Fastest Growing Earnings: Best Remaining Stocks

by: Stone Fox Capital

This is the fourth and final article focusing on the stocks with the fastest earnings growth rates for 2012 according to the SteetAuthority report. The first three articles focused on Take Two Interactive (NASDAQ:TTWO), Patriot Coal (PCX), Accuride (NYSE:ACW), and Meritor (NYSE:MTOR). The final article will focus on the better remaining options.

All of the companies on the list expect earnings to soar more than 100% from fiscal 2011 to 2012. If the numbers are hit, than any of the picks could provide solid stock returns. The remaining list includes Allstate Corp (NYSE:ALL), with a market cap around $16B, all the way to SMART Modular Tech (NASDAQ:SMOD), with only $580M in market cap. All of them have relatively low forward PEs considering they expect earnings to expand by triple digits. The key is to determine which stocks have the potential to expand on these earnings beyond 2012. One-off situations such as ALL aren't as appealing.

Most appealing growers

Carrizo Oil & Gas (NASDAQ:CRZO) is an oil and gas exploration company with good exposure to the Eagle Ford, Marcellus, and Niobrara shale plays. The company has a major earnings catalyst as it's just now beginning production in all three plays providing major upside potential. Currently it mainly focuses on the Barnett shale, recently selling some of those assets to speed up drilling in the other three areas.

Earnings continue to expand with the high end estimates dramatically above the consensus numbers. The five-year growth rate is 34%, placing it in the top tier of growth companies.

  • Drilled eight Eagle Ford horizontal wells; three rigs drilling now; preparing to complete next three wells in mid-June.
  • Drilled four Niobrara horizontal wells; plans to run minimum of one rig in 2011; preparing to frac fourth well in June.
  • Controls 118,000 net acres in Marcellus shale; expect initial operated gas sales in 3Q 2011 as pipeline completed

Kodak Oil Gas (NYSE:KOG) is an independent energy exploration company focused on the Williston and Green River Basins. It just completed a public offering of 27.6M shares to pay down debt and fund acquisitions in the Bakken play. Like CRZO, it offers the ability to invest in basically a wildcatter as the company enters the growth phase. KOG has yet to report any significant earnings and the new public offering could be a red flag that it has been unable to grow without dilution.

Gold Resource (NYSEMKT:GORO) is a mining company focused on production of gold and silver projects. GORO has a 100% interest in six potential high-grade gold and silver properties in Mexico's southern state of Oaxaca. Commercial production began on July 1, 2010 at its El Aguila Project. The company expects to double 2011 output by 2013 by only expanding production the first of six mining properties. This leaves plenty of room for growth.

The stock only has one analyst so the estimates are suspect, but the growth potential is enormous considering production just began a year ago on a limited amount of the owned properties. Anybody looking for a gold miner might investigate this stock further as very few gold miners have the ability to grow production.

GulfMark Offshore (NYSE:GLF) provides offshore marine services primarily to companies involved in the offshore exploration and production of oil and natural gas. GLF is rebounding from the dual impacts of the Great Recession and the cutback in Gulf of Mexico drilling. The company made $1.69 in 2010 so the 2011 estimate now at $1.82 provides only slight upside, suggesting the 2012 numbers are just a recovery to pre-recession levels. Revenues were $411M in 2008, so the 2012 estimates of $443M confirms this is just a rebound. Still, the demand for oil remains strong and GLF will likely continue to profit from the growing deepwater fleets in the coming years.

United States Steel (X) roduces and sells steel mill products in North America and Central Europe. X is an intriguing investment are it earned roughly $18/share in 2008 before the financial collapse. The upside potential exists if the US economy finally starts growing at a robust rate. X just announced Q2 results that returned it to profitability, but the guidance was weak. X is expected to make significantly more in 2012 and could continue to ramp up earnings beyond estimates if auto production returns to normal levels and horizontal drilling continues to expand.

MF Global Holdings (MF) operates as a broker of commodities and listed derivates with a plan to become a full fledged investment bank. MF is run by former Goldman Sachs (NYSE:GS) chairman and governor of New Jersey, Jon Corzine. With the regulatory focus on GS and Morgan Stanley (NYSE:MS), it appears to be a prime time to steal market share with a leader like Corzine with connections within the investment and political arenas.

MF is one of the few stocks on the fastest earnings growth list to actually beat estimates in Q2, recently reporting $0.10 versus a $0.05 estimate. The conversion to a investment bank appears on course and estimates of earnings doubling in 2012 could be too low considering the recent results.

All of the above stocks have catalysts for significant growth beyond 2012, making them worth further research. A few are rebounding from the financial crisis, while others provide unique investment opportunities.

Least appealing growers:

Allstate: Though earnings are now expected to jump from $1.05 to $3.77 in 2012, they were previously expected to hit $3.32 in 2011 just 90 days ago. Not to mention earnings were $2.84 in 2010. Clearly the earnings growth expectations were roughly 15% prior to the spring tornadoes. The five-year average earnings growth rate is 8.75%. ALL isn't expensive by any means, but it doesn't meet the qualifications for the fastest growing stocks.

Micron Tech (NASDAQ:MU): Just as in the ALL example, MU had some one-time events in 2011 that dropped earnings from 2010 totals. In actuality, 2012 earnings will be lower than even 2010 numbers by a substantial amount. Though the five-year average is for 10.4% growth, one analyst estimates MU will lose money in 2012, suggesting the numbers will actually be lower not 100% higher.

Motorola Mobility (NYSE:MMI): While the average estimates suggests over 100% growth in 2012, the most current numbers show considerable declines. When the numbers for 2012 are declining on an almost daily basis, the low end numbers have much more credence. One analyst suggests $0.43 is the accurate number for 2012, way below the consensus of $1.58, which is already down from $1.61. The one positive: Earnings are still expected to grow from 2010-12, but apparently not at the levels originally planned even weeks ago. The forward PE quickly drops into the 20-30 range when the low end numbers become reality. MMI might actually be a better short.

SkyWest (NASDAQ:SKYW) operates as a regional airline in the US. Do I really need to say anything more? Okay, besides the obvious, SKYW just preannounced horrible results for Q2 due to higher expenses for numerous reasons.

SMART Module Tech: Same issues as above. 2012 earnings might not top those of 2010. Not exactly the signs of a fast growing company.

Feel free to investigate the least appealing companies further. They might provide plenty of upside potential, but they clearly don't belong on the list of the fastest growing companies.

Disclosure: I am long CRZO, X, MF.