Seeking Alpha
Newsletter provider, fund holdings, insider ownership
Profile| Send Message|
( followers)

The best performing stocks in the market are usually the highest growing stocks or the stocks with the highest expected growth rates. This doesn’t mean that one should be invested in growth stocks and stay away from the value stocks at all times. Historically value stocks managed to beat the growth stocks hand over fist. The reason is simple. Value stocks are beaten down stocks with very low or negative growth expectations. Not surprisingly it is easier for these stocks to beat the expectations on the average. On the other hand, everybody is extremely bullish about growth stocks and expects them to have higher growth rates in the future. Their stock prices also reflect this fact. Not surprisingly, it is more difficult for these stocks to beat these challenging expectations.

We ranked the S&P 500 (NYSEARCA:SPY) constituents based on their expected 5-year growth rates and presented the ones with the lowest expected growth rates. The data source for Wall Street Analysts’ projections is Thomson Financial. We believe the stocks at the top of the following table will beat the pessimistic expectations.

Company

ticker

Expected Growth Rate

No of Funds

Pfizer Inc

PFE

2.8

72

Johnson & Johnson

JNJ

4.4

55

Macy's Inc

M

4.0

45

ConocoPhillips

COP

4.8

44

Fifth Third Bancorp (OH)

FITB

2.0

39

Dell Inc

DELL

6.0

37

Merck & Co Inc

MRK

4.1

37

Chevron Corp

CVX

1.7

35

Micron Technology Inc

MU

4.8

31

Stanley Black & Decker

SWK

2.6

31

SunTrust Banks Inc (GA)

STI

3.6

30

Newmont Mining Corp

NEM

0.5

29

PNC Finl Services Group

PNC

5.4

27

El Paso Corp

EP

4.7

26

Sunoco Inc

SUN

0.1

26

Wyndham Worldwide

WYN

5.6

25

Huntington Bancshares

HBAN

5.4

24

AT&T Inc

T

3.5

24

Regions Financial Corp

RF

0.9

23

ConAgra Foods Inc

CAG

5.8

22

United States Steel Corp

X

3.7

22

Boston Scientific Corp

BSX

5.5

21

Zions Bancorp (UT)

ZION

1.8

21

Western Digital Corp

WDC

0.5

21

Lennar Corp

LEN

2.6

19

Intl Paper Co

IP

2.2

19

Dow Chemical

DOW

5.9

18

Intl Flavors & Fragrances

IFF

5.8

18

CenturyLink Inc

CTL

5.3

18

XL Group Plc

XL

5.0

18

Tyson Foods Inc A

TSN

3.2

18

Pfizer is the most popular stock among the S&P 500 constituents that have low expected growth rates. Wall Street analysts expect PFE to grow at a 2.8% annual rate over the next five years. Several hedge funds see value in PFE. Twenty seven hedge funds had PFE among their top 10 holdings. Hedge funds collectively own 3% of the outstanding shares. David Einhorn’s Greenlight, Frank Brosens’ Taconic Capital, and Ken Garschina’s Mason Capital are among the hedge funds with large PFE holdings at the end of March (See David Einhorn’s favorite stock picks here).

Johnson & Johnson is another Dow member that is unloved by the market. Analysts expect JNJ to grow at a 4.4% rate over the next five years. There were 55 hedge funds with JNJ positions at the end of March among the 300+ hedge funds we are tracking. Legendary investors are extremely bullish about JNJ. Warren Buffett, Jim Simons, and Ken Fisher are among the most bullish investors about JNJ (Check out Warren Buffett’s top stock picks).

Newmont Mining is one of the stocks with the lowest expected growth rates. We believe the stock will outperform the market for two reasons. First it will grow its earnings by more than the 0.5% rate that is expected by Wall Street analysts. Second, commodities will be higher in the next few years because of the Fed’s loose monetary policy. The federal government won’t be able to raise taxes or cut the spending and will likely monetize some of its debt. There were 29 hedge funds that had NEM in their portfolios at the end of March. Steve Cohen’s SAC and Jim Simons’ Renaissance are among these hedge funds (See Jim Simons’ favorite holdings here).

Disclosure: I am long CTL, T.

Source: 31 Stocks With the Highest Upside Potential