Investments that have enjoyed long-term success almost assuredly share at least one thing in common -- growth. Very few companies have produced good returns for shareholders without being able to increase their earnings as well.
Dividends aside, investors reap their gains when a company's stock price goes up. The stock price is typically driven by two levers: earnings, and the multiple that investors are willing to pay for those earnings. Earnings multiples tend to fluctuate within a certain range, so long-term investors should maintain a keen focus on the company's ability to increase earnings.
Does that seem too simple? Sometimes, keeping it simple can be a good plan. 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-plus members of the Motley Fool's CAPS community think of the company's prospects.
|
Company |
Expected growth |
Forward P/E (next fiscal year) |
CAPS rating (Max 5) |
|---|---|---|---|
|
Wal-Mart Stores |
11.6% |
12.9 |
*** |
|
NYSE Euronext |
12% |
10.7 |
***** |
|
Microsoft |
10.2% |
11.2 |
*** |
|
State Street |
11.2% |
8.2 |
** |
|
Walgreen |
12% |
13.7 |
**** |
Source: Yahoo! Finance and CAPS.
Wall Street analysts aren't known for their supernatural forecasting prowess, 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 get you started with some thoughts on NYSE Euronext.
Feeding the growth
When I think about the NYSE, equities that come to mind -- which shouldn't be all that surprising. After all, the company traces its roots as a stock exchange back to the Buttonwood Agreement in 1792. Though the company undoubtedly faces some tough competition from fellow U.S. exchange Nasdaq OMX
But while it certainly can realize some growth by adding new equity listings -- particularly as NYSE extends its tentacles abroad -- the company is expanding in other directions as well. NYSE picked up options platforms with the acquisitions of Archipelago, AMEX, and Liffe (which came with Euronext).
NYSE has also added other derivative capabilities, such as worldwide currencies, stock futures, and some agricultural commodities. And thanks to an acquisition from CME Group
Calling all bulls
Increasing competition not only from Nasdaq, but also smaller upstarts like BATS Exchange, has cast a pall over NYSE over the past few years, as investors worried that rivals would squeeze NYSE and its fat margins. While there's certainly truth to that concern -- after all, the more monopolistic your position, the better -- there's still a lot to be said for having the size, reach, experience, and reputation that NYSE does.
The CAPS community has taken a bullish stance on NYSE's stock, awarding it a perfect five star rating, with a total of 2,480 outperform ratings and only 84 underperform calls. CAPS All-Star Allstar13913 gave the stock a thumbs-up back in February 2007, summing it up with:
People need a place to make trades. And nothing is more prestigous than the New York Stock Exchange. With the new automation and future acquistions, I can't see this stock going anywhere but up.
The stock has actually underperformed since Allstar13913 made that call, but I believe the business case was right, even if the valuation at the time wasn't the best. Back in March, I rated NYSE an outperformer, and I've caught a pretty sweet 50% move since then against the S&P 500's 23% gain. Despite that heady climb, the stock's current valuation and dividend yield, along with the potential for the business, makes me want to keep my thumb up on this one.
But what do you think?
Do NYSE Euronext and the other stocks listed have what it takes to post solid growth in this economy? Or have analysts been too optimistic? Currently, there are more than 130,000 members of the free CAPS community sharing their opinions on thousands of stocks. Head over to CAPS and let the community know what you think of NYSE Euronext, or any of the other candidates listed above.
We tip our CAPS to further Foolishness:
