For almost any investing strategy, growth stocks provide your portfolio with the extra lift necessary for robust success. Equities in this category focus on earnings trajectory; that is, the target company eschews paying dividends to reinvest in the business. The upside to shareholders is the chance to earn huge profits through capital gains.
Of course, the opposite is also true. If growth stocks go sideways, investors usually have no recourse other than to hope shares turn back up. By their default nature, these investments typically don’t pay dividends. In a strong bull market, companies focused on growth often produce outsized gains, thus negating the dividend advantage.
That said, this current bull market is long in the tooth. Most growth stocks have already skyrocketed in the markets, leaving little room for capital appreciation. Buying these names now could mean problems later.
But that’s not to say that you should automatically revert to dividend-paying companies. Choosing underappreciated growth stocks, or those stuck in poorly perceived industries, offer more palatable opportunities.
Here are five high-growth winners that everyone else is scared of.
Growth Stocks That Others Won’t Touch: Netflix (NFLX)
When discussing growth stocks that have suddenly suffered a sentiment shift, Netflix (NASDAQ:NFLX) comes immediately to mind. After blowing up the markets with an unbelievable performance, it entered its second-quarter earnings report with huge anticipation. Unfortunately, NFLX left whimpering with its tail between its legs.
Although the company managed to beat its earnings-per-share expectation, it missed slightly on revenues. But the real culprit was the subscriber miss. As our own Bret Kenwell reported, “The streaming giant added ‘just’ 5.15 million subscribers during the quarter, well short of its prior guide of 6.2 million and analysts’ estimates of 6.27 million.”
Wall Street appears to be in a crisis mode over NFLX, shocked that it produced a disappointing result. Bearish analysts have come out in full force, blasting the company for the cash burn associated with rising licensing and content expenses.
I agree that the earnings report and subsequent subscriber-guidance downgrade is nowhere near ideal. But let’s not lose sight of the bigger picture: They’re taking on traditional media powerhouses at their own game. In other words, Netflix is the better way to do TV.
And while the cash burn is also far from ideal, they’re doing it to boost their core content business. Isn’t that what growth stocks are supposed to do?
Growth Stocks That Others Won’t Touch: Commercial Vehicle Group (CVGI)
On the surface, Commercial Vehicle Group’s (NASDAQ:CVGI) multi-varied businesses initially appears viable. The company manufactures accessories and critical components for commercial vehicles and trucks. Additionally, they provide specialized equipment for the transportation, mining and defense sectors. Finally, they offer products for the lucrative recreational-vehicle market.
The problem is that the CVGI’s underlying industry is a money pit. According to CNBC, experts forecast that the industrial sector will enjoy less than 11% EPS growth over the next three to five years. That pales in comparison to the benchmark S&P 500, which carries an expected EPS growth of 16.3%. Worse yet, the commercial vehicles and trucks industry will have slightly negative growth.
Such dour sentiment hasn’t done any favors for CVGI stock, which is down nearly 31% year-to-date. Having said that, contrarian investors may have an opportunity here.
For one thing, CVGI appears to have hit a bottom earlier this spring. More importantly, financial analysts expect the company to deliver nearly 29% EPS growth. That’s well above its specific market, and industrials as a whole.
Although it’s risky, CVGI has a mix of both growth and value.
Growth Stocks That Others Won’t Touch: Parsley Energy (PE)
You don’t have to look for hated growth stocks to realize why many won’t touch Parsley Energy (NYSE:PE). Although the energy market is recovering, it’s not a secret that this sector is incredibly volatile.
Just four years ago, crude oil embarked on a remarkably horrific dive. Sure, it helped ease pain at the pump, but it also likely hurt your retirement account.
Another reason why investors avoid PE, and growth stocks associated with the independent oil and gas industry, is expected earnings. To be blunt, analyst prospects for the sector stink like all heck. Integrated oil and gas is staring at -17% EPS “growth” over the next three to five years. For oil and gas broadly, it’s only slightly better at -13.4% EPS.
Which is why PE is a standout entity in that analysts expect 28.3% EPS growth. These aren’t just random, arbitrary estimates. Parsley Energy is proving its worth through tremendous revenue growth. In its most recent quarter, it rang up $393 million for the top line, up nearly 96% year-over-year.
Growth Stocks That Others Won’t Touch: National Beverage (FIZZ)
The soft drink and beverages industry has frustrated investors in recent times. For instance, sector king Coca-Cola (NYSE:KO) has largely traded flat for the past two years. Roughly speaking, the same can be said about competitor Nestle (OTCMKTS:NSRGY). Therefore, it’s no surprise that no one’s really aching to buy shares of National Beverage (NASDAQ:FIZZ).
The facts speak for themselves. Financial experts expect the broader consumer-goods sector to only produce less than 5% EPS growth over the next three to five years. As marginal as that figure is, it’s a big jump from expectations toward the soft-drink industry, which has EPS growth pegged at -0.4%.
In sharp contrast, analysts expect Fizz to outshine its competitors, bringing home nearly 16% EPS growth. Is that possible? If you’re looking at beverage trends, then yes. According to the Los Angeles Times, millennials love sparkling water. That trend strongly benefits FIZZ, which levers the ultra-popular LaCroix brand of carbonated water.
Just note that FIZZ stock is rather choppy, so you’ll want to be careful in not overexposing yourself.
Growth Stocks That Others Won’t Touch: Proto Labs (PRLB)
Growth stocks associated with the technology industry usually raise curiosity. After all, tech firms epitomize the concept of growth investing. But that’s not the case for Proto Labs (NYSE:PRLB). One look at what the company does — or even just its name — sends investors running for cover.
That’s because Proto Labs is a largely known for its 3D printing business, and we all know how that sector turned out. If you don’t, 3D printers represent the classic case of overpromising and under-delivering. In short, they dazzled customers as novelty items. But in reality, 3D printers were too bulky, complicated and expensive for most practical uses.
So why is Proto Labs any different? Because it is different. The company focuses on providing prototype-development services for its mainly corporate clients. It’s not selling the printers, but instead, using them to deliver much-needed products. In addition, 3D printing is just one component of its business; PRLB also includes specialties such as CNC machining and injection molding.
Experts peg PRLB to deliver just under 10% EPS growth in the next three to five years. However, it’s possible that this might be underrated. Revenue growth over the last four years is over 18%. In the company’s most recent quarter, it saw over 34% YOY sales growth to $108 million.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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