Forecasts for the global economy remain disjointed. While some analysts believe the markets are in store for a rebound, others only see doom and gloom. To be sure, there is no clear answer.
Considering the uncertainties and the potential for "doom and gloom," we wanted to explore growth stock ideas that could be used as a hedge against an economic slowdown.
To create the list below, we started with a universe of about 150 growth stocks. By this we mean all of the stocks mentioned below have seen their earnings per share grow by more than 20% over the last five years.
In addition, Wall Street analysts project rapid earnings growth over the next five years for these stocks.
The DuPont equation
Next, we collected data on profitability sources. One of analysts' favorite profitability tools is DuPont analysis -- it's a way to look at changes in return on equity (ROE) profitability (i.e., net income/equity) by attributing those changes to certain sources. Some of the sources are more sustainable than others, thereby giving an analysis of strength in increasing profitability.
DuPont analysis breaks up a company's ROE into three components: net margin, asset turnover, and leverage. Companies with increasing net margin, increasing asset turnover, and decreasing leverage are viewed favorably.
Companies passing all requirements are thus experiencing increasing profits due to operations and not to increased use of leverage.
The list
Do you think these companies have strong enough profitability to withstand whatever the market has in store?
List sorted by change in ROE. (Click here to access free, interactive tools to analyze these ideas.)
1. Constant Contact (Nasdaq: CTCT): Provides on-demand email marketing, social media marketing, event marketing, and online survey solutions primarily in the United States. Market cap of $739.93M. The company's earnings per share have grown by 95.36% over the last five years, and Wall Street analysts project the company's earnings to grow by 40.6% over the next five years. MRQ Net Profit Margin increased to 9.84% from 6.56% year-over-year, Sales/Assets increased to 0.29 from 0.28, while Assets/Equity decreased to 1.32 from 1.36.
2. OYO Geospace (Nasdaq: OYOG): Engages in designing and manufacturing instruments and equipments used in the acquisition and processing of seismic data; and in the characterization and monitoring of producing oil and gas reservoirs. Market cap of $550.86M. The company's earnings per share have grown by 39.11% over the last five years, and Wall Street analysts project the company's earnings to grow by 37% over the next five years. MRQ Net Profit Margin increased to 19.86% from 14.40% year-over-year, Sales/Assets increased to 0.23 from 0.22, while Assets/Equity decreased to 1.18 from 1.24.
3. CEVA (Nasdaq: CEVA): CEVA and its subsidiaries engage in designing and licensing silicon intellectual property (SIP) for the handsets, portable multimedia, and consumer electronics markets. Market cap of $661.43M. The company's earnings per share have grown by 48.73% over the last five years, and Wall Street analysts project the company's earnings to grow by 29.59% over the next five years. MRQ Net Profit Margin increased to 33.20% from 28% year-over-year, Sales/Assets increased to 0.07 from 0.06, while Assets/Equity decreased to 1.09 from 1.11.
4. Questcor Pharmaceuticals (Nasdaq: QCOR): Provides prescription drugs for central nervous system and inflammatory disorders. Market cap of $2.70B. The company's earnings per share have grown by 41.64% over the last five years, and Wall Street analysts project the company's earnings to grow by 42.25% over the next five years. MRQ Net Profit Margin increased to 38.20% from 36.84% year-over-year, Sales/Assets increased to 0.27 from 0.21, while Assets/Equity decreased to 1.27 from 1.32.
5. Rackspace Hosting (NYSE: RAX): Operates in the hosting and cloud computing industry. Market cap of $5.66B. The company's earnings per share have grown by 26.3% over the last five years, and Wall Street analysts project the company's earnings to grow by 30.3% over the next five years. MRQ Net Profit Margin increased to 7.55% from 5.91% year-over-year, Sales/Assets increased to 0.27 from 0.26, while Assets/Equity decreased to 1.76 from 1.84.
6. DXP Enterprises (Nasdaq: DXPE): Distributes maintenance, repair, and operating products (mro), equipment, and services to industrial customers in the U. Market cap of $423.28M. The company's earnings per share have grown by 22.78% over the last five years, and Wall Street analysts project the company's earnings to grow by 25.8% over the next five years. MRQ Net Profit Margin increased to 3.98% from 3.10% year-over-year, Sales/Assets increased to 0.61 from 0.56, while Assets/Equity decreased to 2.33 from 2.69.
7. AGCO (Nasdaq: AGCO): Distributes agricultural equipment and related replacement parts worldwide. Market cap of $4.46B. The company's earnings per share have grown by 45.7% over the last five years, and Wall Street analysts project the company's earnings to grow by 21.73% over the next five years. MRQ Net Profit Margin increased to 4.02% from 3.76% year-over-year, Sales/Assets increased to 0.37 from 0.32, while Assets/Equity decreased to 2.01 from 2.07.
8. Gartner (NYSE: IT): Provides independent and objective research and analysis on information technology (IT), computer hardware, software, communications, and related technology industries. Market cap of $3.58B. The company's earnings per share have grown by 20.87% over the last five years, and Wall Street analysts project the company's earnings to grow by 22.78% over the next five years. MRQ Net Profit Margin increased to 8.81% from 6.78% year-over-year, Sales/Assets increased to 0.27 from 0.24, while Assets/Equity decreased to 6.72 from 8.02.
9. OSI Systems (Nasdaq: OSIS): Designs, manufactures, and sells specialized electronic systems and components for applications in homeland security, health care, defense, and aerospace markets worldwide. Market cap of $936.32M. The company's earnings per share have grown by 20.65% over the last five years, and Wall Street analysts project the company's earnings to grow by 24.83% over the next five years. MRQ Net Profit Margin increased to 2.95% from 2.64% year-over-year, Sales/Assets increased to 0.27 from 0.25, while Assets/Equity decreased to 1.54 from 1.56.
10. Standard Motor Products (NYSE: SMP): Distributes replacement parts for motor vehicles in the automotive aftermarket industry primarily in the United States, Canada, and Latin America. Market cap of $453.96M. The company's earnings per share have grown by 28.03% over the last five years, and Wall Street analysts project the company's earnings to grow by 21.3% over the next five years. MRQ Net Profit Margin increased to 5.52% from 4.25% year-over-year, Sales/Assets increased to 0.45 from 0.41, while Assets/Equity decreased to 2.16 from 2.66.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Rebecca Lipman does not own any of the shares mentioned above. ROE data sourced from Google Finance. All other data sourced from Finviz.
