When investors hunt around for the best stocks to buy, one of the first things they look for is earnings growth. Seeing improvement at the top line never hurt anyone either, but at the end of the day, if you can’t turn a profit, it doesn’t matter how impressive your revenues are growing.
Of course, when you’re searching for impressive earnings growth, you also want to make sure the companies in question are big enough to offer some stability, and traded with enough volume to provide some liquidity.
Each one of the following stocks fits that mold perfectly.
With valuations north of $3 billion, average trading volume above 600,000 shares a day and earnings per share expected to average at least 45% annually for the next five years, here are the seven best stocks to buy now for explosive earnings growth:
Best Stocks to Buy Now for Earnings Growth: Ctrip.com International, Ltd. (ADR) (CTRP)
Expected 5-Year EPS Growth: 47% annually
Expected FY 2016 EPS Growth: 855%
It seems that many on Wall Street have already caught up to the potential of Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP) — the CTRP stock price has soared 40% already in 2015.
Of course, it would be awfully difficult for Ctrip, an online Chinese aggregator of travel bookings — think American peers like Priceline Group Inc (NASDAQ:PCLN) and Expedia Inc (NASDAQ:EXPE) — to fly under the radar for long.
Although CTRP has trailed the remarkable returns of EXPE and PCLN over the last five years, that might be a different story in the next five years as Ctrip improves its bleak margins and grows earnings. With a net profit margin of just 3.3% in the trailing 12 months, Ctrip has plenty of room for improvement.
It’s not hard to see how CTRP stock could see exponential earnings growth if it gets its margins closer to Priceline’s (28%) while increasing sales along the way.
Best Stocks to Buy Now for Earnings Growth: Level 3 Communications, Inc. (LVLT)
Expected 5-Year EPS Growth: 48% annually
Expected FY 2016 EPS Growth: 43%
Level 3 Communications, Inc. (NYSE:LVLT) — an Internet service provider serving carriers across the world — is one of the smaller members of the telecom sector.
Of course, a $20 billion market cap is nothing to scoff at … but next to giants like Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T), which boast a combined valuation of $375 billion, it’s not exactly the big fish in the pond, either.
While it’s possible that one of the big boys could seek to buy out LVLT, AT&T and Verizon both have their hands full now — AT&T with DirecTV (NASDAQ:DTV) and Verizon with its AOL, Inc. (NYSE:AOL) deal and paying off its Verizon Wireless buyout debt load — Level 3 still can grow like a weed if it’s not bought out.
Wall Street isn’t blind to the fact that LVLT and its soaring earnings make it one of the best stocks to buy in its sector, which is why the stock has gained 27% in the last year and currently trades at 46 times earnings — a 27% premium to its industry.
Best Stocks to Buy Now for Earnings Growth: GrubHub Inc (GRUB)
Expected 5-Year EPS Growth: 49% annually
Expected FY 2016 EPS Growth: 41%
Analysts not only expect GrubHub Inc (NYSE:GRUB) earnings to jump from 58 cents per share this year to 82 cents in fiscal 2016 — they expect it to keep up that blistering pace.
As a result, shares of the online and mobile food-ordering platform don’t go for cheap — GRUB stock currently changes hands for a sky-high 136 times earnings.
Growth always comes at a cost on Wall Street.
The big question, of course, is whether you’re getting what you pay for. The good thing about GRUB stock is that you’re not just paying for meteoric earnings growth: You’re also paying for its attractiveness as a potential M&A target. Personally, I think that GRUB stock will be acquired, and firmly believe it’s one of the 10 best M&A targets in the stock market today.
And yet despite these positives, there are four more stocks to buy with higher expected earnings growth than the almighty GrubHub.
Best Stocks to Buy Now for Earnings Growth: STMicroelectronics NV (ADR) (STM)
Expected 5-Year EPS Growth: 49% annually
Expected FY 2016 EPS Growth: 119%
Earnings growth isn’t the only thing making STMicroelectronics NV (ADR) (NYSE:STM) one of the most attractive stocks to buy today. STM is one of only two stocks on today’s list that pays a dividend — and it’s not a puny dividend, either. Rewarding investors with a dividend yielding nearly 5%, STM offers something to both growth and income investors.
STM is the largest European chipmaker, and so more than 90% of the company’s sales are denominated in U.S. dollars, while roughly 60% of operating expenses are in euros. That’s a promising mix going forward in an environment like today’s: The greenback is up 25% against the euro in the past year.
With a market cap of about $7.4 billion and a solid foot in the technology driving mobile — things like accelerometers and gyroscopes — I don’t see STM going anywhere anytime soon.
Best Stocks to Buy Now for Earnings Growth: Fortress Investment Group LLC (FIG)
Expected 5-Year EPS Growth: 52% annually
Expected FY 2016 EPS Growth: 24%
Like STMicroelectronics, Fortress Investment Group LLC (NYSE:FIG) also offers a dividend; FIG yields an even 4% annually to its patient investors as of this writing.
Unlike STM, Fortress Investment Group doesn’t supply accelerometers to companies like Apple Inc. (NASDAQ:AAPL), but that’s OK.
Fortress Investment Group is good at managing money. Really good. Fortress’ assets under management have grown from $2.5 billion in 2002 to $69.9 billion through March 31. The company boasts on its website that it “seeks to provide its investors with superior risk-adjusted returns in a management structure that closely aligns the interest of investors and managers.”
In other words, FIG, which has its hands in private equity, hedge funds and credit funds, will oftentimes create a fund for its clients, then invest in that fund itself and participate in the gains as it reaps fees from its clients simultaneously.
It’s a lucrative strategy that Fortress Investment Group one of the best stocks to buy now.
Best Stocks to Buy Now for Earnings Growth: Jumei International Holding Ltd(ADR) (JMEI)
Expected 5-Year EPS Growth: 52% annually
Expected FY 2016 EPS Growth: 80%
Jumei International Holding Ltd(ADR) (NYSE:JMEI), a high-flying online Chinese beauty products retailer, has seen its stock roar 93% higher already in 2015.
And if you’re bullish on China, JMEI is certainly one of the best stocks to buy for risk-tolerant investors.
After all, Jumei shares are extremely sensitive to the daily fluctuations of Chinese markets; on Monday, JMEI stock rallied more than 7% after the People’s Bank of China cut its benchmark one-year interest rates by 25 basis points in an effort to provide stimulus to the slowing Chinese economy.
Analysts expect Jumei to be a big winner from the growing Chinese middle class, with sales slated to rise 56% this year alone.
Best Stocks to Buy Now for Earnings Growth: Kate Spade & Co (KATE)
Expected 5-Year EPS Growth: 64%
Expected FY 2016 EPS Growth: 68%
You’d never expect it, but handbag giant Kate Spade & Co (NYSE:KATE) is expected to be an earnings powerhouse over the next half-decade. Wall Street is looking for KATE stock to more than double EPS in 2015 from 25 cents to 54 cents, then grow earnings another 68% in 2016.
Analysts are bullish on Kate Spade’s vision, which entails differentiating itself from rivals Michael Kors Holdings Ltd (NYSE:KORS) and Coach Inc (NYSE:COH) as the three luxury retailers battle one another for market share. The strategy seems to be working for KATE, which has the highest analyst ratings of any luxury goods company in the Russell 1000 Index, according to Bloomberg.
Same-store sales, a closely watched and vitally important metric in the world of retail, grew by 9% in the first quarter, topping forecasts for a 7.3% uptick; KATE also beat revenue and profit expectations, ushering in what many expect to be a new era of earnings extravagance for the company.
As of this writing, John Divine was long shares of AAPL stock and KORS stock. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.
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