Growth has clearly been the winning investment strategy over the past decade. Buying shares of well-managed businesses in industries with above-average growth has proven capable of superior portfolio performance. Therefore today, we’ll discuss seven growth stocks that could be appropriate for a range of InvestorPlace.com readers.
Most growth stock have high valuation metrics, such above average price-to-earnings (P/E) ratios. In other words, market participants are usually willing to pay a premium for the value associated with high growth. Such growth names typically expand their product lines, drive more revenue per customer and improve margins. Management generally looks for acquisition opportunities to increase products and services as well.
Here are 7 growth stocks that could offer wealth-building opportunities in the coming quarters:
- Alkermes (NASDAQ:ALKS)
- Aptargroup (NYSE:ATR)
- Tempur Sealy International (NYSE:TPX)
- Pacer US Export Leaders ETF (NYSEARCA:PEXL)
- ResMed (NYSE:RMD)
- Standard Motor Products (NYSE:SMP)
- Vanguard S&P Small-Cap 600 Growth ETF (NYSEARCA:VIOG)
Growth stocks can be attractive additions to your long-term portfolio. However, any loss of confidence in their future performance typically leads to a significant and rapid price correction. Therefore, potential investors should do proper due diligence and be ready for volatility especially during the earnings season.
Growth Stocks: Alkermes (ALKS)
52 week range: $15.35 — $25.74
Ireland-based biopharma group Alkermes has a portfolio of marketed drugs and a clinical pipeline of products that address central nervous system (CNS) disorders such as schizophrenia, depression, addiction, multiple sclerosis (MS) and oncology. The company was founded in 1987.
Alkermes reported earnings in late April. Revenue was $251 million, compared to $246 million for the same period in the prior year. Non-GAAP net income of $17.8 million translated into diluted earnings per share of 11 cents, big gains compared to EPS of 1 cent for the same period in the prior year. At the end of March, the company recorded cash and total investments of $627.4 million, compared to $659.8 million at the end of December 2020.
On the results, CEO Richard Pops cited, “The first few months of 2021 were highlighted by important advancements in our nemvaleukin immuno-oncology program, including receipt of orphan drug designation for mucosal melanoma and a focus on efficiency, cost management and strong governance, we have the potential to drive significant growth and value creation in 2021 and beyond.”
So far in 2021, ALKS stock is up over 20%. Forward P/E and price-to-sales (P/S) ratios are 42.74 and 3.65, respectively. The company’s current products and pipeline are likely to provide tailwinds in the rest of the year as well.
52-week range: $110.34 — $158.97
Dividend yield: 1.08%
Crystal Lake, Illinois-based AptarGroup manufactures a broad range of drug delivery and consumer product dispensing solutions, such as aerosol valves and pumps. About half of the revenue comes from Europe. Next in line is the U.S. (about 33%), followed by Asia (about 12%). Management has been allocating resources to increase sales especially in Asia.
AptarGroup released Q1 earnings results at the end of April. Revenue was $777 million, implying 8% YOY growth. Bottom line grew from $55.3 million to $83.9 million. Adjusted EPS was $1.09, showing 10% YOY increase. Free cash flow for the period was $8.3 million.
CEO Stephan B. Tanda commented:
“We achieved sales growth in the quarter and an adjusted EBITDA margin comparable to the prior year despite several markets being down… We anticipate that demand for our prescription drug and consumer health care devices will remain under pressure compared to the prior year as customers continue to work off existing inventories. We also expect our results to be negatively impacted by the timing of passing through higher resin and other raw material costs.”
Aptar expects EPS for Q2 2021, excluding any restructuring expenses and changes in the fair value of equity investments, to be in the range of 91 cents to 99 cents.
YTD, Aptar stock is up 1.5%. The shares are trading at 33 times consensus forward P/E and 3.12 times sales. Valuation shows ATR stock is not cheap enough to jump in right now. But it is definitely a watchlist candidate. A decline toward the $130 level would improve the margin of safety.
Tempur Sealy International (TPX)
52-week range: $17.21 — $42.60
Dividend yield: 0.70%
Tempur Sealy International is one of the world’s largest bedding providers, boasting around 30% market share in North America. During the pandemic, consumers worldwide have spent more time in their homes and increasingly focused on the role of sleep to ensure better health.
The company announced first quarter results on April 29. Revenue was $1.04 billion, a 26.9% YOY increase over the first quarter of 2020. Adjusted net income was $130.5 million, a YOY increase of 118.6%. Adjusted EPS was 62 cents in Q1 2021 vs. 28 cents in Q1 2020. Cash and equivalents ended the period at $290.5 million.
CEO Scott Thompson stated, “Our strategic initiatives generated record first quarter results, which included triple-digit EPS growth year-over-year. We achieved 27% sales growth, driven by strength across all of our brands. Based on this momentum and the improving retail environment, we are raising our full-year 2021 guidance.”
Tempur Sealy additionally raised its financial guidance for 2021. For the full year, the company currently expects net sales growth to exceed 20% with adjusted EPS between $2.50 and $2.70. Over the past several quarters, investors have been pleased with growing margins and cash flow.
TPX stock is up over 45% YTD and saw a record high in recent days. Forward P/E and current P/S ratios of 14.43 and 2.12, respectively. Potential investors could consider buying the dips and rest easy.
Pacer US Export Leaders ETF (PEXL)
52-Week Range: $26.45 — $41.55
Dividend Yield: 0.46%
Expense Ratio: 0.60% per year
Our next choice is an exchange-traded fund, the Pacer US Export Leaders ETF. It provides exposure to large- and mid-capitalization (cap) U.S. stocks with high foreign sales and demonstrate high free cash flow growth. The fund is rebalanced quarterly and holds 101 securities, which are equally weighted.
PEXL started trading in July 2018 and tracks the S&P 900 Index. In terms of sector allocations, most holdings are in Information Technology (41%), followed by Industrials (14.8%), Health Care (14.1%), Materials (10.6%) and Communication Services (6%).
The largest ten holdings constitute around 10.6% of net assets, which total over $2 million. In other words, this is a small fund.
The top companies in the fund include the electric vehicles (EV) and renewable energy products manufacturer Tesla (NASDAQ:TSLA), subscription streaming entertainment service provider Netflix (NASDAQ:NFLX), scientific instruments and diagnostics consumables provider Thermo Fisher Scientific (NYSE:TMO), and digital behemoth Alphabet (NASDAQ:GOOG,GOOGL).
So far this year, the fund has returned over 14.5%. Many of the names in PEXL should continue to do perform well in the coming quarters. Investors could consider buying in below $40.
52-week range: $165.72 — $252.67
Dividend yield: 0.63%
San Diego, California-based ResMed is one of the largest global respiratory medical devices companies. It primarily supplies flow generators, masks and accessories for the treatment of sleep apnea, chronic obstructive pulmonary disease (COPD) and other chronic diseases. During the pandemic, it has been providing ventilators for patients.
For financial reporting, ResMed’s fiscal year ends on June 30th. At the end of April the company announced its Q3 2021 figures. Revenue remained flat at $768.8 million. Non-GAAP net income was also almost flat at $190.4 million. Non-GAAP diluted EPS came at $1.30 for the quarter, while the company ended Q3 2021 with $230.6 million cash.
On the results, CEO Mick Farrell stated, “Excluding the COVID-19 revenue from the March 2020 quarter, we achieved positive revenue growth on both a headline and constant currency basis.” The company expects low single digit sequential growth over Q3 2021 revenue.
In recent quarters, investors have been pleased by EPS and margin growth. RMD shares are up over 17% so far in 2021 and hit an all-time high in recent days. The stock is trading at 46.51 times its consensus forward P/E and 11.73 times sales. A potential decline toward the $240 level would improve the margin of safety.
Standard Motor Products (SMP)
52-week range: $37.65 — $55.29
Dividend yield: 2.29%
Long Island, New York-headquartered Standard Motor Products manufactures replacement parts for motor vehicles. It focuses on the heavy duty, industrial equipment and original equipment service markets. Over the past year, the pandemic put pressure on the aftermarket auto repair industry.
In early May, Standard Motor Products released financial figures for Q1. Net sales rose from $254.3 million to $276.6 million, YOY growth of 8.7%. Non-Net earnings increased from $8.6 million to $21 million YOY and the company ended the quarter with $17 million cash.
CEO Eric Sills stated, “The result was an all-time record in first quarter earnings, with non-GAAP diluted EPS from continuing operations more than doubling, from 43 cents in 2020 to 97 cents.”
So far in the year SMP stock is up over 7%. Forward P/E and P/S ratios stand at 13.67 and 0.84. Interested investors could consider buying the dips in this leading replacement parts provider.
Vanguard S&P Small-Cap 600 Growth ETF (VIOG)
52-week range: $141.03 — $232.26
Dividend Yield: 0.57%
Expense ratio: 0.15% per year
Our final choice is another ETF, namely the Vanguard S&P Small-Cap 600 Growth ETF. It invests in a range of growth stocks in the S&P SmallCap 600 index. The fund began trading in Sept. 2010 and currently has $574 million under management.
In terms of sectoral weighting, information technology (IT) has the highest allocation with 18.3%, followed by industrials (17.9%), health care (17.1%), and financials 10%. VIOG currently has 333 holdings, and about 11% of the fund’s assets are in the top ten businesses..
Footwear manufacturer Crocks (NASDAQ:CROX), cancer genetics diagnostic testing specialist NeoGenomics (NASDAQ:NEO), business analytics software group Omnicell (NASDAQ:OMCL), video game retailer and widely-followed meme stock GameStop (NYSE:GME) and trucking company Saia (NASDAQ:SAIA) lead the fund’s holdings.
YTD, VIOG has returned close to 12%. Trailing P/E and P/B ratios are 21.5 and 3.43, respectively. Wall Street concurs that over long periods, small-stock growth portfolios show robust returns. Therefore interested investors could buy the dips in VIOG.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.