How are your brackets? On Wall Street, a lot of popular bets busted this week as money began to flow out of stocks where growth expectations had begun to stretch the limits of reality and reason.
But even though hot money picks like Advanced Micro Devices Inc. (NASDAQ:AMD) and Micron Technology Inc. (NASDAQ:MU) have frozen over, the chill has left other growth stories intact. Those stocks are currently still advancing toward the big prize. Their secret weapon is that their underlying businesses are as dynamic and disruptive as anything that is coming out of Silicon Valley.
They’re just less famous than the technology growth favorites that every pundit picks first. They have at least as much sizzle, but none of the hype.
And because they’re underdogs, the stocks haven’t already run themselves out. Forget about sky-high valuations like what you’ll need to accept from Amazon.com Inc. (NASDAQ:AMZN), Square Inc. (NYSE:SQ) and other heavyweights of the digital universe.
The stocks I’m talking about are growing rapidly out here in the real world. They are also changing lives and racking up big scores that every investor can comprehend. There is no high-tech jargon here. Maybe that’s why none of the pundits talk about them.
I suspect that’s why they’re doing so well at the same time that the technology-heavy slice of the growth universe is heading to the sidelines. Remember, they’ve got all of the growth. They just aren’t priced to match…yet.
As a thought experiment, I’ve picked 16 of the best prospects for us to monitor over the next week. Then, we’ll crown a champion and discuss on what makes the winner tick stronger and faster than last year’s tech heroes.
After all, that’s where Wall Street’s ball was then. Real investors are always one step ahead of the action, which is where these stocks are.
RH (NYSE:RH) is better known as “Restoration Hardware,” the upscale furniture chain that has never flinched from Amazon and other looming competitors in its category. While revenue has lagged behind expectations, sales are still ramping up twice as fast as the U.S. economy is growing. Year-over-year comparisons are daunting, but I believe that RH can squeeze 8 percent growth out of the business. At 14X earnings, it’s cheap.
McKesson Corp. (NYSE:MCK) also has an 8 percent growth profile and is an extreme underdog at 8X earnings. That’s traditionally a sweetheart entry point on any stock. Although the medical supply business doesn’t give off a lot of headline sizzle, there’s surprising innovation below the surface of this stock.
Envestnet Inc. (NYSE:ENV) sells the wealth management systems that keep thousands of investment advisors connected to Wall Street. Like many of our players here, it’s not a flashy stock. However, as an aggressive consolidator, it’s still growing 10 percent a year. My subscribers already should be familiar with the company . . . it has made them a lot of money over the years.
TPI Composites Inc. (NASDAQ:TPIC) leads the world when it comes to making wind turbine blades and other high-performance equipment. While last year was tough, TPI’s management pivoted fast. I’m looking for 800 percent earnings growth here right now. At half the multiple of Amazon, TPIC’s stock is a bargain.
Alexion Pharmaceuticals Inc. (NASDAQ:ALXN) is the fastest-growing biotech player on my screen right now. The secret sauce is the way the company is transitioning patients with rare blood diseases from an extremely expensive once-a-week shot to a new and less onerous treatment plan. So far, so good. I see 17 percent growth here at barely 14X earnings.
Abercrombie & Fitch Co. (NYSE:ANF) is divisive, with as many fans on Wall Street as detractors. But it’s hard to argue with a mall retail business that expanded its earnings 76 percent last year and is on track to give us 25 percent more expansion in 2019. While it isn’t cheap, this store is a linchpin of the modern brick-and-mortar shopping center.
Everest Re Group Ltd. (NYSE:RE) had a bad 2018. As a result, the financial comparisons to 2019 are as easy as they get. While reinsurance isn’t sexy, the business can generate huge amounts of cash when the points line up right. Can “boring” old RE quintuple its profit over the next two years? We’ll find out.
Shaw Communications Inc. (NYSE:SJR) is no secret to my subscribers in Canada, where the company is a powerhouse cable data provider. Sales are up 12 percent year over year and I’m looking for earnings to jump three times as much. This is another “stealth” play after corporate restructuring benched it last year. However, we’re in a new game here now.
American Airlines Group Inc. (NYSE:AAR) raises an obvious question — what is one of the biggest passenger carriers around doing in a growth bracket? The numbers are the only answer any reasonable investor needs. Behind the scenes, AAR is ruthlessly squeezing profit out of every seat mile it flies. It has also turned its scant revenue growth into a 30 percent earnings expansion during this year alone.
American Homes 4 Rent (NYSE:AMH) is a wild card that does exactly what its name implies. Collecting rent on 52,000 houses across the United States is a big business that is getting bigger all the time. If all the cards line up, AMH’s profit will at least double this year. Finally, even though AMH is priced like a tech stock (108X earnings), it is growing into that valuation at lightning speed.
Insulet Corp. (NASDAQ:PODD) gives us classic disruptive innovation in the world of medicine, rather than the computer screen. The company’s drug delivery patches automate the process of injecting medicine and do away with the needles and the stress. Again, it’s priced like a Silicon Valley unicorn, but perhaps the valuation was well-earned.
ICU Medical Inc. (NASDAQ:ICUI) has a similar story. However, ICUI’s delivery system is simply made up of better intravenous ports for hospitalized patients. Keeping the veins open and clean is essential in health care. ICUI is doing it well enough that I wouldn’t be surprised to see a 900 percent earnings jump this year. Again, that growth rate leaves Amazon in the dirt at barely half that multiple.
State Auto Financial Corp. (NASDAQ:STFC) is in one of Warren Buffett’s favorite industries: car insurance. Still underrated after a washout performance two years ago, STFC is off the bench and ready to roll. The fact that it has been growing twice as fast as its 19X multiple would otherwise indicate signal it as an attractive buy.
Camping World Holdings Inc. (NYSE:CWH) hit my screen years ago when I realized what a huge business its recreational vehicle sales network could become. After a rebuilding year, I’m looking for 20 percent growth in 2019. Here at 10X earnings, this is still a stealth favorite.
Becton Dickinson and Co. (NYSE:BDX) isn’t sexy. However, it’s reliable. Medical equipment and analytic sales keep ramping up fast enough to give BDX a 10 percent earnings growth profile for the foreseeable future. This could be the champion in 2023, if not before.
Exact Sciences (NASDAQ:EXAS) is a ringer because there’s no profit here at all yet. But outside Silicon Valley, disruption stories like mail-in colon cancer screening kits are extremely rare. If you want a dynamo that isn’t digital, EXAS is ramping up sales by at least 6 percent a quarter, year after year.
Do I invest in all these stocks? No. Most have plenty of warts along with their obvious sizzle. On the other hand, one of the Sweet 16 stocks that I’ve just listed was recommended to GameChangers subscribers a year ago and also tripled the S&P 500’s score. I like my odds this year as well.
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