If you're searching for companies with sustained growth for the upcoming year, you've come to the right place. I have identified five opportunities that still have substantial upside and are not fully priced in. Last year I wrote a similar article, which had a return paired with the S&P 500, that article can be accessed here. Now, let's focus on the future and get into the first opportunity I've identified.
The first growth stock is Baidu Inc. (BIDU) also hailed as the "Chinese Google." This company trades at a premium for good reason. Strong revenue and earnings growth next year, solid financial position, and exposure to a growing market. These revenue estimates are all directly pulled from Yahoo Finance and reformatted. With 37% estimated sales growth BIDU is the top of my growth list but also trades at a premium compared to the other four companies I will discuss.
Looking at the one-year price chart below you'll notice the substantial price movement in the last year. In fact, if BIDU hits 170 a share it will have doubled since last December. In each of these candlestick price charts I have put in a keltner channel (green lines), 50-day simple moving average (blue line), and 200-day moving average (red line). Above the chart is an RSI and below the chart is a MACD indicator.
While BIDU has moved significantly, there is more room for growth in this Chinese search engine giant. The biggest struggle for BIDU will be continuing to dominate the search engine market and holding its distance above competitors.
This next company has less growth but I believe trades at a larger discount to intrinsic value, Clean Harbors Inc. (CLH), a waste management company which analysts rate as a BUY. Negative news and lowered guidance has allowed for an opportunity to pick up this company at a discount. Credit Suisse recently downgraded this stock with a new price target of $62, a target with a decent upside from current price. This stock is down roughly $5 a share from last year, however, there is plenty of room for growth going forward.
Quarter over quarter growth remains strong and estimated revenue growth next year is just over 6%. Estimated earnings growth next year at 33% is even more impressive and further suggests this stock is trading at a discount. (click to enlarge)
From a technical standpoint, CLH has entered oversold territory when looking at the RSI indicator above the chart. The pairing of technical and fundamental analysis show that overblown news stories may provide an opportunity to receive alpha returns to the patient investor. The well-known investor Benjamin Graham was a firm believer in never overpaying for a stock. Asking, "how much," is a question investors should never ignore. I can justify the price of CLH at this level.
The next stock is one I'm sure you have all heard of, eBay Inc. (EBAY). Another tech stock that has substantial growth going forward in sales and earnings and has just exited oversold territory.
With a gross margin of just under 70% and a sound business model, now is a good time to get into this stock. The e-commerce space is becoming more competitive and EBAY is positioned to take a share of this market for years to come. The largest revenue segment of eBay Inc. will soon be PayPal which is a global platform that enables quick, safe, and low-cost transfers of payment. As long as security remains strong, I believe users will continue to use PayPal due to its simplicity and ease. If you have negative views or opinions of PayPal going forward, then avoid this growth opportunity.
A significant reason for why I personally like this stock is the fact that negative news rather than a change in the underlying business is what I believe to be the primary factor in the negative price movement. Less spending this holiday season (if this happens) will affect EBAY in the short term, however, the long-term growth of this company looks promising. I'd take advantage of this dip and go long.
A retailer to own this holiday season is Lululemon Athletica Inc. (LULU).
I have highlighted the year in yellow because as you will notice, the fiscal year of LULU does not align with the other companies mentioned. The reason I am adding LULU to this list is two-fold, first many retail opportunities for the holiday season that look promising have been priced in while LULU has not, and LULU has strong long-term prospects regardless of this holiday season. The risk I see with Lululemon's business model is it appears to be very trendy. Right now, when looking online at reviews and what people say about the clothing, most people are thoroughly satisfied with their products. However, I do believe this retailer is in a niche market that if yoga and workout type clothing becomes less popular, that would be a negative surprise to their future growth. My personal view is that this trend will continue for years to come, but I wanted to include a key risk factor I noticed in this company. This could be a unique way to play a growth in more active and fit individuals if your view is that people are starting to be more health conscious. For the purposes of this article, I will leave that belief to your discretion and move on.
There are no significant technical events affecting LULU other than a minor uptrend that I notice and the fact that the stock is trading very close to what it was last year. The primary reason I picked LULU is fundamental analysis. This company releases earnings on Thursday, December 12th at 9am EST.
The final company I found to still have significant upside is Oceaneering International, Inc. (OII). At a quick glance this buy looks simple: growing sales, growing income, and growing earnings.
Again good sales growth next year first got me interested in OII. As I began to dig deeper in OII, no pun intended, I found that many fundamental reasons along with advantageous technical readings make this a great opportunity. Some fundamental reasons include a strong demand for their deep-sea products and a record backlog as illustrated in the most recent quarter by their CEO. There is also a lot of excitement for their remotely operated vehicle (ROV) fleet which is a key growth driver for this offshore driller. From a technical standpoint, this stock appears to be in a sustained uptrend and this could be the "dip" or chance to buy at a lower price.
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After considering all the options mentioned above, I have created quick references to growth, profitability, and liquidity. Keep in mind the companies are in different industries for the most part and therefore the ratios when compared against one another may not hold as much weight as you may initially think.
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The purpose of the chart above is simply to illustrate that each company outlined is growing. The bad news is that the P/E ratios are relatively high. The reason for this is the growth going forward and expectations of future earnings and sales growth in the future.
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If you don't know that price and earnings have a relationship by now then I am confident you may never realize this combination. This chart supports the points made about CLH. The company has the highest EPS growth and is being oversold from a technical standpoint. This disparity is what I believe created an arbitrage opportunity in CLH.
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The final chart is a graph that should help you sleep at night. I do not believe any of the companies mentioned are at risk of going bankrupt anytime soon. A quick ratio illustrates whether or not a company can pay its short-term obligations. The lowest on the list is CLH and a quick ratio of anything over 1 is healthy in my opinion.
Hopefully, this article has helped you pick out an opportunity that you agree with. Do not fear, I am not your Thanksgiving cook and will not resent you if you do not try out each stock. Feel free to pick your favorite opportunity or let these pass altogether. My purpose in writing is to help everyday investors achieve alpha returns and avoid making irrational mistakes in their investing. Good luck investing, and enjoy your upcoming holiday season!