Looking to add some growth to your portfolio? If so, here are some ideas to start your stock search. We ran a screen on the S&P 500 for high-growth stocks, those with 5-year projected EPS growth over 20%. We then screened for those with strong sources of profitability, as indicated by DuPont analysis.
DuPont analyzes return on equity (ROE, or net income/equity) profitability by breaking ROE up into three components:
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)
We therefore focus on companies with the following positive characteristics: Increasing ROE along with:
- Decreasing leverage, i.e. decreasing Asset/Equity ratio
- Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)
Companies with all of these characteristics are experiencing increasing profits due to operations and not to increased use of financial leverage.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.
Do you think these companies will grow like analysts anticipate? Use this list as a starting point for your own analysis.
List sorted by 5-year projected EPS growth.
1. Harman International Industries Inc. (HAR): Engages in the development, manufacture, and marketing of audio products and electronic systems primarily in the United States, Germany, and other parts of Europe. 5-year projected EPS growth at 31.00%. MRQ net profit margin at 4.6% vs. 3.27% y/y. MRQ sales/assets at 0.346 vs. 0.311 y/y. MRQ assets/equity at 2.143 vs. 2.207 y/y.
2. Priceline.com Incorporated (PCLN): Operates as an online travel company. 5-year projected EPS growth at 27.19%. MRQ net profit margin at 32.32% vs. 22.26% y/y. MRQ sales/assets at 0.381 vs. 0.365 y/y. MRQ assets/equity at 1.596 vs. 1.678 y/y.
3. CONSOL Energy Inc. (CNX): Engages in the production of multi-fuel energy and provision of energy services primarily to the electric power generation industry in the United States. 5-year projected EPS growth at 26.00%. MRQ net profit margin at 12.69% vs. 7.7% y/y. MRQ sales/assets at 0.123 vs. 0.112 y/y. MRQ assets/equity at 3.469 vs. 4.099 y/y.
Accounting data sourced from Google Finance; all other data sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.