Investor Business Daily published a list of growth stocks on June 30 that are expecting between 75% and 814% earnings growth in their latest fiscal year.
This happens to be the subject of my latest gallery. I’m looking for growth stocks that I believe will do well from here on out to the end of 2021. To make IBD’s list, a stock had to have momentum and healthy earnings growth.
To make my list, a company must have strong free cash flow.
What constitutes strong free cash flow? First, it must be positive. Secondly, it must be growing. Third, it must have an FCF margin of at least 7%. In addition, it must have at least a 20% return over the past year.
Between IBD’s screens and my own, we ought to cobble together an excellent portfolio with a sufficient amount of diversification.
Here’s to growth stocks doing well in the second half, and here’s seven to consider:
- The Trade Desk (NASDAQ:TTD)
- Ternium SA (NYSE:TX)
- Atkore (NYSE:ATKR)
- Futu Holdings (NASDAQ:FUTU)
- Lands’ End (NASDAQ:LE)
- Blackstone Group (NYSE:BX)
- Century Communities (NYSE:CCS)
Growth Stocks to Buy: The Trade Desk (TTD)
FCF Margin: 38.9%
1-Year Return: 69%
For those unfamiliar with TTD, it provides a cloud-based platform for ad buyers to carry out digital advertising campaigns across multiple channels. It was growing before Covid-19. The pandemic only accelerated its growth.
In the first quarter ending March 31, TTD’s revenues increased by 37% to $219.8 million. That was 400 basis points higher than its growth in Q1 2020. On an adjusted basis, Trade Desk’s earnings jumped 61% to $70.0 million, a 32% net margin.
For over seven years, Trade Desk has been able to keep its customer retention rate above 95%, ensuring consistent revenue growth.
“Revenue growth acceleration over Q1 a year ago is testament to the value that marketers are placing on data-driven advertising. Nowhere is this more apparent than CTV, which continues to lead our growth,” co-founder and CEO of The Trade Desk, Jeff Green, said in its Q1 2021 press release.
Interestingly, Trade Desk had a 10-for-1 stock split on June 16 after the close of trading. It did so after its stock gained 2,100% since going public in September 2016.
I expect the next five years to be almost as exciting.
Ternium SA (TX)
Sector: Basic Materials
FCF Margin: 12.5%
1-Year Return: 185%
Ternium is one of the largest producers of flat steel in Latin America. While it has facilities in the U.S., Mexico, Central America and South America, approximately 52% of its steel is made in Mexico, with the rest spread amongst its other facilities.
In 2020, it had overall sales of $8.7 billion through 11.4 million tons of steel. Vertically integrated, it owns everything from the iron ore mines to its service centers and everything in between, including its modern manufacturing plants.
In 2017, it had net debt of $2.7 billion. It finished 2020 with just $400 million. It got there by focusing on high-margin, value-added products. As I mentioned earlier, approximately 52% of its steel shipments are from its plants in Mexico. The country has the largest steel market in Latin America.
As for profits, its Q1 2021 EBITDA (earnings before interest, taxes, depreciation and amortization) was 33%, almost triple its margin a year ago. As a result, its free cash flow continues to grow, allowing it to pay down more debt. It finished the first quarter with just $200 million in net debt.
If you believe in Latin America, as I do, Ternium is an excellent bet on the region. It also has an attractive dividend yield of 5.35%.
Growth Stocks to Buy: Atkore (ATKR)
FCF Margin: 15.9%
1-Year Return: 168%
I must admit, this is a company that I’m not very familiar with. However, search the word “conduit” on Atkore’s Brands page and you get 33 mentions. It turns out the company is a provider of electrical and mechanical products for the construction and infrastructure industries.
Atkore went public in June 2016 at $16 a share, well below its pre-IPO pricing between $20 and $22. Taken public by private equity firm Clayton, Dubilier & Rice — CD&R acquired a majority stake of Atkore in 2010 from its former parent, Tyco International — it’s come on like gangbusters ever since.
The company reported record Q2 2021 sales and earnings. On the top line, it increased sales by 40% to $639.5 million, while its adjusted earnings increased 182% to $2.79 a share.
Atkore’s volumes in the second quarter rebounded to levels seen before the pandemic. As a result, it expects an adjusted EBITDA of $725 million at the midpoint of its guidance for 2021.
It recently acquired FRE Composites Group, a Canadian company specializing in fiberglass conduit solutions for infrastructure, telecommunication and transportation markets. No terms were given.
While it might fly under the radar for some investors, the company’s growth is too good to ignore. It’s a comer.
Futu Holdings (FUTU)
Sector: Financial Services
FCF Margin: N/A
1-Year Return: 357%
CNBC’s Jim Cramer recommended the speculative Chinese stock way back in February. It’s gained 17% since then.
Futu is a digital brokerage and wealth management platform for the Chinese market that allows customers to buy Hong Kong, U.S., Mainland China and Singapore stocks. Its investors include Tencent Holdings (OTCMKTS:TCEHY), which has an economic interest of 22.8% and controls 27.9% of the votes.
The company reported Q1 2021 results in May. The results included a 231% increase in paying clients to 789,652. Those clients generated revenues of $283.6 million in the quarter, 349% higher than a year earlier. Its adjusted net income increased 6.5 times to $149.5 million, an amazing 52.7% net margin.
Client assets were $59.5 billion at the end of the quarter, for 367.6% growth year-over-year 62.1% growth sequentially. The average client asset balance was $75,310.
While its Q1 2021 press release doesn’t have a cash flow statement, I do know that Futu generated $2.64 billion in operating cash flow during 2020. That was 10 times higher than in 2019.
As it continues to capture more of the Chinese market, expect its cash flow to grow significantly. Cramer’s right. This is an excellent Chinese spec.
Growth Stocks to Buy: Lands’ End (LE)
Sector: Consumer Cyclical
FCF Margin: 7.2%
1-Year Return: 363%
If there’s a comeback story in retail, Lands’ End has to be at or near the top of the list. Once trading close to $60 — spun-off by Sears in April 2014 — it traded as low as $4.05 in April 2020.
Despite its surge over the past year, only two analysts cover the omnichannel retailer. One has it as a buy while the other believes it’s a hold. The target price? $50, suggesting around 25% upside over the next 12 months.
In early June, Lands’ End reported its Q1 2021 results. Revenues were up 48.1% to $321.3 million. Gross margins were 260 basis points higher at 46.0%, and adjusted EBITDA was $22.5 million, 294% higher than its $11.6 million loss a year earlier.
According to its January 2021 presentation, Lands’ End generates 67% of its sales from U.S. e-commerce, 12% from international e-commerce, 12% from outfitting other businesses and organizations, 6% selling through third parties such as Kohls (NYSE:KSS) and 3% from its own 31 retail stores.
It’s far better positioned than it was in 2014 to tackle a pandemic like the one we’ve just been through.
I will pay a lot closer attention to Lands’ End from now on.
Blackstone Group (BX)
Sector: Financial Services
FCF Margin: 20.8%
1-Year Return: 87%
One of my favorite stocks is Brookfield Asset Management (NYSE:BAM). As a result, I feel bad recommending one of its biggest rivals. But, hey, when you’re growing, you’re growing.
Blackstone Group CEO and founder, Stephen Schwarzman, has gotten rich — he’s ranked 46th on the Bloomberg Billionaires Index at $30.9 billion — building the alternative asset manager into a massive organization with $649 billion in assets under management (AUM) and four main operating segments: real estate, private equity, hedge fund solutions and credit and insurance.
In the company’s first quarter results, a few things stick out for me.
First, the asset manager’s management, advisory, and incentive fees increased in the first quarter. Overall, its fee income increased 40% over the past 12 months through March 31 to $2.64 billion from $1.88 billion a year earlier. Overall, its distributable earnings increased 38% to $3.98 billion from $2.89 billion in the 12 months a year earlier.
Real estate accounted for 44% of its overall earnings, private equity for 34%, hedge fund solutions for 14% and credit and insurance for 7%.
In the first quarter, AUM grew by 21% over Q1 2020, fee-related AUM grew by 14%, and perpetual capital (capital with indefinite terms) rose by 47% over last year.
As capital allocators go, Blackstone is one of the best.
Growth Stocks to Buy: Century Communities (CCS)
Sector: Consumer Cyclical
FCF Margin: 12.3%
1-Year Return: 95%
The last of the growth stocks I’m looking at today, Century Communities is less than 20 years old. Founded in Colorado in 2002, it’s grown its homebuilding operations to include 17 states and 28 markets across the U.S. It handles all aspects of the home-building process, from buying and developing the land to building and selling the home that goes on the land.
Now the 9th-largest homebuilder in the U.S., Century initiated a 15-cent dividend with the June payment. The 60-cent annualized dividend yields 0.89%. You won’t get rich off the dividend, but it’s nice to have just the same.
In the 12 months ended March 31, Century had revenue of $3.6 billion from the delivery of 10,386 homes, 80% of which were entry-level buyers. Of the total revenue, its Mountain segment generates the most sales, accounting for 28% or $994 million. Its second-highest segment is the Southeast. It accounts for 21% or $762 million in revenue.
A big positive is that Co-Chief Executive Officers Dale Francescon and Robert Francescon collectively own 10.8% of the company. They also happen to be brothers, so you could call it a family affair.
Since 2016, the company’s revenue and earnings have increased by 259% and 464%, respectively. Barring a collapse in housing demand, investors can expect both of these numbers to keep rising.
It also has a market capitalization of approximately one-fifteenth that of Lennar (NYSE:LEN), the homebuilding industry’s biggest player.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.