With fourth-quarter earnings season well under way, investors are getting their last look back at how their favorite companies performed in 2012. If you want to get an edge on your peers, though, you can't afford to look only in the rearview mirror. To make smart investments, you have to look forward at what companies are doing to promote future growth.
So even as most investors and analysts are focused mostly on last year, let's turn to the prospects for the 30 stocks in the Dow Jones Industrials (^DJI +1.24%) for this year. As the economy starts to heat up in certain areas, growth will become an increasingly important part of the bull story for stocks in the year ahead.
2 types of growth
Which stocks you look at for maximum growth depends on what type of growth you're looking for. In terms of growing revenue, two companies stand out, largely because of huge acquisitions that will have a major impact on their top line. For United Technologies (UTX +2.34%), the buyout of aerospace supplier Goodrich couldn't have come at a better time, as the aircraft manufacturing industry has seen huge orders. With so much backlog, the companies that build airplanes will be looking to Goodrich and United Tech for massive amounts of components, and that's the primary reason United Tech is seen growing sales by nearly 13% this year, with accompanying earnings growth expectations of almost 14% as the company divests itself of non-core businesses to focus on its primary opportunity.
UnitedHealth Group (UNH +0.94%) is the other big revenue grower, with its acquisition of a big stake in Brazil's Amil playing a key role in the sales boost. By expanding its international presence, UnitedHealth hopes to reduce the amount of political risk it has in its U.S.-focused health-insurance business, as the Affordable Care Act imposed a number of new restrictions on the health-insurance industry that will limit UnitedHealth's ability to increase margins and boost profitability domestically. Projected revenue growth of 12% looks impressive, but the earnings payoff may have to wait a while, with analysts seeing only 4.5% gains in earnings per share this year. The bigger question for UnitedHealth will come even further in the future, as the individual-mandate provisions that take effect in 2014 have the potential to boost subscriber counts and hopefully make up for some of the challenges that health-care reform has already imposed on the company.
On the earnings side, though, you'll see the fastest growth expectations among turnaround stories. For Bank of America (BAC +0.90%), huge expectations for rising earnings come largely from the fact that 2012's earnings were temporarily depressed by massive one-time items. Multiple settlements with various regulators and other parties cost the bank billions, but they also served the important purpose of getting rid of undefined liabilities that were holding back the stock. Now that B of A has gotten rid of most of that legal baggage, it should now be able to prove whether its core banking operations have returned to their full profit-making potential. With the stock having more than doubled last year, and with analysts expecting earnings to nearly quadruple in 2013 from 2012 levels, the bar for B of A to overcome is already quite high.
Similarly, Alcoa (AA +0.00%) has been dealing with adverse conditions in the aluminum industry, as sluggish construction and infrastructure activity in slower-growing emerging markets has taken its toll on aluminum prices and reduced demand. But rather than sitting still, Alcoa has taken steps to try to take advantage of the lull, seeking to buy out operations from weaker companies at fire-sale prices and establish itself as a stronger player in the industry once a global recovery starts to accelerate.
Finally, one stock that caught my eye was Verizon (VZ +0.21%). With revenue growth projected at just 4%, Verizon isn't near the top of the Dow, but analysts see earnings rising nearly 21% this year. The big question for Verizon is whether it can successfully move away from a subsidy-based model to get customers to pay full price for smartphones. With such a huge earnings drag coming from subsidies, even limited success on that score could have a huge impact on the telecom's earnings going forward.
Go for growth
These five Dow stocks have plenty of room to grow in 2013 and beyond. With United Tech near all-time highs and B of A having already seen a big rise in its stock, you may want to pay special attention to Alcoa, Verizon, and UnitedHealth for the best growth stocks at arguably reasonable prices.
