Investments that have been successful over the long term almost assuredly share at least one thing in common -- growth. You'll be able to find very few companies that have been unable to increase their earnings and yet still have produced good returns for shareholders.
Think about it this way: 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. Since earnings multiples tend to fluctuate within a certain range, long-term investors should have a keen focus on the company's ability to increase earnings.
Does that 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 140,000-member Motley Fool's CAPS community thinks of the company's prospects.
|
Company |
Expected Growth |
Forward P/E |
CAPS Rating
|
|---|---|---|---|
|
First Solar |
38% |
22 |
** |
|
Atwood Oceanics |
30% |
9 |
***** |
|
Celgene |
27% |
22 |
**** |
|
Nuance Communications |
18% |
12 |
**** |
|
Activision Blizzard |
17% |
17 |
***** |
|
Jacobs Engineering |
14% |
17 |
**** |
|
Walgreen |
14% |
16 |
**** |
Source: Capital IQ (a division of Standard & Poor's), Yahoo! Finance, and CAPS.
P/E = price-to-earnings ratio.
Wall Street analysts aren't known for being supernatural in their 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 a couple of these stocks.
Cool to the touch?
There are a lot of reasons to like solar energy, and I personally am a big fan. However, there are still significant challenges facing the industry. Not least among them is how quickly solar power can really become cost-competitive with traditional fuels.
From a technological standpoint, First Solar is definitely one of the leaders of the pack in the solar field, and the company has some absolutely amazing revenue and profit growth to boot. In fact, over the past two years the company has averaged 170% sales growth and 206% profit growth each year. The issue for the near term, though, is whether expected growth will live up to billing and justify First Solar's current valuation.
Bringing the heat
On the flip side of the energy question, we've got Atwood Oceanics. While nowhere near as large as industry powerhouse Transocean, Atwood is in the same business -- offshore drilling. This segment of the oil and gas services sector has gotten increased attention in recent years as oil and gas players have found the need to venture farther into the ocean's depths.
This Motley Fool Stock Advisor favorite carries a perfect five-star rating on CAPS, thanks to more than 1,900 outperform ratings and just 17 underperform ratings. CAPS All-Star mrindependent became one of those Atwood bulls in mid-August, citing the stock's attractive valuation and the company's expertise:
At $27.30, this company sports a [price/book value] ratio of 1.67, which is far below its typical P/BV ratio. The company's forward P/E is about 6, which certainly sounds like a deal. The company's earnings are stable, its balance sheet is almost debt free and it is a technology leader in the offshore drilling industry. ... I like the odds.
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? Head over to the free CAPS service and let the community know what you think of First Solar, Atwood Oceanics, or any of the other stocks listed above.
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