the near term for drillers doesn't seem quite as rosy. New contracts are becoming harder to sign, dayrates are declining, and rig contracts are coming under fire.
But if you're looking at Transocean as a stock to hold for years to come -- and potentially add more if the price slumps further -- this may be a good time to step in. But for anyone looking for a return in the near term, the storm clouds overhead and the lack of a catalyst to get the stock moving make it a less appealing pick. This, of course, is nearly the same conclusion that fellow Fool David Lee Smith came to a month ago.
But what do you think?
Do these stocks have what it takes to post solid growth in this economy? Or have analysts been too optimistic? There are more than 130,000 members of the free CAPS community who are sharing their opinions on more than 5,000 stocks. Head over to CAPS and let the community know what you think of Transocean or any of the other stocks listed above.
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