Stocks aggressively growing earnings and revenue
Value stocks have taken a back seat to growth stocks in recent years, with investors willing to forgive high earnings multiples if companies are consistently reporting double-digit revenue and earnings growth. Growth stock investors believe these stocks will eventually grow into and exceed their current market valuations as long as the companies can keep their long-term expansion on track. Bank of America has compiled its Growth 10 list, a group of S&P 500 components with exceptionally high expected growth numbers and “buy” ratings from the analyst team. Here are seven of the growth stocks that make the list.
Amazon.com (ticker: AMZN)
In the past 10 years, Amazon stock is up 3,870 percent, yet its earnings multiple has spent most of its time either in negative territory or triple digits. However, with earnings per share projected to grow at a 44.3 percent rate over the next five years, growth investors are hoping there’s plenty more upside ahead. Analyst Justin Post says Amazon has its toes in countless long-term growth markets, including cloud computing, e-commerce and online advertising. Bank of America has a “buy” rating and $2,000 price target for AMZN stock.
Facebook has faced a wave of negative headlines in the past year related to dissemination of news and handling of customer data. Even Facebook’s EPS growth has slowed from 57 percent in the fourth quarter of 2017 to just 11 percent in the most recent quarter. However, Post says there is a light at the end of the tunnel for Facebook. Facebook is gaining market share in a digital advertising market that will grow by 20 percent in the next three years. Bank of America has a “buy” rating and $190 price target for FB stock.
Google parent company Alphabet is marred in the same antitrust and data usage regulatory uncertainty that has impacted Facebook, but it remains the largest player in the high-growth market of digital advertising. In addition, Post says Google has potentially massive growth opportunities in autonomous vehicles (Waymo), cloud services (Google Cloud) and streaming video (YouTube). Alphabet has generated three consecutive quarters of EPS growth of at least 28 percent. Post says Alphabet shares are even valued modestly given its growth outlook. Bank of America has a “buy” rating and $1,350 price target for GOOGL stock.
D.R. Horton (DHI)
Homebuilder D.R. Horton has reported EPS growth of at least 42 percent in each of the past four quarters. The company announced the acquisition of Westport Homes for $190 million, which analyst John Lovallo II says will give D.R. Horton excellent exposure to the high-growth housing markets in Indianapolis and Columbus, Ohio. Lovallo says the company’s track record of prudent acquisitions and its focus on entry-level markets should help drive the stock higher in coming years. Bank of America has a “buy” rating and $53 price target for DHI stock.
Discovery Communications (DISCA)
If the traditional cable TV market is struggling to adapt to the wave of cord-cutting users, you wouldn’t know it by looking at Discovery Communications. Discovery owns networks such as the Discovery Channel, Food Network and HGTV, and the company has reported at least 43 percent revenue growth for three consecutive quarters. Analyst Jessica Reif says Discovery’s strategy of growing core brands, streamlining underperforming channels and improving cost discipline has it well-positioned for the future. Bank of America has a “buy” rating and $42 price target for DISCA stock.
Flowserve Corp. (FLS)
Flowserve got back on the right track in the past six months, reporting 86 percent and 32 percent EPS growth in the past two quarters. Flowserve supplies pumps, valves, seals and other services for the oil, power and chemical industries. Analyst Andrew Obin says the company is the gold standard in flow control, with superior pricing and cost controls. He says the flow cycle is approaching an inflection point that should lead to a prolonged period of growth in 2018 and beyond. Bank of America has a “buy” rating and $57 price target for FLS stock.
United Rentals (URI)
United Rentals has reported EPS growth of at least 25 percent and revenue growth of at least 17 percent in each of the past five quarters. United is the world’s largest equipment rental company, serving construction and industrial companies, as well as municipalities and homeowners. Analyst Ross Gilardi says there is plenty of growth ahead for the equipment rental market. He says United’s record free cash flow should be even higher in 2019, and the stock’s 13.5 FCF yield is extremely appealing. Bank of America has a “buy” rating and $175 price target for URI stock.
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