The U.S. market is on an uptrend, continuing the curve that started in 2014. Resultantly, the markets are hitting highs not spotted in over a decade. While the Nasdaq Composite Index touched the highest level this March in the last 15 years, Dow and S&P 500 are setting new records this year.
This is a great time to indulge in growth stocks as they ensure outsized returns in a trending market.
The investment universe has a plethora of investing styles, among which growth investing offers one of the fastest ways of compounding wealth. This particular style of investing keeps an eye on picking a stock that has positive signs of proliferating earnings. These stocks typically have high price-to-earnings (P/E) and price-to-book (P/B) ratios as they offer attractive capital appreciation for which investors pay a premium price.
Picking the correct growth stocks from so many options could be a daunting task. However, with the assistance of our new style score system, one can locate stocks that have a solid growth potential.
Our Growth Style Score condenses all the essential metrics from the company’s financial statements to get a true sense of the quality and sustainability of its growth. Our research shows that stocks with Growth Style Scores of ‘A’ or ‘B’ when combined Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) offer the best investment opportunities in the growth investing space.
For finding the best growth picks, we first short listed stocks that have a Zacks Rank #1 or #2 and carry a Growth Style Score of ‘A’ or ‘B’. Then we selected those with earnings per share (EPS) growth of more than 100% and cash flow growth of more than 10%. Finally, we zeroed in on three stocks that also have a return of equity (ROE) above 5%.
Here are the three stocks:
pSivida Corp. PSDV
pSivida is a developer of miniaturized, sustained-release drug delivery products. The company develops its products based on its Durasert and Tethadur drug delivery technologies
This Zacks Rank #2 stock has an expected EPS growth rate of 151.02%. The industry average of just 5.38% is no comparison at all. pSivida is currently seeing cash flow growth of 14.24% and it has a Growth Style Score of A.
pSivida also has an impressive ROE of 40.81%. The stock has seen a 13.6% revision in estimates to 25 cents per share for this year’s earnings over the past 60 days.
General Finance Corporation GFN
General Finance Corporation has subsidiaries in mobile storage, liquid containment and modular space ("portable services") industries.
This Pasadena, CA-based company has a projected EPS growth rate of 153.33%, as compared to a meager industry average of 13.04%. Its current cash flow growth is pegged at 31.38% and it has an ROE of 6.64%.
Moreover, this Zacks Rank #2 stock has seen its current year estimates surge 35.7% over the last 60 days to 38 cents. General Finance currently has a Growth Style Score of B.
Office Depot, Inc. ODP
The company is engaged in providing office products and services solution for all workplaces. Boca Raton, FL based Office Depot could be another great growth stock as it has a projected EPS growth rate of 111.98%, crushing the industry average which calls for EPS growth of just 12.62% in comparison.
Office Depot’s cash flow growth of 148.55% offers no less growth potential. A positive figure here indicates that cash is flowing into the business and the firm will have sufficient cash at its disposal to pursue growth ventures. The company also has a decent ROE of 6.6%
Adding to the positives, this Zacks Rank #2 stock witnessed a 4.4% upward revision in estimates to 47 cents for its current year earnings over the last two months. Office Depot currently has a Growth Style Score of A.
Conclusion
The last few years saw money being poured into the stock market as the near-zero short-term interest rates offered an attractive investment in this area compared to other asset classes. Following the U.S. job report that came in below expectations, speculations are afloat that the Federal Reserve will rethink its rate increase decision. Markets reacted positively as this eases the concern of an immediate hike in fed rates.
Growth stocks could be big winners at this point of time when the markets are raring for a rally. The three stocks that we suggested have a beta of more than 1, which means that they have the ability to grow at a pace faster than the market. But they also carry a risk of loss greater than the market. But then, as the saying goes there is no gain without risk.
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